Contracts for Difference (Miscellaneous Amendments) Regulations 2022

Baroness McIntosh of Pickering Excerpts

Tuesday 17th May 2022 Grand Committee

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

My Lords, these regulations were laid before the House on 31 March 2022.

The recent British Energy Security Strategy spoke of ensuring a new lease of life for the North Sea in low-carbon technologies such as carbon capture. The Net Zero Strategy set out the Government’s ambition to have a carbon capture and storage sector with an operational capability of capturing 20 megatonnes to 30 megatonnes of carbon dioxide per year by 2030. In its Sixth Carbon Budget, the Climate Change Committee re-emphasises the crucial role that carbon capture and storage—CCS—will play in reducing emissions from industrial processes, combustion, electricity generation and hydrogen production. The energy White Paper 2020, set out the Government’s view of how to achieve a low-cost, low-carbon electricity system.

While we cannot predict today exactly what the generating mix will look like in 2050, we can be confident that renewables will play a key role. However, in order to decarbonise while maintaining security of supply and keeping costs low, we will need to balance renewable variability against demand. To do this, we will need system flexibility, energy storage, and non-weather dependent low-carbon generation. We consider that thermal power with carbon capture and storage is one technology that can provide this at scale. In the subsequent Net Zero Strategy, the Government committed to using consumer subsidies to support construction of at least one power CCS plant to be operational by the mid-2020s.

In the round, these strategies illustrate the critical importance of carbon capture and storage technologies. To enable this, we have developed the dispatchable power agreement. This is a carbon capture and storage subsidy for gas-fired projects connected to a full carbon capture and storage system that are intended to provide low-carbon flexible power generation. The dispatchable power agreement contract is a bespoke contract based on the standard terms of the contracts for difference used in the allocation rounds; it has been amended in consideration of specific amendments to ensure suitability for power carbon capture and storage. The dispatchable power agreement will be a key tool used to encourage low-carbon electricity generation by bringing forward investment in power carbon capture and storage plants and to incentivise such facilities to operate in a manner which benefits the UK energy market. It is commonly referred to as a business model and is intended to implement this commitment.

The regulations were laid before the House on 31 March. The amendments in this instrument are needed to ensure that existing regulations under the Energy Act 2013 can be used to award dispatchable power agreements. These regulations are used to award contracts for difference currently. The proposed amendments are not intended to impact the standard contract for difference for the current allocation round or future allocation processes of the standard contract for difference.

This statutory instrument introduces three changes to the existing regulations, which are: the Contracts for Difference (Allocation) Regulations 2014, which we shall refer to, for the purposes of ease, as the “allocation regulations”; and the Contracts for Difference (Definition of Eligible Generator) Regulations 2014, which we shall refer to, for the purposes of ease, as the “eligible generator regulations”.

This statutory instrument, first, amends the eligible generator regulations, specifically the definition of an eligible generator. Currently, generating stations connected to a complete carbon capture storage system are eligible generators. The change allows for retrofitted carbon capture storage projects to constitute an eligible generator. It does this by widening the criteria for carrying out a generating activity to include altering an existing generating station into a generating station connected to a complete carbon capture storage system. By making this change, retrofitted power carbon capture storage plants can be eligible for the dispatchable power agreement.

This statutory instrument, secondly, amends the allocation regulations. Currently, the allocation regulations include a specific reference to contracts granted pursuant to Section 10 of the Energy Act 2013. The regulations refer to such contracts and suggest that they will include a “strike price” and “reference price” within their payment mechanism. The amendment retains the references to a strike price and a reference price, but by amending the language to state that a strike price and reference price “may be included”. An alternative payment mechanism which does not use these terms could also be used. This ensures that contracts which do not specify a strike price and a reference price can therefore be contemplated. This means there will not be a requirement for these specific terms to be used in a dispatchable power agreement and the alternative payment mechanism can be used, which will allow for the alternative payment mechanism under the dispatchable power agreement. Further details of this payment mechanism have been set out in the recent dispatchable power agreement publication.

The third change that this statutory instrument makes is to amend the eligible generator regulations. Currently, an eligible generator is defined as connected to a “complete CCS system”, which means

“a system of plant and facilities for … (a) capturing some or all of the carbon dioxide (or any substance consisting primarily of carbon dioxide) that is produced by, or in connection with, the generation of electricity by a generating station; … (b) transporting the carbon dioxide (or substance) captured; and … (c) disposing of it by way of permanent storage”.

The amendment proposes to add into sub-paragraph (b), after “transporting”, the words

“including by way of non-pipeline transport methods”,

to contemplate potential alternative transport methods. The consultation responses noted that it would be helpful to clarify that transport could be carried out by way of non-pipeline method. The proposed amendments in this statutory instrument intend to facilitate non-pipeline transport generally in the regulations, as has been set out. The proposed changes to the eligible generator regulations aim to be neutral regarding the different possible configurations of non-pipeline transport and will not exclude any particular form of non-pipeline transport.

In accordance with the Energy Act 2013, a consultation was carried out from July to September 2021, and the response was provided by the Government in March of this year on GOV.UK. We received 16 responses to the consultation from businesses and organisations, some directly involved in power CCS, and from trade associations, non-governmental organisations and other interested parties. The responses were largely positive in favour of the proposed changes but respondents requested some clarifications, which we have responded to in the published government response. These proposals will enable the award of the dispatchable power agreement, but they do not create any new commitment to offer support.

In conclusion, the measures introduced by the SI are aligned with the Government’s carbon budget and net-zero targets and help to enable power carbon capture and storage projects. I commend these regulations to the Committee, and I beg to move.

[Baroness McIntosh of Pickering (Con)]

My Lords, I thank my noble friend and congratulate him on presenting the regulations to us this afternoon. He will be aware that there were great hopes, particularly off the Yorkshire and Humber coast, that facilities had been identified which would be appropriate for exactly the type of venture that is set out in the regulations before us today. So I welcome the regulations, but is my noble friend able to confirm that he believes that the take-up on the proposals for carbon capture and storage will increase and multiply because of the content of the regulations before us this afternoon?

Separately—he might think I am going off-piste here, and I probably am—can my noble friend explain something? If I understood it correctly, one of the difficulties we have with wholesale gas prices impacting the UK as they have—though perhaps not as badly as in other European countries, which rely heavily on Russia—is that we have gas storage of only 60 days, which is about two months. That strikes me as being terribly low. I do not suppose that that would benefit from these proposals, but I would like to understand why, historically, we seem to have a lower storage capacity than other European countries. Is that something that the Government might be minded to look at that?

The only other point I wish to make, which I am sure my noble friend is very familiar with, is the point raised in the 37th report of the Secondary Legislation Scrutiny Committee, which I find myself in some sympathy with. Even though I am a lawyer by training and spent about nine months of my training going through all the scientific evidence—produced mostly by scientists rather than lawyers—on whether fluoride was a carcinogen, I find that even these small regulations before us this afternoon are full of jargon. There is a request in paragraphs 22 and 23 of the 37th report that the Explanatory Memorandum perhaps be revised to enable us humble Members of the House to understand better its contents. Can my noble friend simply confirm that that is the case? If that could happen in advance next time so that, when we see the Explanatory Memorandum we are better able to follow it, it would be very welcome indeed.

I thank my noble friend and his department for all they are doing at this particularly difficult time, and I give a warm welcome to the regulations this afternoon.

[Lord Teverson (LD)]

My Lords, in fact we should congratulate the Minister, because the officials have rewritten the Explanatory Memorandum. There are two versions of it on the website, and one of them explains all the acronyms in a footnote. Strangely enough, I knew all the ones they listed, but I was unclear about a couple in the rest of the report. It is not there—it is on the website.

First, although the Climate Change Committee and the Government are right that carbon capture and storage technology is needed, exactly as the Minister said, we also need a slightly cautionary note about it. In a way, certainly in terms of power generation, it is a far less efficient way of producing power; it takes energy to produce it, as we are all aware. An opportunity to produce power without CCS is obviously better, although I entirely understand that industrial processes are different.

The other thing I am always cautious about—I know that most of the basis is putting it back under the sea or wherever—is the element of putting pollution back under the carpet to a degree. I am not saying that it is unsafe or anything, but it is always better if we can avoid that.

On the propositions here, having read the Explanatory Memorandum, I understand that the fact that this can include retrofitted power stations is unclear. Clearly, it is much better in all sorts of ways to have retrofitted ones than have to build new ones, although I suspect whether that is economically possible or right depends on whether the particular gas facility—I presume it would be gas; I suppose it could technically be coal—has been future-proofed in terms of utilisation. That is good.

What really concerns me is that the SI says you do not have to use a pipeline. The amount of carbon dioxide coming out of a power generation station of any size will be quite substantial; the thought of trucks in urban areas moving carbon dioxide, maybe over many miles, across the surface outside a pipeline seems quite a challenge in terms of noise, congestion and carbon footprint—depending on how that transport works. I would be very interested to understand the logic behind that from the Minister. As I understand it, this will primarily be in clusters, which it seems to me will always need to be pipeline-based to get the carbon dioxide out to a storage facility, whether it is undersea or wherever. I would be very interested in the Government’s view of why this is necessary, what they expect and whether there will be any limits on how this transportation takes place. Clearly, pipelines must be absolutely right for this rather than some sort of other surface transport.

The SI also goes through the payment mechanisms. I am interested in the Explanatory Memorandum here, particularly on the availability payment. Paragraph 7.13 says that this is a payment for availability to dispatch electricity, and performance. I thought we had a thing called the capacity market to do that. Why do we need this? Does it not compete with the capacity market? I do not understand what the difference is or why we are inventing another load of systems for this. On the variable payment, again, would a strike price not work better? I understand that those options are still available, despite these amendments.

Then we come to the merit order, which says “We will compensate the price to make sure that we have non-carbon intensive gas stations producing electricity ahead of conventional ones”, which is clearly absolutely right for decarbonisation, but it has a cost. The economic analysis in the paper says there is no cost to the private sector, which I guess is right, but I would like to understand what the size of the cost to the taxpayer of all this is expected to be.

Lastly, I would be interested in the government estimate of the extra cost of producing CCS electricity through a gas station compared to conventional generation. The department must have done this to work out roughly what the public expenditure requirements might be.

Queen’s Speech

Baroness McIntosh of Pickering Excerpts

Monday 16th May 2022 Lords Chamber

[Baroness McIntosh of Pickering (Con)]

My Lords, I congratulate the right reverend Prelate on an excellent maiden speech. I spent five happy years as the Member of the European Parliament for Essex North and Suffolk South, and I hope we can work together on rural issues, not least the threat of closures of rural churches at this time.

It is indeed a special occasion to contribute to the humble Address in Her Majesty’s Platinum Jubilee year. I will focus on the rural economy, food, farming and the role of market towns. Rural dwellers rely on access to schools, hospitals and affordable homes, with good connectivity for broadband, wi-fi and mobile phones, all of which can be immensely challenging, so anything to grow and strengthen the rural economy would be very welcome indeed.

Farming lies at the heart of the rural economy. As direct payments are phased out, there will inevitably be hardship, especially for tenant farmers who may not be able to claim under the new schemes. The gracious Speech said that

“Ministers will encourage agricultural and scientific innovation at home.”

I hope this will benefit hill farmers, small family farms and, most especially, tenant farmers.

There is effectively a ban on the export of animals at the moment. I understand that it is impossible to export farm animals, even for breeding purposes, as there are simply no facilities to receive and process them at any continental port. If that is indeed the case, will my noble friend investigate and see whether the trade in farm animals for breeding purposes can resume as soon as practically possible?

The Government are to continue to champion international trade, and I wish them extremely well in that endeavour. However, I am hesitant about the Government renegotiating the commitments freely entered into in the Northern Ireland protocol which were key to securing the trade and co-operation agreement with the European Union. Will my noble friend today give a commitment that in any negotiations for new trade deals the highest possible standards of animal health and welfare will be sought for imported products, the same as for domestic production?

There is a severe need for warm, safe and affordable homes. I refer to my interests in the register. I am president of National Energy Action, and I applaud its campaign for everyone to have a safe and warm home. I am also a member of the Church of England’s rural affairs group. It is essential that the Government endeavour to insulate better, make homes more energy efficient and ensure that homes and businesses are more resilient to floods. The energy security Bill will provide an opportunity to do so. There are many people currently living in food poverty, fuel poverty and water poverty, particularly due to the spike in global wholesale prices, compounded by limited gas storage of up to only 60 days in the UK, which seems to be uniquely low among European countries. That is aggravated by the war in Ukraine impacting on fuel and food prices as well as on the supply chain for food and animal feed.

The energy security Bill should also look at the structure of the energy market, where I understand that consumers have paid £2.6 billion for the cost of failure of energy companies in the past year alone. With the green levy adding 20% to electricity and gas bills and the ever-increasing rise in the price cap, which I understand could go up to £2,800 by October this year, with a further increase in January, this is simply not sustainable. Wind farms onshore and offshore will obviously form part of our renewable energy supply, but they rely on pylons and overhead line transmission. Not only are they ugly and intrusive, but they lose 30% of their energy in transmission, so they are extremely wasteful too. We need to do much more work on offshore wind farms, which can be immensely damaging to wildlife at sea, to establish the impact on sea mammals.

Those living in the countryside will welcome the commitment in the gracious Speech that the planning system will be reformed to give residents more involvement in local development. Undergrounding overhead wires and heat and electricity generators producing energy from waste will lead to a better understanding and a warmer local welcome for such facilities, as has been seen in many European countries. Can my noble friend say what has happened to the millions raised by the unexpected windfall from VAT on fuel, which others have mentioned? We look forward to another busy year.

European Research Council

Baroness McIntosh of Pickering Excerpts

Wednesday 27th April 2022 Lords Chamber

[Baroness McIntosh of Pickering (Con)]

My Lords, I thank my noble friend for making good the shortfall if we are not remaining part of the Horizon programme. But does he accept that universities have benefited from match funding from other universities in other member states and that that is going to be lost? Do the Government intend to replace that with other establishments from outside the European Union?

[Lord Callanan (Con)]

I am afraid I do not understand the point my noble friend is making; there is no shortfall as such. The UK pays its fair share for our participation in Horizon and has always done so, and a similar amount of money will be made available in the future if association proves impossible.

Energy Security Strategy

Baroness McIntosh of Pickering Excerpts

Wednesday 27th April 2022 Lords Chamber

[Lord Callanan (Con)]

I know that the noble Baroness is a passionate supporter of onshore wind. She brought her Bill on it recently and we debated the subject at great length. I know she will continue to probe and push me, as is correct, on this subject about which she feels so strongly. The Government are clear: we want to see an expansion of onshore wind and we would like to see the communities that host this new Bill’s infrastructure benefit from developments in their areas. We hope that will drive greater levels of community consent, which will allow more of the procedures to come forward. I will write to the noble Baroness with details of repowering existing onshore wind infrastructure.

[Baroness McIntosh of Pickering (Con)]

Will my noble friend look closely at the possibilities for energy from waste and distance warming that are tried and tested and work so successfully, not just in this country but across most of Europe? Will he also ensure that many of these projects could be fed into the local grid rather than into the national grid, as happens currently?

[Lord Callanan (Con)]

Energy from waste is an important topic, both in generating electricity but also for heat networks. I have visited a number of very innovative energy from waste plants; there is one in particular in east London that is extremely successful and powers and heats thousands of local homes in the community. By the very nature of a heat network, under an energy from waste plant, it does of course benefit and help the local community.

COP 26

Baroness McIntosh of Pickering Excerpts

Monday 28th March 2022 Lords Chamber

[Lord Callanan (Con)]

I agree with the noble Baroness; it is important that we get a green taxonomy right, and the products and services that will form part of it. We are working hard towards getting it finalised in the UK. I cannot give her a precise timescale at the moment, but we are determined to be a world leader in green finance.

[Baroness McIntosh of Pickering (Con)]

My Lords, can my noble friend tell us how much of the palm oil we import comes from the process of deforestation in countries such as Brazil? Should we not be aiming to reduce the amount of palm oil we import from these sources?

[Lord Callanan (Con)]

Deforestation is clearly a problem. I suspect most of the palm oil we import does not come from Brazil. It is more likely to be from Malaysia or Indonesia, as I think they are our largest sources. Obviously, it needs to be sustainable. Palm oil can be a very useful product—it can form foodstuffs and be part of a whole range of consumer goods, but we must make sure it comes from sustainable sources.

Trade Talks with India, Greenland and Israel

Baroness McIntosh of Pickering Excerpts

Wednesday 9th March 2022 Lords Chamber

[Lord Grimstone of Boscobel (Con)]

My Lords, the Government and I have made clear on a number of occasions that we will never enter into a free trade agreement which in any way diminishes the high standards of food in this country.

[Baroness McIntosh of Pickering (Con)]

My Lords, I congratulate my noble friend on opening negotiations with Greenland, and I declare my interest as someone of half-Danish heritage and co-chair of the All-Party Parliamentary Group on Denmark. How will this negotiation differ from the arrangements we had through our membership of the EU? Will he join with me in recognising the importance of Greenland, with its rich fisheries, oil and minerals, and its lithium deposits?

[Lord Grimstone of Boscobel (Con)]

My Lords, my noble friend always makes a good point, and the negotiations with Greenland provide the opportunity to recognise the UK’s broader bilateral relationship with it. Greenland is an important strategic partner for us, and this agreement will allow us to identify areas for future co-operation, including on UK priorities such as science, research, sustainability, gender equality, critical minerals, a stable Arctic and climate change.

Lithium Ion Batteries: Fire Safety Standards

Baroness McIntosh of Pickering Excerpts

Thursday 3rd March 2022 Lords Chamber

[Lord Callanan (Con)]

The noble Lord highlights an important point. I am devastated that our EN numbers do not match, but I would be happy to compare them afterwards if the noble Lord wishes. It is vital that we carry out checks on illegally imported products; the fire that he referred to was caused by something not in conformity with UK standards. We carry out checks on a risk-based approach where required.

[Baroness McIntosh of Pickering (Con)]

My Lords, does the Minister not agree that if these e-scooters are privately owned, they are illegal, so they should not be taken on to the train in the first place?

[Lord Callanan (Con)]

No, I do not. If they are privately owned, there is a prohibition on riding them on public highways, but there is nothing wrong with taking them on trains if permitted by the train operators.

Revised Energy National Policy Statements

Baroness McIntosh of Pickering Excerpts

Tuesday 22nd February 2022 Grand Committee

[Baroness McIntosh of Pickering (Con)]

My Lords, I am delighted to follow the noble Baroness. I refer to my interests as declared in the register: I am the honorary president of the advisory board of National Energy Action and, perhaps of more relevance, I was delighted to undertake a placement with BP as part of the Industry and Parliament Trust and had the privilege of visiting a North Sea oilfield.

I welcome today’s debate on the documents and thank my noble friend the Minister for bringing them to us. I want to ask a series of questions. As there are a number of them, I will quite understand if my noble friend might find it easier to respond in writing.

Following the critical floods of 2007, the Pitt review concluded that there should be an audit of critical infrastructure, most of which seemed to be energy substations that were at serious risk of flooding. How regularly does such an audit take place and when was the last one performed?

In the principal policy statement before us today, EN-1, there is welcome reference to climate change adaptation. Is there any reason—perhaps I have missed it—why mitigation has been left out? Many of the references that are made would cover mitigation as well as adaptation. I welcome in particular paragraph 4.9.11, which states:

“If any adaptation measures give rise to consequential impacts (for example on flooding, water resources or coastal change) the Secretary of State should consider the impact of the latter in relation to the application as a whole and the impacts guidance set out in Part 5 of this NPS.”


I think that, somehow, the Minister is secretly aware of my fixation and passion for SUDS, or sustainable urban drainage; I am also an honorary vice-president of the Association of Drainage Authorities, which apply to the lower drainage areas, of which we have plenty in North Yorkshire. I am therefore delighted that, on pages 93 and 95, there is reference to the reduction of flood risk and, in particular, the “hierarchy of drainage options” in relation to sustainable drainage systems and other green infrastructure. That is very welcome, and I hope that my noble friend will be able to expand on those points.

My background gives me a real concern about how energy is generated, transmitted and distributed in rural areas. My noble friend Lady Neville-Rolfe had a similar experience to my own, where a family home was without electricity for six days and included a particularly elderly population who had no such luck as to have a generator. That was during Storm Arwen, and we have seen many others since then. Rural areas are often off grid and face particular challenges in receiving fuel. They tend to be dependent on LPG, solid fuel and oil to heat homes. As my noble friend the Minister will be aware, these are not covered by the price cap and those areas face an even higher increase in costs, particularly because of activities this week in Ukraine—today there has been an additional spike. To what extent will the NPS reflect this and look to rural-proof any nationally significant infrastructure that is envisaged under the proposals before us today?

I for one particularly accept and welcome the nuclear energy mix. My noble friend said yesterday in the debate on the Bill that 85% of our UK nuclear capacity is to go out of commission by 2028. If, as I understand it, the national policy statement for nuclear power generation, EN-6, is not part of the package before us today, what would be the timetable for its review, and would it be subject to a further debate here and looked at separately by the BEIS Select Committee in the other place? I think that we are going to be increasingly dependent on nuclear and, obviously, 15% is not going to hack it after 2028.

The noble Lord, Lord Whitty, in his remarks, made reference to hydrogen and heat pumps as two separate issues. I, for one, do not understand how hydrogen will work and what the use of hydrogen will be, but I was particularly relieved that fracking did not happen in north Yorkshire, for the very simple reason that it would not only be difficult to fund but there was no way that the wastewater could be safely taken away and disposed of. Fracking and hydrogen, as I understand it, will have remarkably large uses of water. I certainly welcome a greater understanding of how we would deal with that.

I leave the Minister with the thought that we need a coherent, well-thought-out and consistent policy, and I for one would argue that we should not penalise those who live in rural areas. I would be interested to learn how we are going to rural-proof any energy policy, particularly regarding significant national infrastructure as it comes out.

The noble Lord, Lord Whitty, also referred to district heating, which is closely linked to energy from waste. I do not understand why we are not using more energy from waste or, indeed, combined heat and power. I remember going to visit SELCHP, the south-east London combined heat and power scheme, before it actually became the combined heat and power scheme. It seems that we solve two problems in one go, if we go down the path of energy from waste and combined heat and power. We are disposing of hard to get rid of rubbish; we want to incinerate it, because we cannot get rid of it in landfill—it is very hard to get rid of. North Yorkshire and I think probably most local authorities are exporting this rubbish to countries such as Holland, where it is burned and goes into the local network. I hope that my noble friend and the department will learn from the Danes and other Scandinavians, as well as the Austrians and Germans, who use this, as my aunt and uncle in Denmark have enjoyed over a period of time, to reduce their heating and hot water costs by feeding the energy from waste into the local grid, so the local community benefits.

I shall say a word on renewables. Under the excellent and skilful chairmanship of the noble Lord, Lord Teverson, we looked at offshore wind farms and received very powerful evidence to show that there are significant threats to sea mammals and sea wildlife through the use of offshore wind, which should be explored before there is a further rollout of offshore wind and arrays, to which the noble Lord, Lord Whitty referred. The most significant thing for rural areas that causes me alarm is that, once the energy generated reaches shore from an offshore wind farm, it has to be transmitted almost entirely by overhead powerlines and pylons. My noble friend and I suffered a loss of electricity, as did thousands more in the two recent storms—and any reduction of transmitting power by overhead powerlines and pylons would be welcome. It is not generally understood that we lose 30% of our electricity through transmitting energy in this way, so it is wasteful, not sustainable, and that must be addressed. I welcome my noble friend’s response as to how we can better transport the energy from offshore wind farms when it reaches shore. I support the call of the noble Lord, Lord Whitty, for limiting the number of onshore connections in that regard.

Like my noble friend Lady Neville-Rolfe, I am a keen supporter of heritage railways, and that is something that my noble friend might like to address in his remarks —whether they will be able to source their coal. I speak as the honorary president of the most-visited tourist venue in north Yorkshire, the North Yorkshire Moors Railway. I hope that my noble friend will ensure that we can continue to enjoy heritage railways sourced by locally produced coal.

In conclusion, I ask my noble friend how he intends to address energy efficiency to stop wasteful transmission, as I described; how to make electricity more sustainable and resilient; how to future-proof the increasing demands and how the Government will meet the additional electricity required to power electric vehicles. In particular, I ask, as have others, how often the Government will review the national energy policy statements and, finally, what plans he has to rural-proof the national policy statements and how we expect the department to do that.

Cost of Living

Baroness McIntosh of Pickering Excerpts

Thursday 3rd February 2022 Grand Committee

[Baroness McIntosh of Pickering (Con)]

My Lords, I am delighted to follow the noble Lord. I declare my interest as president of the advisory board of National Energy Action. I congratulate the noble Lord, Lord Whitty, on securing the debate, but especially on securing it today; it could not have been more timely. I entirely endorse his comments about the role of the regulator, which raises a lot of questions that I will refer to in my short contribution.

I approach this primarily from the perspective of rural areas, such as North Yorkshire, Northumbria, Cumbria, County Durham and many isolated and deeply rural parts of England especially. Residents of rural areas have been particularly hard hit during the energy crisis since wholesale gas prices increased in October. I do not think that this has been sufficiently addressed by my noble friend the Minister, who I welcome to his place today, his department or the Government more generally.

Those who live off the grid in rural areas are not currently covered by the price cap. They have been left to rely on oil, LPG and solid fuels, which are not and will not be covered by the cap. My first question to my noble friend is: what assessment have he and the department made of the impact of rising energy costs on rural dwellers in general?

I am sure that my noble friend and the Committee will accept that there are pockets of deprivation in rural areas, which are often overlooked. There is also the challenge of an increasingly elderly population living in rural areas on fixed incomes, who are particularly challenged by the increasing cost of food, to which the noble Lord, Lord Whitty, referred, and the cost of heating and electricity, which is before us this afternoon. Like others on low income, this winter they are frequently faced with the choice of whether to heat their homes or eat.

There are currently 4.5 million people in fuel poverty and it is generally understood that, come April, another 1.5 million may be pushed into poverty. National Energy Action has costed a number of its proposals, which I ask my noble friend urgently to consider. For what reason could BEIS not adopt those mentioned by the NEA? One is a one-off rebate, or crisis income support, to cover the 4 million low-income households before April. Another is to expand the GB-wide warm home discount, to which the noble Lord, Lord Shipley, referred, so that everyone currently eligible will receive the support that they deserve. Another is to provide support for an additional 2.4 million low-income working-age households across the UK by expanding the winter fuel payment. Another is to accelerate the repayment of utility debts across the UK and, by next winter, to supplement these measures with deeper price protection or a new mandatory social tariff to help those in the cohort of low-income energy users to make their energy more affordable.

The noble Lord, Lord Shipley, and others have referred to a windfall to the Treasury in addition to the price increases since October, yielding an estimated £100 million extra in VAT through domestic electricity and gas bills. Also, the doubling of households bills from April to £2,000, as was referred to, will apparently yield an extra £77 million for the Treasury. There is also the increase in respect of UK ETS permits, yielding an additional £3 billion.

The Treasury, for some reason, has not sought immediately to recover the £4.3 billion in fraudulent Covid loans identified so accurately by my noble friend Lord Agnew. I pay tribute to his work in the Treasury in this regard. I understand that up to £30 billion more of such money has been identified across all departments. The noble Baroness, Lady Crawley, and I served at the same time in the European Parliament, when the level of EU fraud was a source of some embarrassment. It was an appalling disgrace, as we were told by our British colleagues in the Westminster Parliament. It was, but so is this national ongoing fraud. The money must be recovered; it would add to the funds available to the Treasury in order to finance what National Energy Action is asking it to do.

Also, climate change presents greater challenges. We have seen three catastrophic power failures already, not helped by the fact that 30% of energy is lost through overhead line transmission. That has to be addressed.

Finally, I turn to the role of the regulator. Clearly, competition is not working in this sector as it was intended. Recent failures of energy companies mean that the cost has been passed on to the customer. An additional 25% of our energy bills is going on green levies. Why is the energy sector alone allowed to fund its increases through the customer, whereas others such as the water sector have to go to the market? I urge my noble friend to address these issues as urgently as he can.

Energy Costs

Baroness McIntosh of Pickering Excerpts

Thursday 6th January 2022 Lords Chamber

Asked by

[Baroness McIntosh of Pickering]

To ask Her Majesty’s Government what assessment they have made of the effect of rising energy costs on households, and in particular (1) pensioners, and (2) those on low incomes.

[Baroness McIntosh of Pickering (Con)]

My Lords, I am delighted to have secured this important debate. I look forward to all contributions from all sides of the House. I declare my interest as the honorary president of National Energy Action.

At the outset, I want to set out the scale of the problem. All those currently caught in fuel poverty are those who live on the lowest incomes: that is, below the poverty line and on 60% of the average median income. National Energy Action estimates that 4 million households already live in fuel poverty, and that was before the energy increases in October last year. It is estimated that those increases have put a further 500,000 households into fuel poverty. Moreover, a further 1.5 million people could be forced into fuel poverty when the price cap is removed in April if the rises are as bad as is feared.

I thank the NEA for its briefing for today and indeed the House of Lords Library for its helpful and comprehensive briefing—it is immensely helpful. By April this year, there could potentially be 6 million households living in fuel poverty in the United Kingdom. Many of those will live in rural areas off the main energy grid, dependent on fuels such as oil, liquid petroleum gas and solid fuels, which are not subject to the price cap. As the Institute for Fiscal Studies and other organisations have said, real incomes are stalling yet inflation and prices are rising for food and other essentials. We also know that taxation will increase from April next year.

What is the background to this debate? Wholesale energy prices recorded a record increase in the run-up to December last year, reaching an all-time high and about nine times higher than the year before. Crucially, there is a lack of energy storage in the UK; I understand that we have on average only 60 days of gas storage as opposed to three months in Germany and other European countries. We in the UK import 50% of our gas, so we are extremely sensitive to price rises on the global gas market. Around 85% of UK homes use gas central heating. The cap on energy prices is being lifted on 1 April 2022. I look forward very much to hearing from the Minister in responding to the debate; I understand that there is breaking news that the Government are intending to take action well before the April deadline. I also welcome the fact that Ofgem is currently consulting on the length of term of reviews on the price cap.

Currently, 25% of household electricity bills will fund renewable energy costs, yet energy generation should rightly be funded either out of general taxation or, perhaps more appropriately, by raising capital in the market in the normal way. What is unacceptable is that, to date, the price of energy has increased for domestic consumers by £235 since the previous October. That is compounded by the fact that the cost of energy company failures impacts on consumers too. Since August 2021, 26 energy suppliers have gone out of business. Ofgem estimates that UK households will have to pay between £80 and £85 extra on their energy bills in 2022-23 as a result of these recent energy supplier failures. Others, such as the banking group Investec, put this as a potential £120 per household. Given that, as I mentioned above, certain fuels, especially those used predominantly in rural areas, are not covered by the price cap, this is a very real problem indeed.

What action would I like the Government to take? I welcome the fact that current schemes, such as the warm home discount and energy company obligations, help in so far as they do. They offer a lifeline targeted at reducing energy costs, especially for those on low incomes and vulnerable households. These schemes could be increased in value and their focus could be extended. That is probably the easiest option and one bringing the best and swiftest results to the fuel poor. National Energy Action is also looking to pioneer a new social tariff, which I imagine would operate in a similar way to the social tariff in the water sector. It seems incredible that there is no social tariff as yet in the energy sector, and I urge the Government to look favourably on these proposals.

Equally, the Government could suspend green levies on energy and electricity bills, and I urge them to do so. They are currently used to fund renewable obligations and feed-in tariffs. In my view, in my view, it is inappropriate to ask those living in fuel poverty to pay for the next generation of renewable energy. It would be more appropriate for energy companies to raise the money for infrastructure costs from the market as other utilities have to do, raising finance in the same way as do water and telecommunication companies. I therefore urge the Government to lift, either temporarily or permanently, green levies on domestic energy bills.

I also propose that the Government consider either a short-term reduction or suspension of VAT on fuel. This would be a Brexit dividend that we have been told we can benefit from, as we were unable to do so previously. However, as we have now left the European Union, we could now do so. This would save households between £90 and £150 on their domestic bills.

I would also look to restructure the market. Every time an energy company fails, it should not be for consumers to pick up the sizeable cost; it should be borne by the market. I also urge the Government to expand winter fuel payments to those 65 or under who qualify for cold weather payments—an easily identifiable group. They could benefit by up to a £300 discount in this way on their energy bill and support an additional 2.4 million people on low income of working-age households. I also urge the Government to accelerate payment of utility debt across the United Kingdom, which would help to alleviate those living in fuel poverty.

I also make a plea that we need to adapt to climate change. We currently lose approximately 30% of electricity through overhead power line transmission. These power lines are vulnerable to extreme weather events such as gales and snowstorms and they are now bigger and heavier and cover longer distances than ever before. We saw in November last year the unfortunate event of a catastrophic power failure in rural parts of the north-east of England, where for six days people had no electricity, hot water or heating. That is unacceptable in modern times.

The recent figures for those living in fuel poverty, as identified by National Energy Action, show that currently the largest numbers of those living with the highest levels of fuel poverty are, surprisingly, 35 to 49 year-olds, followed by 60 to 74 year-olds, then 50 to 59 year-olds and finally, 75 year-olds and older.

I urge the Government to revisit the legal basis for green levies and look anew at competition in the energy sector. I personally oppose fracking, which is neither cost effective nor environmentally sustainable. However, a better option would be to boost energy from waste, particularly where this is done so effectively, such as in North Yorkshire at the Allerton waste facility. I urge that the energy created is put into the local grid, helping those living in areas of low temperatures and often high fuel poverty.

I end with a plea to my noble friend, his department and the Government to pursue the actions which I have identified above: to expand the warm home discount across the whole of Great Britain to cover a further 2 million households; to consider introducing a social tariff; to reduce or cancel VAT on energy bills and scrap the green levies; to support more people through winter fuel payments; and to look carefully at restructuring the energy market. I look forward very much to my noble friend’s response to this debate.