Contracts for Difference (Allocation) (Amendment) Regulations 2015

Debate between Baroness Worthington and Baroness Verma

Thursday 19th March 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, we are today considering an instrument which amends the Contracts for Difference (Allocation) Regulations 2014, which came into force last summer, implementing electricity market reform. The powers to make this secondary legislation are found in the Energy Act 2013.

This reform, as noble Lords will be aware, is designed to encourage the necessary investment in secure low-carbon electricity generation through contracts for difference, or CFDs, which provide long-term price stabilisation to low-carbon plant, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers. In brief, a contract for difference is a private law contract between a low-carbon electricity generator and a Government-owned company that provides the generator with greater certainty and stability of revenues, resulting in lower borrowing costs. This saving is passed on to consumers in the form of lower support costs to low-carbon generators.

As the Committee may be aware, the result of the first CFD allocation round was announced on 26 February. Twenty-seven contracts were offered to projects aiming to deliver 2 gigawatts of low-carbon energy capacity across England, Scotland and Wales. Together, these projects have the ability to power 1.4 million homes. The competitive CFD auction has successfully driven down the costs to consumers, resulting in the capacity costing up to £110 million per year less than it would have in the absence of competition.

Before we commence the debate, I will briefly describe the amending instrument. The draft Contracts for Difference (Allocation) (Amendment) Regulations 2015 amend the instrument that came into force last summer which governs the way in which applicants to the CFD are treated for the purposes of contract allocation. These amendment regulations, which the industry has been consulted on, implement a non-delivery disincentive to the CFD scheme. The amending provisions are aimed at preventing gaming and speculative bidding behaviour in CFD allocation, ensuring that only projects that intend to deliver and are capable of it participate in CFD allocation rounds.

The amending instrument sets out a consequence in relation to the site of the main generating structures of a generating station where either an applicant has been offered a CFD and fails to sign or a CFD was entered into but was terminated on a date less than 13 months from the date when the CFD notification in respect of that CFD was given. Applications in respect of such a site will be temporarily excluded for a period of 13 months from the date on which the relevant CFD notification was given. Unless an exemption applies, an applicant will not be able to make a CFD application in respect of the same site during that temporary exclusion period. This will help to ensure that only legitimate projects which are able to deliver low-carbon energy capacity participate in a CFD allocation round.

The amending regulations also set out a process for granting exemptions. This process is to be administered by the Secretary of State in accordance with the time periods set out in the regulations. The amending regulations also set out the grounds on which an exemption to the temporary site exclusion may be available. These are as follows—first, when an applicant can demonstrate that an application is in respect of a site that is not materially the same as the site to which a temporary site exclusion applies. Materiality limits are specified in the amending legislation. Secondly, it is when an applicant can demonstrate that it held a relevant property interest in the site prior to 14 October 2014, the date when stakeholders should have been aware of the detail of the NDD policy. This ground also requires that the applicant is not, and is not corporately associated with, the person who caused the temporary exclusion to apply by not signing or having their CFD terminated. Thirdly, it is when an applicant can demonstrate that it agreed a relevant property interest with a landowner prior to 14 October 2014. This ground also requires that the applicant is not, and is not corporately associated with, the person who caused the temporary exclusion to apply by not signing or having their CFD terminated. Fourthly, in relation to a non-signature case only, an exemption may apply when an applicant can demonstrate that relevant court proceedings, as defined in the instrument, are ongoing at the time of signature and the applicant’s ability to comply with the terms of the CFD would have been materially adversely affected. Relevant court proceedings include a judicial or statutory review of a planning consent applicable to the relevant project. The final ground on which an exemption may apply, which applies only to a non-delivery case, is when an generator’s CFD contract is terminated as a consequence of a qualifying change in law or relevant construction event, as defined in the CFD itself.

When the Secretary of State is satisfied that an exemption applies, an exemption certificate may be issued by them to a prospective applicant, allowing a CFD application in relation to that site to be made by that prospective applicant in the next allocation round. Once these amending regulations are in force, the Low Carbon Contracts Company will maintain and update a publicly available list of any excluded sites setting out the site, the name of the person who caused the temporary exclusion to apply by not signing or having their CFD terminated, and the period for which a temporary exclusion applies to each site. Implementation of the non-delivery disincentive into legislation will inspire further confidence in the robust CFD allocation process, which has already demonstrated an ability to drive down prices and deliver value for money for consumers. I commend the regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for presenting these regulations. Given that this might be the last time we meet over the Dispatch Box after what has been an interesting four and a half years of energy policy development, these regulations give us an opportunity to take a step back and reflect on how things are going with the energy market reforms introduced in the Energy Bill.

Here we have what seems to be quite a technical, small regulation that is being implemented, but at the heart of it is something quite significant; that is, that we have moved into a world where, rather than the private sector having overall responsibility for the delivery of projects and the decision-making processes, as you would have in an open and liberal market, by and large it falls on the Secretary of State to cause investment to happen in low-carbon energy.

That is quite a fundamental shift and one that has quite a few challenges attached to it, one of which is that, in the interests of containing price rises, we have introduced a levy control framework that sets a nominal budget for how many low-carbon projects will be signed and then, I hope, delivered. This is not an easy task, and these regulations hint at some of the complexities. It might well be that in the nice confines of Whitehall we are able to sit down with a plan and try to estimate how much low-carbon energy we need, which projects are the best and how we go forward with those that we deem to be cost-efficient, but out in the real world there can be unforeseen circumstances that cause things to change. The difficulty will be having all that responsibility resting on the shoulders of the Secretary of State and the Civil Service. Are we confident that we have the right information and skill sets and a sufficient degree of detailed understanding of the energy system to ensure that we do not pursue projects, or seek to have projects come forward, that ultimately are not delivered?

I suspect it is clear what I am hinting at here: the ongoing concern over the Hinkley Point nuclear power station. If the Minister will forgive me, I have a series of questions relating to that contract. Part of the impetus for introducing energy market reform in the first place was a desire to see nuclear power stations once again being built in the UK. The decision was taken by the Secretary of State that we would pursue contracts for difference as the means to make that happen. That is what lay behind the entire Energy Bill: a desire for the confidence for investors to make a large-scale capital-intensive project like Hinkley possible in the UK. We heard an awful lot about it and discussed it at length, and yet in the Chancellor’s Budget yesterday there was not one mention of the project. Why is that? Why is such a huge project—let us be honest about this, it is massive; it is a huge infrastructure project with a huge budget attached—not something that the Chancellor felt it wise to mention, and indeed simply glossed over? He referred instead to a tidal lagoon project in Swansea Bay that does not have a CFD and is only just entering into negotiations. The one project that has been central to all government thinking on energy policy has been Hinkley, yet it gets scarcely a mention. I worry about why that is. It concerns me that we have a system set up that is now not sufficiently subject to market forces, and we might find ourselves taking decisions and picking apparent winners that turn out not to be the winners that we thought. That is at the heart of this new system.

On a positive note, one of the side-effects of the intervention to make Hinkley happen has been the introduction of competitive auctions for renewables. The department should be commended for bringing forward the timetable for those competitive auctions, and we have seen those auctions deliver cost savings in the strike prices that we were anticipating for established renewables. So there is some good news, but almost as a by-product of what the original intention was. I am concerned about the silence, and I have questions. How are we doing regarding the timetable that the department expected the Hinkley project to follow? When do we now expect to see a contract signed, and when will it ultimately deliver low-carbon electricity, which of course is the end that we want to achieve? Will that be in time for the closing down of some of our older capacity in the early 2020s? The concern was always that we were going to lose some thermal capacity as a result of tightening air quality standards, and we needed new, clean, large-scale nuclear to bridge that gap. Indeed, some of the nuclear will be going off in that timescale too. Where are we at? When will we know whether that contract will be pursued? It was my understanding throughout our debates that it would be a fairly quick decision and that we would see EDF go ahead with the build and the signing of the contract early this year, with the NAO poised to scrutinise the contract, yet we have seen nothing.

Why is all this relevant to the regulations? It is because here we have regulations designed to prevent companies gaming or occupying the space under the LRF that would then preclude others from bidding in. I am not accusing EDF of gaming—far from it; I do not think that this is a premeditated attempt to pretend that it can do something that it cannot—but it is subject to circumstances outside of its control. It represents a huge chunk of that LRF and the signs are that it is not now on track for the delivery schedule that it anticipated. It is a significant issue, not just because of the need for capacity but because of the scale of this one project. If it were not to go ahead, we would have to rethink our strategies for other technology groups and projects and hope to bring those forward to replace the gap that would be created. That is why I am interested in what the non-delivery disincentive is for those big projects.

Do the regulations apply to Hinkley? I suspect, on some of the grounds outlined by the Minister, that they do not. There is a reference under ground 4 to “relevant court proceedings”. Austria is pursuing a court case, which I understand Luxembourg has now joined, in which it is challenging the state aid rulings for the Hinkley Point decision in the EU. Does that count as “court proceedings”? Does it mean that the Hinkley project would be exempt from the disincentives? The Minister referred to those projects bidding in to the auction rounds, but the Hinkley project was a bilaterally negotiated contract. Do the regulations cover bilaterally negotiated contracts? If they do not, what measures is the department considering to avoid this cuckoo-in-the-nest problem whereby the expectation is that the arrangement will deliver, yet circumstances beyond the control of government mean that it ultimately will not, putting significant pressure on departmental structures and the energy system?

Perhaps we should have considered these instruments in the opposite order because then we could have ended on a high. Throughout our debates, we have raised our concerns about the degree to which interventions change the balance between government control and the market’s ability to find the right solutions. We obviously want new nuclear power stations to be built in Great Britain but we need some early clarity from government on the status of the project, and a definitive answer on whether it is going ahead and when it is likely to start delivering us the low-carbon energy that we will need to keep the lights on. I look forward to the Minister’s response to those questions.

[Baroness Verma]

My Lords, I hope that we end on a happy note. The noble Baroness and I have had wonderful discussions at the Dispatch Box, which have ended with us agreeing that the interest of the country is more important than our political spats.

I will first give a general overview, because the noble Baroness took the discussion slightly away from the regulations in front us, and then draw her neatly back to her question. On coming into office in 2010, it was obvious that 20% of our energy would be going offline by 2020 and that we needed to take certain measures to fill that gap. We also knew that we were being dictated to by a very small group of operators, so that choice and competition were lacking. That needed to be realigned and redressed. Since 2010, with the measures and the legislation that we have introduced, we have seen greater competition. We now have not just six generators, but a great number of smaller, independent generators that have driven competition into the marketplace, which is a uniquely good point for the UK consumer.

The second thing we needed to ensure was energy security. That is crucial if we do not want the lights to go off: we have to make sure that we take all the various measures and meet our emissions obligations, which are very important to all of us. We all signed up to the Climate Change 2008 and the principle that we should have a wide range of energy sources. Nuclear energy at Hinkley Point C of course plays a part in that.

On the noble Baroness’s question about Hinkley Point C, the non-delivery disincentive measure will prevent speculative bidding. That is what we are trying to ensure here. However, it will not apply to CFDs that are bilaterally negotiated with the Secretary of State. Neither of these requirements of a non-signature case—the requirement for an offer to lapse in relation to a successful application or, in a non-delivery case, a requirement linked to a CFD notification being given—relates to a bilaterally negotiated offer. Hinkley Point C is, uniquely, a bilaterally negotiated CFD. The noble Baroness talked about the uncertainty of the response. The Commission has given state aid approval, but as the noble Baroness is fully aware, the processes at Commission level take time. They are not driven by one country but by a great range of 27 other countries. We are waiting for responses on that.

Let us look at the wider picture. The noble Baroness mentioned Austria, but we have not yet received a legal challenge from Austria. All the information and detail that the Commission wanted was provided and the case was therefore approved. Now we just have to wait, as always with these processes, which take a little time. However, the fact that we have investors wanting to come to Moorside and to Wylfa, that we have seen over £45 billion of investment in the energy sector, particularly around renewables, and that we have seen an increase in the jobs in the sector gives us reasonable confidence that our measures have resulted in the energy sector being in a much better place than it was when we came into office in 2010. That is my starting point in rebutting some of the noble Baroness’s commentary.

Going forward, we have to take into account that we cannot be held to ransom by external forces. It is crucial that we focus on ensuring that our own home-grown supplies are supported but that we are mindful that the huge impact this may have on the consumer is not at any cost. This is the argument that I have led through the House throughout my time in this role. This is about the important balance of making sure that we have a fair, competitive marketplace, which is not open to gaming or speculation, and a firm response to give certainty to investors on one side while justifying our commitment to the consumer on the other. The noble Baroness obviously wants to raise another point.

[Baroness Worthington]

Maybe the noble Baroness cannot answer this directly, but my main concern is that we are given information as early as we can about when we can expect Hinkley Point C to be signed or not signed, so that if we get a no, or decide not to pursue it, we can pursue other alternatives. The noble Baroness is completely right that there are other nuclear projects that are more developed now than they were when we started this process and which might be able to replace the capacity almost as quickly. We cannot just let this drift. My reference to the budget was to make the point that we cannot just keep chasing these shiny new projects, such as the lagoons. Last year it was fracking; the year before that it was Hinkley. We have to see some of these things be grounded in reality. It worries me when we do not talk about these projects. We need to get a yes or no, and then we can move on.

[Baroness Verma]

I wish the noble Baroness could see how much determination there is in the department to speed up processes in relation to Hinkley Point C. However, certain processes have to be followed. As soon as we know the outcomes, I will make sure that the noble Baroness is the first to get that information. However, she also has to agree that we have been consistent in this regard by looking at fracking as another potential source of energy for the country. It is not that we keep finding shiny new energy sources, but we have to look at different sources in the round so that we do not become dependent on any one of them. During the passage of the Infrastructure Bill, the noble Baroness took us through a gruelling procedure with regard to fracking. If we are to have a reasoned, sensible debate on these things, we have to be responsible for making sure that the legislation passes smoothly through both Houses of Parliament when it comes before us. I agree with the noble Baroness that sometimes we want to respond more quickly. The Government work incredibly hard to respond in a timely fashion, but ultimately the response has to go through the proper processes and channels.

Energy Efficiency (Domestic Private Rented Property) Order 2015

Debate between Baroness Worthington and Baroness Verma

Thursday 19th March 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I am pleased to open the debate on the order and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

The energy-efficiency regulations will drive improvements in the least energy-efficient privately rented properties in both the domestic and the non-domestic sector, and provide domestic tenants with a right to ask for consent to cost-effective energy-efficiency improvements to their property. The energy-efficiency order is designed to ensure that those tenants living in the majority of domestic agricultural properties can benefit from the energy-efficiency regulations, in addition to those tenants already defined under the Energy Act 2011. As the order is relatively straightforward, I propose to focus my introduction on the regulations themselves.

I will first give some background on the private rented sector to provide context to these regulations. There are around 1.2 million non-domestic rental properties, which make up approximately two-thirds of the non-domestic property market. Around one in five of the non-domestic private rented stock falls within the lowest two energy-efficiency bands, which have an F and G energy performance certificate rating. In the domestic sector there are around 4.6 million private rented sector properties in England and Wales, making it the second largest tenure after owner-occupation, at around one-fifth of the total domestic housing stock. Around 6% of all domestic properties have an F or G EPC rating, but the percentage of F and G-rated properties in the privately rented sector is almost double this at around 10%.

Although newly built properties in the domestic privately rented sector tend to have higher energy-efficiency ratings, there remains a stock of older properties, many of which have poor energy efficiency and are difficult and costly to heat. The high proportion of older, untreated properties results in lower energy efficiency. This means higher tenant energy bills, and, for domestic tenants, the likelihood of living in fuel poverty. Living in private rented accommodation is an independent risk factor that significantly increases the likelihood of a household being fuel poor, so much so that around a third of all fuel-poor households in England live in the private rented sector, despite the sector accounting for only around a fifth of all households in England and a seventh of the households in Wales. Put simply, the PRS has a disproportionate share of the UK’s least energy-efficient properties and fuel-poor households. That nearly one in five non-domestic properties falls below an E EPC rating also shows the huge potential for energy and carbon savings that remain untapped in our country’s non-domestic stock.

Much of the reason for the slower change and poor energy efficiency in the private rented sector is the split incentive, where the costs of installing energy-efficiency measures traditionally fell to landlords while the benefits of lower energy bills and a warmer property usually fell to tenants. Various approaches have been tried in the past to improve the energy efficiency of the private rented sector. These include voluntary approaches, information services, tax breaks for landlords and subsidies for the installation of energy-efficiency measures. The success of these actions has been limited. The Government have therefore concluded that well designed regulations targeted at the very worst properties, and signalled to the market well in advance of coming into effect, will help drive action to improve the building stock and benefit the wider UK.

The regulations are game-changing and have been hailed by the UK Green Building Council as,

“the single most important piece of green legislation to affect our homes and buildings that has been introduced in the whole of this Parliament”.

This is the first time the Government are directly targeting energy efficiency in the existing private rented sector building stock.

I turn to the key aspects of the energy-efficiency regulations. The regulations fulfil a duty in the Energy Act 2011 to implement regulations so that by 1 April 2016 private domestic tenants have a right to request consent for energy-efficiency improvements where that consent may not be unreasonably refused by the landlord. By 1 April 2018, privately rented domestic and non-domestic property which falls below a minimum energy-efficiency standard, based on the energy performance certificate rating, cannot be let.

The regulations will reduce the UK’s carbon emissions, which is essential to meet the UK’s statutory domestic carbon budgets and the long-term 2050 goal set by the Climate Change Act 2008. By targeting the worst properties, they will improve the state of some of UK’s least energy-efficient building stock. By reducing the winter peak demand, the regulations will also improve the UK’s energy security, but not at any cost. The regulations have been shaped with significant input from the sector to work with the grain of existing practice. They will encourage cost-effective investment in energy efficiency. But the regulations will not demand landlords reach an E EPC at any price. In the domestic sector, a landlord will not be required to reach an E EPC by installing measures which are not cost effective. Provided that a landlord has carried out all the energy-efficiency improvements to the property that could be funded through a Green Deal, under the energy company obligation and any available grant funding they may continue to let their property. My department’s analysis suggests that 73% of domestic F and G EPC-rated properties will be able to reach an E EPC using measures that meet the Green Deal’s golden rule, and another 10% can make some improvement, even if they cannot reach an E.

Non-domestic landlords are provided with similar protections; they will be required to carry out all the energy-efficiency improvements that can be funded through a Green Deal if it becomes available, or that cost the same or less than their expected energy savings over a seven-year period. My department’s analysis suggests that 85% of non-domestic properties can be brought up to an E EPC using measures that meet the Green Deal’s golden rule.

We are also taking care that the regulations do not drive inappropriate interventions, or force landlords or tenants to take decisions that are not in their best interests. The regulations set out specific exemptions for not installing improvements in listed buildings, where they will negatively impact on the value of the property by more than 5%, and where a landlord cannot get third-party consents, such as planning consent. Landlords will also be able to claim an exemption from installing wall insulation where it could negatively impact the fabric of the building.

We have made the regulations fair and the key message simple to understand: landlords will need to get their properties to an E energy performance certificate rating where they can do this cost-effectively, safely and in accordance with existing legal obligations. Tenants have the right to ask for consent for energy-efficiency works, and for that consent to be not unreasonably refused. Clear regulations, signposted in advance, mean higher compliance rates, and less need for enforcement. We will work with tenant groups, landlord groups, local authorities, local weights and measures authorities, and estate agents to ensure that all parties are aware of their rights and responsibilities, and we will endeavour to use innovative channels to warn tenants and landlords. However, where landlords choose to ignore their responsibilities, we have designed an enforcement regime that we believe will be clear, simple and effective. Landlords will either need to reach the minimum standard, or register an exemption on the central PRS exemptions register—a database to be set up and maintained by my department. Local authorities and local weights and measures authorities can choose to take action to enforce compliance.

The economic case for these regulations is also clear. They will provide overall benefit to the UK of £2 billion in net present value terms over the life of the policy. By encouraging co-investment, and decreasing search costs to install ECO measures to eligible householders, the minimum standards will also reduce the cost of delivering the energy company obligation. They will facilitate the delivery of the third and fourth carbon budgets at lower cost, and with greater certainty, by providing over 1 million tonnes of carbon dioxide savings between 2018 and 2022 and nearly 2 million tonnes of carbon dioxide savings between 2023 and 2027.

Furthermore, compliance with the minimum level of energy-efficiency provisions of the regulations will provide significant benefits to non-domestic SMEs, providing them with over £2 billion net bill savings, and over £3 billion net bill savings to the non-domestic privately rented sector overall.

In conclusion, these regulations will drive significant change to the energy efficiency of the worst properties in the private rented sector, improve the lives of tenants living within them, reduce the UK’s carbon emissions, and provide a net benefit to the UK economy of around £2 billion in present value terms. I commend the order and regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing these regulations. Here we are, one week before the end of this Government’s term in office and here we find, finally, the one piece of energy legislation that they can be proud of. All I can say is: what has taken so long?

This is a very sensible piece of policy. It is a crying shame that so many people still live in very poorly insulated, unhealthy homes—those F and G properties—with such poor energy-efficiency ratings. It is high time that we took action to address this and I am therefore very pleased to see these regulations being brought forward. I particularly welcome the fact that tenants will now have some legal back-up when they enter into negotiations with their landlords so that they will not be able to turn down measures. For a long time this split incentive has been a real barrier to change and it has trapped people in a cycle of fuel poverty where they do not have the means to improve their own situations. This is a very serious and welcome intervention.

Of course, as was outlined, the measure has not just fuel poverty benefits but economic benefits for the country, and indeed carbon benefits in terms of us meeting our climate change objectives. Perhaps the only point on which we differ is that we think we could go further and we would like to see a commitment from the Government to further increase the requirements on landlords to move properties out of the E category into the C category. In the document that we published at the party conference last year, Caroline Flint launched a comprehensive set of policies to wage war on cold homes. Within that, we committed to phasing in a much higher standard for properties by 2027. We think that that is what the industry needs. We need to send a long-term signal that this is not just a stop-start process; this is going to be an ongoing process of improvement, and we will force those people currently profiting from the rent of substandard properties to keep improving those properties so that everybody can benefit from the measures available.

The one thing we will need to keep under careful review, as we always do with these policies, is the extent to which the exemptions that are provided are tied to the Green Deal. We have had discussions about the success or otherwise of the Green Deal. We hope that more and more people are taking measures to improve their homes but we are not convinced that that policy is completely fit for purpose. We would like to explore the rationale for allowing exemptions based on Green Deal availability. There may be some things that fall outside the Green Deal’s current offer that landlords and tenants may wish to pursue and we would not want to limit unnecessarily the efficacy of these regulations by tying them to another policy too strictly.

However, that is a small point compared to the bigger point, which is that finally we have a very good piece of regulation coming forward from the Government, which addresses a critical issue. We support these regulations.

[Baroness Verma]

My Lords, I thank the noble Baroness, Lady Worthington, for her full support for these regulations. Of course, I do not agree that this is the only piece of legislative work that has gone through this House in the past four and a half years that the coalition Government can be proud of. Much of the legislation that I have delivered has been to ensure that we have more efficient homes, lower energy costs and energy security, as well as looking very much at reducing carbon emissions. So I think she was being slightly disingenuous about the progress we have made. Given that we have spent many, many hours during the past four years or so, particularly in this Room, discussing the work that this Government have undertaken, we dispute that we have not achieved a great deal.

Of course, as with all things, we want to make sure that those who need more efficient homes, particularly vulnerable people in the private rented sector, are able to enjoy a much better living environment. The noble Baroness referred to a C rating. Of course everyone is ambitious, and we are equally ambitious to get the properties to be far more efficient than they are today. We have achieved a lot but there is a lot more to do. My consistent line to the noble Baroness has always been that we must not do this at any cost; there has to be a cost-effective way of being able to deliver what I think, and the noble Baroness has agreed, is the key policy of being able to help to improve our homes. There is a lot of work to be done and I look forward to debating for many more hours, particularly in this Committee.

Emissions Performance Standard Regulations 2015

Debate between Baroness Worthington and Baroness Verma

Tuesday 17th March 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, the regulations before the Committee today are the implementing secondary legislation for the emissions performance standard. The EPS was introduced by way of the Energy Act 2013 and constitutes one of the measures that collectively make up the Government’s programme of electricity market reform.

Noble Lords will be aware that substantive EPS policy—including its application to any new or existing fossil fuel plant—is established by way of the Energy Act 2013. The regulations before us today are limited to making the practical arrangements associated with the EPS legislation contained in the Act. They set out the application of the EPS in cases permitted by the underlying legislation, and, for England alone, put in place the practical arrangements for implementing and enforcing the EPS. We expect that the devolved Administrations will also soon bring forward legislation implementing the enforcement provisions for the EPS.

By way of reminder, the EPS acts as a regulatory backstop to the amount of carbon dioxide emissions that new fossil fuel plants can emit. To clarify, a “new plant” is an electricity generating station that secures development consent after the EPS came into force on 18 February 2014. The EPS is part of the Government’s strategy to transition to a low-carbon electricity system at the lowest cost to consumers, while maintaining security of supply. It works to complement our existing planning policy, which prevents any new coal-fired generating station being approved unless it is equipped with full-chain carbon capture and storage technology. In combination, these measures ensure that any new coal plant will be equipped with, and must use, CCS.

The power to make these regulations is contained in the Energy Act 2013. Part 1 of the regulations establishes their extent and application. Part 2 makes provision for the additional application of the emissions limit duty, which is the legal duty to conform to the requirements of the EPS, and the modification of that duty in specific circumstances. It will apply throughout the United Kingdom. Part 3 sets out the monitoring and enforcement arrangements that will apply in England. I will now describe the operation of these parts in more detail.

As an exception to the EPS applying only to new fossil fuel plants, Part 2 of the regulations clarifies the limited circumstances in which the EPS will be applied to an existing coal plant. The regulations provide that where an existing coal plant installs or replaces a main boiler—so effectively extending the life of the plant by a period comparable to the operating life of a new plant—that plant is treated as if it were a new plant and is therefore subject to the EPS. This is consistent with the approach set out in the Act.

Part 2 also sets out the circumstances in which a plant’s annual emissions limit will be modified. Where a plant commences or ceases operation part of the way through a year, the emissions limit is amended for that year to take into account the portion of the year to which the EPS applies. Similarly, if the installed generating capacity of a fossil fuel plant changes, its emissions limit is to be adjusted to reflect the new situation.

Part 2 also establishes arrangements associated with the three-year carbon capture and storage exemption from the EPS, provided for in Section 58(1) of the Act, the purpose of which is to provide plants adopting CCS with some flexibility during the commissioning of the full CCS chain. The regulations clarify that the exemption applies only to those generating units of the fossil fuel plant equipped with a full CCS chain.

Part 2 also sets out the methodology for calculating emissions arising from qualifying combined heat and power plants, which provides that the emissions associated with the production of useful heat are not taken into account for EPS purposes. This is to ensure that the EPS does not become a barrier to the development and deployment of good-quality combined heat and power. Finally, Part 2, together with the relevant provisions in the Energy Act 2013, provides that where a power plant uses fuel derived from fossil fuel that is gasified off-site, the associated emissions will be taken into account when the relevant power station’s total emissions are calculated. This is to avoid possible circumvention of the EPS.

Part 3 establishes the process by which the monitoring, reporting and enforcement of the EPS will take place in England. Outside England, the monitoring and enforcement obligation will fall to the relevant authority within the territory. These arrangements have been developed in close co-operation with the Environment Agency, which will act as the enforcement authority in England. In designing this framework, we have sought to minimise any regulatory burden by basing it on and tying it to the arrangements already in place for the EU’s Emissions Trading System, which is also administered by the Environment Agency.

Before commencing operation, a plant’s operator will be required to declare its emissions limit—calculated in accordance with Section 57 of the Energy Act—to the Environment Agency. The operator will then be required to provide emissions data where the plant’s total annual carbon emissions, as measured and reported under the EU ETS, exceed the plant’s EPS emissions limit. This approach removes for many plants the need to do significant extra regulatory work, as carbon emissions data already have to be compiled for the EU ETS. Where the reported EU ETS emissions for a plant exceed the plant’s EPS limit, the plant operator will be required to provide a further breakdown of carbon dioxide emissions, identifying those that are relevant for EPS purposes and those that are not. This information will allow the Environment Agency to verify whether the emissions limit for the plant has been breached in any particular period.

Power plants throughout the UK have a strong track record of compliance with their regulatory responsibilities, and many of them took part in our consultation on these regulations last year. We therefore do not expect that there will be breaches of the emissions limit duty. However, in the event that such a breach were to occur, these regulations provide the Environment Agency with the ability to take strong, proportionate enforcement action, ensuring that no plant breaching its emissions limit can benefit commercially from that breach. The Secretary of State may issue enforcement guidance under the regulations that can set the parameters of any penalties to be applied by the Environment Agency in cases of breach by a plant operator. An appeals route is also provided.

My department has worked in close consultation with the devolved Administrations in designing the monitoring and enforcement regime set out in this instrument with a view to ensuring that, consistent with the government policy, a standardised approach to administration of the EPS is applied throughout the UK. I commend these regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing the regulations for debate this afternoon. They are implementing regulations that relate to the part of the Energy Bill where an emissions performance standard was to be set for new build of fossil fuel generation. We had a lengthy debate during the passage of the Bill about the EPS regulations and the role that they need to play. It was clear that the Government had decided that the only role that EPS could play was for new build and would not consider the role of an EPS for existing power stations.

We have raised this on several occasions, and we will continue to raise it, because the context for the regulations is that there is very little appetite for the building of new coal-fired power stations in the UK—in fact, there is very little appetite for building any new power stations in the UK if they do not have a contract for difference, which comes from another part of the Energy Bill. So there is potential for a lock-in to existing thermal assets for some time to come. We have always understood that the EPS is a backstop measure to underline and further support other interventions that the Government are planning to try to meet challenging carbon budgets and decarbonisation targets that we expect to be set for 2030.

The crucial question to consider on whether the Government have got the EPS regulations right is the extent to which that back-up—that belt and braces approach—is also needed on existing plant. I say that for a number of reasons. Partly, it is because in the recent capacity market auctions, a large number of plants bid for those capacity contracts and a large number of existing players won contracts, including a significant amount of capacity of old coal. Nine gigawatts of old coal received a contract through that mechanism. That meant that a large number of potential new build, more efficient gas stations, did not receive a contract, so the net effect of that intervention into the market has been to consolidate the existing plant in the market and to squeeze out investment in potentially cleaner, more modern, more flexible and more efficient stations.

We think that that is regrettable and that the situation needs clarity. We have cross-party support. On 4 February, all three leaders of the major parties signed up to a cross-party recommendation that we should take bold action on climate change,

“to accelerate the transition to a competitive, energy efficient low-carbon economy and to end the use of unabated coal for power generation”.

That is a welcome statement. From our side, we do not see a role for unabated coal going forward and we are committed to decarbonising our electricity system by 2030. Within that, we absolutely want carbon capture and storage to play a big role.

We have to look at how the combined elements of the energy market reforms that were accepted in the Energy Bill work together to deliver that aim. That is the crucial question. We must view these EPS regulations in that light. The truth of the matter is that the Government have insufficient levers at their disposal to ensure that we see a steady move away from unabated coal towards carbon capture and storage and cleaner gas generation. The EPS provided one potential lever, but the Government have chosen not to use it. The regulations highlight that it continues to apply just to new build and not to existing plant.

I do not want to have a lengthy debate about this, but I wanted to make that context clear. We cannot consider these instruments in isolation; we must look at the net effect of how they interrelate. At the moment we have a set of policies that are allowing old coal to persist. The only mechanism that the Government have to hold back coal is the carbon price floor. Indeed, that is referenced in the supporting notes to the regulations: the EPS is seen as a back-up for the carbon price floor.

As we all know, the carbon price floor was frozen merely a matter of months after it had been introduced, so the escalator that the Government expected it to follow—the steady increase in its level—has been stopped. It will now be frozen until 2020. DECC seems to continue to believe that at some point in the future we will return to an escalating carbon price floor and that it is this that will drive unabated coal off the system. However, how politically feasible is it that that price mechanism will return to that trajectory?

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[Baroness Verma]

My Lords, my noble friend may be aware of two projects that we are funding—one at Peterhead and one at White Rose. They will become the world’s first commercial-scale gas CCS projects. They are still being developed. If my noble friend will allow, I will give him a fuller response. We are demonstrating that we are leading in the world with CCS. Investing £1 billion shows our seriousness about taking CCS forward.

I shall continue with the questions raised by the noble Baroness, Lady Worthington. She referred to the carbon price floor, saying that there was a projection and a sort of wish list that it would rise. We all know that the EU ETS has to be reformed properly. None of us expected the carbon price to fall as much as it did. However, we are where we are with it. I was at a European Council meeting a couple of weeks ago where there was broad agreement that we needed to look at reforming the EU ETS to make sure that it better reflects its participatory role in ensuring that countries that do not have an extreme tendency to reduce their carbon footprints will be encouraged to do so. There is broad agreement that it has to be reformed. That will play a large part in how we respond to the discussion around the carbon price floor.

Another important point is that we must remain competitive. It has always been key that as a country we should not out-compete ourselves by driving ourselves to reduce carbon emissions at a pace while others use them to be more competitive. We need to reach a fine balance, and it is important that in pushing for reform we ensure that the measures we take, internally and domestically, give great examples for others to follow. That is my response to the noble Baroness.

[Baroness Worthington]

Before the noble Baroness moves on to the next topic—perhaps the Minister can write to me if it is easier—to get to that projection of only 1% of electricity coming from unabated coal by 2025, what is the carbon price assumption in that model? Does it start from the current £18, where it is frozen until 2021, and rise from there, or does it go back to its original trajectory, as was published by the Treasury and others?

[Baroness Verma]

My Lords, I think it would be beneficial for me to write to the noble Baroness, because I do not want to give her an assumed figure that turns out to be misplaced.

My final response to the noble Baroness concerns the conditions under which the EPS would be suspended. The Government have published a policy statement that sets out the conditions that must be met for a suspension to be made. Details of any suspension must be laid before Parliament. Again, if the noble Baroness and my noble friend find it helpful to have further details on that, I would be happy to put them in the letter that I will send to the noble Baroness on the other issues.

I agree with the noble Baroness that by and large, politically, the three major parties have come to an agreement. We need to work together to reduce the carbon emissions of this country to meet our own goals, but it is important that we send out consistent messages around the policies that we are working on. The Energy Act has driven that and shown that, working together, investors have come with confidence to invest in the UK. I end by thanking noble Lords for their positive remarks, and commend the regulations to the Committee.

Fracking

Debate between Baroness Worthington and Baroness Verma

Wednesday 11th March 2015 Lords Chamber

[Baroness Verma]

My Lords, while my noble friend of course makes a very helpful intervention, we need to be mindful that development needs to take account of local communities. Therefore, it is absolutely right that the processes in place are followed properly so that community benefits reach out to those people. We should ensure that the case for fracking is made properly and that businesses, suppliers and operators are all engaged with local communities.

[Baroness Worthington (Lab)]

My Lords, it was incredibly gratifying to see Ministers in the other place finally relent and accept that, far from being fine or perfectly capable, the regulatory regime for fracking in this country needs a massive overhaul. When do the Government plan to consult the public on bringing in the new regulations that were won by Labour in the House of Commons?

[Baroness Verma]

My Lords, I think that the noble Baroness recognises that this Government have been responsive to concerns raised by the public. That is why we have taken those decisions to look carefully at legislation that is going through both this House and the other place. However, to say that our regulatory organisations are not robust would be unfair, because we have among the most stringent regulatory frameworks in the world.

Electricity and Gas (Market Integrity and Transparency) (Criminal Sanctions) Regulations 2015

Debate between Baroness Worthington and Baroness Verma

Tuesday 3rd March 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, our liberalised energy markets, which are underpinned by robust independent regulation, are a critical part of the UK economy. Effective competition in the wholesale energy markets is a key driver of lower prices, which is why this Government are continuing to take steps to strengthen competition so that markets work more effectively for consumers. The Government have made clear their commitment to maintaining a strong and stable regulatory framework that delivers transparent and competitive markets and has the right penalties for those who step out of line. One component of this is having strong sanctions against those who abuse energy markets.

The UK wholesale energy markets are of great significance to the UK economy and to Europe as a whole. For example, trading on the GB wholesale energy markets has been estimated to be worth between £297 billion and £333.5 billion each year. In addition, a significant volume of trading of European energy products is done through London-based brokers. The UK acts as a hub for gas; the GB gas market is used as a reference price for gas delivered elsewhere in Europe and into the electricity market, where gas is a significant and sometimes marginal price-setting fuel. The large figures involved and the importance of the wholesale energy market for financial services, industry and UK and European consumers make the integrity of the market a matter of national and international importance.

The EU REMIT regulation has been in force since 28 December 2011. REMIT prohibits insider trading and market manipulation in wholesale energy markets across the EU. The wholesale energy market regulators in Great Britain and Northern Ireland have civil powers to deal with market manipulation and insider dealing in wholesale gas and electricity, including the ability to impose unlimited financial penalties, access to information and the power to enter premises. To strengthen this regime the Government set out the case for new criminal offences of insider dealing in and the manipulation of wholesale energy markets.

In June 2013, the Government made civil enforcement regulations for REMIT. They then signalled their intention in October 2013 to consult on strengthening this civil enforcement regime by creating new criminal offences in line with the prohibitions relating to market abuse in REMIT. That consultation ran through August and September 2014 and included a joint stakeholder event on the proposals with Energy UK which 30 industry organisations attended. Fourteen responses were received to the consultation from a range of organisations, including large vertically integrated energy companies, trade associations, sector services organisations, legal organisations, a small supplier and a private individual. Having considered views expressed through the consultation and stakeholder event, the Government have prepared and laid before Parliament these regulations under the powers in Section 2(2) of the European Communities Act 1972. These regulations would be enforced by Ofgem for Great Britain and the UK offshore marine area, and by the Northern Ireland Authority for Utility Regulation for Northern Ireland.

I think it would be helpful if I briefly set out for the Committee the effect of these regulations. Regulation 3 would make it a criminal offence for a person to breach the prohibition on insider dealing set out in the EU REMIT regulation. A person would be committing the offence if they intentionally or recklessly: used inside information to acquire or dispose of wholesale energy products to which that information relates, either on their own account or on behalf of others; disclosed inside information except in the normal course of their duties; or used inside information when recommending that another person acquire or dispose of wholesale energy products, or when inducing them to deal in wholesale energy products.

Similarly, under Regulation 4, a person would be committing a criminal offence if they breach the REMIT prohibition on manipulation of wholesale energy markets. A person who enters into a transaction or issues an order would commit the offence if they had the intention to send misleading signals or to secure the price of a wholesale energy product at an artificial level, or were reckless as to whether their actions would have that result. A person would also be committing this offence if they disseminated information with the intention of giving, or reckless as to whether it would give, false or misleading signals as to the supply of, demand for, or price of a wholesale energy product.

These behaviours are already within the scope of the existing civil penalties regime, but we believe that it is right to strengthen the enforcement regime because there is a real risk that, for a small number of organisations or individuals, civil sanctions alone may not have a sufficiently strong deterrent effect because, as I am sure we are all aware, there can be very strong incentives to break the rules. By framing these new criminal offences around the prohibitions in REMIT, we have ensured that these criminal offences cannot be wider than the matters subject to existing civil sanctions. This addresses one of the key concerns raised by industry during the consultation. Conduct that becomes a criminal offence under these regulations will remain covered by the civil regulations too, so that the regulators will have a choice of which regime to pursue offenders under. The regulators would be expected to act proportionately and take into account the seriousness of the conduct and all other relevant factors in choosing whether to prosecute or impose a civil penalty.

I would like very briefly to outline the effect of the other regulations. Regulations 5 and 6 will ensure that the regulators, Ofgem in Great Britain and the Northern Ireland Authority for Utility Regulation in Northern Ireland, are able to investigate these proposed offences. Regulations 7 and 8 ensure that, in line with the REMIT regulation, the regulators can pursue legal persons as well as natural persons if they have committed these offences. If an offence is committed by a legal person, such as a company, because of the commission or omission of an officer of that person, the regulators would also have the power to pursue prosecution of that officer. Regulation 9 would require the regulators, in consultation with others, to produce enforcement guidance about how they would propose to handle these offences.

Regulation 10 would enable the Serious Fraud Office and the Director of Public Prosecutions to institute criminal proceedings for these offences as well as the energy regulators. Regulation 11 sets out that the maximum penalty available to courts for breach of these offences is two years’ imprisonment. This is less than the penalty that is available for similar offences in the financial services industry. We have already indicated our intention to consider whether this discrepancy is right as financial services regulation develops.

I hope that noble Lords agree that this is a measured and sensible strengthening of our existing regulatory regime to address a small but real risk of serious abuse of wholesale energy markets. These new offences would mean that energy markets and the consumers that rely on them have similar safeguards to those in place in financial markets in which the relevant regulator has the ability to prosecute for criminal offences. I therefore commend these regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the noble Baroness for introducing the regulation. This is a good example of why it is good to be part of Europe. Here we have some sensible interventions, with criminal offences being acted against by the European Union as a whole. It shows why the UK should be a strong and leading voice in Europe. My first question is: why has it taken us so long? The regulations in Europe were passed in 2011, and it is now 2015. The only other question, which is broader, is: given that there is a need for such regulation in the wholesale energy market for gas and electricity, does the Minister think that there is a case for us to apply our sights to the transport fuel sector? It would be interesting to know, whether at EU or UK level, whether the way in which the wholesale markets work in transport fuels has ever been explored. I have said this before, but I feel that there is a strong case for our energy regulator to look into the transport fuel markets, because energy is more than just gas and electricity.

[Baroness Verma]

My Lords, I am grateful for the noble Baroness’s support for this instrument. She asked a couple of questions. First, why not before? Although it is really good that Europe has come together on this, the remit does not set out how member states should create penalties. We went through that process for the benefit of the UK, and the provisions are now ready to be put in place, if approved. That sends a clear message that we will not tolerate any breach or any market manipulation but will take this very seriously, as we always have, but now the regulators will have the power to reel in any improper behaviour.

The noble Baroness also asked a question that completely escapes me. I should have written it down, but I have not. I may have to come back to her on that in writing after I have read Hansard. In the mean time, I commend the regulations.

Electricity Supplier Obligations (Amendment & Excluded Electricity) Regulations 2015

Debate between Baroness Worthington and Baroness Verma

Tuesday 3rd March 2015 Grand Committee

[Baroness Verma]

My Lords, I am extremely grateful for the contribution of the noble Baroness. Of course, she raises questions to which I need to respond but, as with all these things, if I do not respond today I will undertake to write to her.

The noble Baroness asked about the cost of EII exemption to consumers. To lay out the context, first and foremost we do not want to see our industry moving away from the UK because of what our policies will cost to other countries that do not take our commitment to reducing carbon emissions as seriously as we do. We have to make sure that we do not lose our heavy industry simply because we want it to be more compliant than industries in other nations. We want to make other nations follow what we are doing and ensure that they are helping to reduce carbon emissions on the same scale as us. I think that the noble Baroness understands that all of these things will have a cost implication if we are mindful to have a blanket look at trying to reduce our carbon emissions and work with member states to help them to reduce theirs.

The policy should benefit the consumer ultimately. Let us look at what the exemption does for heavy industry, and what its net cost is across the population. On balance, we think that this is the right approach. The noble Baroness was right to say that this was heavily discussed during the passage of the Energy Act. We need to put it in the context that it will be an increase of 0.3%, which is about £1.80 on bills in 2020. In overall terms, if we are to ensure that we do not lose heavy industry, keep competitiveness as part of the bigger equation, and ensure that consumers benefit and do not lose out, these steps have to be taken. I am as mindful of fuel poverty as the noble Baroness, and I know that both of us work closely to ensure that rising energy costs have the least impact on those who can least afford to bear those increases.

Ultimately we have to look at the market as a place of competition. During discussions on the Energy Act, the noble Baroness asked why coal was allowed to be part of the auction. It is because of energy security and the cost implications to the consumer. If we are genuinely serious about ensuring that the marketplace is open and offers best value, we have to take on board that, for at least the short to medium-term, coal will play a role. But the more we get the renewable sector to grow, strengthen and bring its prices down, the less dependent we will be on coal. We see it as eventually coming out of the marketplace. The noble Baroness is aware that we have been very supportive, through the measures taken in the Energy Act to ensure that the renewables sector has had the opportunity to work on a much more even keel alongside the more traditional fossil fuels. So I do not buy the argument that coal should not be there. It has to be there for the ultimate reason that I have always laid out: we cannot allow a focus not to be technology neutral. It has to offer the long-term benefit to the consumer in the end. That is the crucial point.

The noble Baroness spoke about carbon capture and storage, and we continue to support its development. We see it as very much part of the debate going forward. She is aware that £1 billion has been set aside to support it. I was desperately trying to remember the two projects that we are supporting following the competition that took place. Unfortunately, inspiration did not come forward and I cannot rack my brain to remember the names, apart from Peterhead. Again, I undertake to write to the noble Baroness on where we are with those two projects.

Overall, I think the noble Baroness accepts that these are difficult choices, but we have to make them on the basis that we constantly review what we are doing to make sure that the end-user—the consumer—ultimately gets the best value. If there are issues that she feels that I have not cleared up, I will read Hansard very carefully to ensure that I can give her a much more detailed response if she feels that I have not satisfied her thus far.

[Baroness Worthington]

What I am trying to get across is that we absolutely agree that we do not want to see the flight of industrial players in our economy. However, we cannot simply keep loading the responsibility for decarbonisation on to consumers and not put in place a positive policy for the decarbonisation of industry. The two CCS projects are Peterhead and White Rose, but they are power projects. I am talking about heavy industry: steel, cement, chemicals and oil refining. How will those enter into the CCS market? We need to get an incentive in to help them to do that and we need the EU to support us.

Overall, my fear is that the net effect of these instruments might be that we exempt green electricity from overseas, which will be able to come in without bearing any of the costs that we have in this country. We may see that UK plc simply bears the cost but does not see the investment that we need in our industries. I hope that we will continue this dialogue. This whole raft of policies and how they interrelate has to be kept under a close eye.

[Baroness Verma]

I agree with the noble Baroness that we have to keep a close eye on this. We constantly look at whether those policies have the positive impact that we expect them to have. I always have to restate the importance of balancing that with the fact that we need to make sure that we do not lose our industries to places that are less ambitious about the reduction of carbon emissions.

We need to work closely with business. We are working all the time to make sure that we are not disincentivising it from trying to make sure that it can reduce emissions. Ultimately, this is about what the public are prepared to pay. We have to be mindful of this balancing act of making sure that it is not a burden on the consumer, while making sure that we do not lose manufacturing and that we keep our manufacturing base strongly here, which generates jobs and allows the economy to grow. It is very much a balancing act, but I agree with the noble Baroness that this should be kept under review, and that we should constantly look at how we can ensure that the renewable sector plays a bigger role as we work towards a much more low-carbon economy.

Warm Home Discount (Miscellaneous Amendments) Regulations 2015

Debate between Baroness Worthington and Baroness Verma

Wednesday 25th February 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, in introducing this debate on the Warm Home Discount (Miscellaneous Amendments) Regulations 2015, I will first give some background on fuel poverty and the warm home discount scheme to provide context to these regulations.

Fuel poverty remains a huge challenge and the coalition Government are committed to tackling that challenge and to helping people, especially low-income vulnerable households, heat their homes. Improving the energy efficiency of homes is the most effective way of reducing energy bills and providing lasting support to the fuel poor. Our current policies are already making a difference. For example, more than 580,000 low-income and vulnerable households will be warmer after receiving measures under the energy company obligation. We also announced, as part of the Autumn Statement, a new £25 million fund that will see up to 8,000 low-income off-grid households benefit from first-time central heating in 2015-16.

However, upgrading our housing stock is a long-term programme and fuel-poor households need help each winter. That is why the Government have a number of schemes in place, including the warm home discount, which provides direct support to customers with their energy. Introduced in 2011, the warm home discount requires electricity suppliers with more than 250,000 domestic customer accounts to provide financial support to their vulnerable customers in respect of energy costs. This winter the eligible customers received a £140 rebate on their electricity bill.

The existing regulations for the warm home discount scheme end in March 2015 and these amendments extend the scheme for another year. This will ensure that 2 million low-income and vulnerable customers can benefit from a rebate again next winter. The warm home discount scheme currently assists two groups of customers: first, the poorest pensioners who are customers of participating electricity suppliers, described in the regulations as the core group customers; and secondly, low-income and vulnerable customers, including poor families and those with disabilities, described as broader group customers. Under the core group, all the poorest pensioners eligible for the scheme who are customers of a participating supplier receive a bill rebate of £140 from their supplier. Customers who fall into the broader group, such as low-income families and those with long-term disabilities, can apply for rebates through their supplier. Customers eligible for the core and broader groups can also benefit from the industry initiatives section of the scheme. Participating energy suppliers are permitted to spend a share of £30 million annually to provide debt assistance, energy efficiency measures and energy advice, among other forms of support, to help these groups of customers make a lasting change to their energy bills.

Since we launched the scheme, around 2 million households in, or at risk of living in, fuel poverty have benefited from lower energy bills each year. As a result of the success of the warm home discount, the Government have committed to extending the support to 2016, with a spending target of £320 million. This is in addition to the £1.1 billion that has been spent over the first four years of the scheme to continue support for the people who need it most. The Government consulted on extending the scheme last October and proposed some small changes to improve its effectiveness, making it simpler and more accessible. Respondents to the consultation were supportive of extending the scheme and on 29 January we published the government response to the consultation.

I turn to the key aspects of the warm home discount next winter that would be implemented by the regulations that we are debating today. First, the core group will remain unchanged. People who have an electricity account with a participating supplier and receive pension credit guarantee will be entitled to a rebate. However, we propose to change the broader group section of the scheme. We intend to introduce a standard set of eligibility criteria. All participating suppliers will have to adopt these while continuing to have the flexibility to offer other criteria alongside.

The standard criteria are based on a variation of the current eligibility criteria for the cold weather payments group—households on certain means-tested benefits. In addition, we have now included low-income working families with an income of £16,190 or less that have a disabled child or a child under five. This change is consistent with the low-income high-cost fuel poverty indicator adopted in England, under which low-income families are the largest group in fuel poverty. This change will simplify the scheme, making it more accessible to this group of customers and removing some of the barriers to switching.

We propose to maintain the value of the rebate at £140 for the extension to the scheme. This means that participating energy suppliers can deliver 71,000 more rebates than would have been the case if we had increased it to £145. These extra rebates will be delivered under the broader group, mostly focused on low-income working-age families.

We also plan to widen the list of approved activities under the industry initiatives section of the warm home discount. First, we have enabled the provision of a £140 rebate to eligible low-income mobile home residents, primarily park homes. Mobile home residents are currently ineligible because in the majority of cases they do not have an electricity account with a participating supplier. What we envisage is that from now on they will be able to apply for a rebate if they are on qualifying benefits. This will be a voluntary measure. However, my officials are working with key stakeholders, including energy suppliers and the Department for Communities and Local Government, to develop a suitable scheme.

Secondly, we are supporting the inclusion of activities that would provide extra support to low-income customers living in non-gas homes or in disadvantaged areas, or to those with health problems or a disability. Customers with a long-term health problem or disability can be detrimentally affected by living in a cold or badly insulated home. The amendments to the scheme would encourage suppliers to provide support to these groups, who may struggle to get assistance through other policies. The consultation response also set out that it could be cost-effective to target low-income customers in disadvantaged communities. If this were the case, participating suppliers could find that they were able to help a larger number of customers at a lower cost. We will also make it compulsory for energy suppliers to provide energy advice to customers when delivering all other industry initiatives, wherever possible. Vulnerable customers will be able to make lasting positive changes as a result of such advice.

We also propose to make some technical changes to improve the operation of the scheme. First, we will put in place a mechanism to apportion any overspend or underspend in this scheme year, based on the suppliers’ market shares this year. Under the current regulations, they would be apportioned based on market shares next year. This is more equitable, particularly given the rising number of energy suppliers participating in the scheme. Secondly, in the event that suppliers overspend by up to 5% this scheme year, they can reduce their obligations by a corresponding amount next scheme year. This applies to the broader group and industry initiative elements of the scheme, and is an increase on the 1% flexibility that existed previously.

The amendments to the warm home discount regulations are necessary to help another 2 million households next winter. The changes that we are making will mean that suppliers will provide assistance to a greater number of low-income families, make the scheme simpler and improve its operation. I commend the regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing the regulations. Tackling fuel poverty is of the utmost importance. It is an ongoing embarrassment for a country of our wealth and standing to have so many people suffering from poor housing quality combined with low incomes, who are unable to afford to heat their homes and keep them in a habitable state. We really must crack that.

I understand the rationale for extending the order by another year, but I have a fundamental question. We are extending it for one year. Why is the programme so short term? It lasted for four years, now for five. Will it last for six or seven, or will we more fundamentally address the issue? I ask that because either the scheme is working, in which case we should put it on a more permanent basis and assess how well it is delivering against our objectives of tackling fuel poverty; or, if we are just using it as a stopgap while we try to find a better solution, should we not get on with that better solution? That is my fundamental question.

The longer-term solution is of course both raising people’s incomes and improving the housing stock. I question whether we are getting the right agents involved in delivering this. We are essentially relying on the suppliers to mediate between those poorer households and fuel poverty. Are suppliers the right people to do that? From my experience of working for a supplier, given a regulation such as this, from which they will see no possibility of making any profit, they will simply find the cheapest possible way to comply and constantly lobby the Government to enable them to do it more cheaply and with less onerous bureaucracy on them. They will not enter into it in the spirit of asking how we crack the problem, because they do not perceive the problem as theirs. They provide electricity and gas, and that is pretty much how they would like to keep it. They do not see themselves as responsible for people’s incomes or the fabric of people’s homes.

On top of that, there is a perverse incentive. We already see demand for electricity and gas falling in this country, and that is having an impact on the power companies’ bottom line. Therefore, I worry that they will try to find ways to meet their obligation without reducing the amount of product that they sell. It does not surprise me that we are now looking at extending the definition to allow them to take measures in non-gas and electricity grid-connected homes, because that suits the business model of them protecting their customers and continuing to sell their products while meeting the broader objective.

That is a very cynical presentation, and I am sure that the Minister can reassure me that some brilliant things are happening under the scheme, but I have not seen evidence that reassures me that that is the best way to approach the fuel poverty problem and that suppliers are the right agents to do this on our behalf. Perhaps the DWP could become more involved. I know that some suppliers will complain that it is hard to find those customers because they do not hold the data. The Government have the data. We are responsible for welfare and the DWP has a role here. Perhaps we should look again at a combination of different government departments being more involved, and getting local authorities more involved. I am not saying that that is the answer, but I raise the question of how, in our attempts to tackle this distressing element of our modern society, we keep scrutinising what we are doing, ensure that it is delivering value for money and ask ourselves: is this working and getting to the root of the problem? Perhaps the noble Baroness can reassure me that this has been, or will be, done. Can she also answer my first question, which was: for how long will we just keep extending this mechanism, and do we need a rethink as to how we approach this problem?

--- Later in debate ---

[Baroness Verma]

My Lords, I am extremely grateful to the noble Lord, Lord Empey, and the noble Baroness, Lady Worthington, for their contributions. I agree with the noble Baroness—we are agreeing a lot today—that it is criminal to have so many of our citizens living in fuel poverty. However, we also have among the most energy-inefficient housing stock in Europe, and we need to address a number of issues at the same time. The scale of this is huge.

To return to today’s order, the response to the question of why it should be extended for a year if it is working so well is that we want to extend it to a year but, as the noble Baroness is aware, the commitments will then be dependent on the next spending round. While we can commit to the extension this year, the next Government will have to make commitments for further extensions, or not. We need to look at the core reasons underpinning why people are living in such inefficient homes and at how we better ensure that we resolve that part of the difficulty. The measures that we have undertaken, whether it is the Green Deal, the ECO or the rollout of the smart metering programme, will all add to helping consumers to take greater charge of how they have control over their own energy needs.

I agree with the noble Baroness that we have a long and high hill to climb, which is why, as she points out, we need to work much better across government. We are working with the Cabinet Office on how we can better data-share. On her question, “Why use energy suppliers?”, the mechanism to deliver this is cost-effective. It is right that we also try to ensure that we do not add extra costs in delivery. If it is in the interests of the suppliers, given that competition is now greater in the marketplace, it will ensure that they deliver better, more effectively and more efficiently; otherwise, they know that the process of switching to another supplier is much easier. There are lots of processes going on, and we need to ensure that those people who need to benefit the most have access to the information.

I say to the noble Lord, Lord Empey, that it would be better to write to him. He has laid out rather a detailed question on Northern Ireland. He has already mentioned the Department for Social Development, which, as he will know well, already offers energy efficiency improvement schemes for low-income households. It would not do justice to his question if I were to skimp on replying now; I would rather write to him and perhaps send a copy to the Committee, if that is agreeable.

[Baroness Worthington]

I am sorry to rekindle the debate. While the Minister was responding, I was thinking that it may be time to introduce some form of test for energy policy to articulate the impact of energy policy decisions on fuel poverty. One of the reasons why I think that might be necessary is, if we look at what is happening with some of the extensive costs coming from last year’s Energy Act—by this I mean the cost of CFDs, for example—it is proposed that those costs should fall only on consumers, not on industrial participants. I can see the logic for that, but it will have the effect of loading those extra costs on to consumers at a time when we have a problem with fuel poverty. I wonder whether we can have a discussion on having a fuel poverty test on policies. We would then at least be aware, when we decide where costs should fall, that we are not blind to the impacts on fuel poverty.

[Baroness Verma]

As the noble Baroness is always aware, I am very happy to take that away and have discussions outside of the Committee with her and any other noble Lord who would be interested in the subject matter. The ultimate goal for all of us is to try to reduce the impact of any extra cost on those who can least afford it. I am very happy to take that away and have discussions with the noble Baroness and others.

Infrastructure Planning (Radioactive Waste Geological Disposal Facilities) Order 2015

Debate between Baroness Worthington and Baroness Verma

Wednesday 25th February 2015 Grand Committee

[Baroness Worthington]

It is actually a matter of millennia, if you want to put nuclear into its proper context. I do not dispute that the pendulum of regulatory approaches to nuclear swings. I have visited Oak Ridge, the home of nuclear fission research, where nuclear gases used to be vented into the woods because people did not perceive it to be a risk—indeed, there is something to be said for the view that that was not a very risky activity. We have swung back towards very tight regulation for good reason, but that is not to say that that has to be set in stone and that our approach today is right—there is a constantly shifting understanding. I said that background radiation is natural to make the basic point that we as human beings have evolved in a radioactive environment. People are not always aware of that.

This is about getting back to the basics and having another look at the physics of nuclear, so that we can perhaps defuse some of the fears. There is probably no riskier way of storing nuclear waste—if there is indeed a large risk—than the way we use today. I am grateful to the noble Lord, Lord Avebury, for pointing out that we seem to be speaking as if there is no waste and that we are suddenly creating waste to put into a depository. The waste exists and it sits around the country, although it is correct to say that a large proportion sits in Sellafield. We need to find a solution, but that is not to say that this is the greatest risk that man has ever faced. The risk is manageable and engineered and we should see it in that context.

I will not detain the Committee any longer. I am grateful for the debate. I reiterate my request from our last debate that we should begin to have a national public conversation about nuclear and the risks involved. As other noble Lords have said, the issue has to be seen in the context of the much broader environmental risks that we face. There is an inherent logic behind the regulations. This is a nationally significant project and, although we do not wish local involvement to be excluded, we need to get the balance right, so we support the regulations.

[Baroness Verma]

My Lords, I am extremely grateful for all the contributions. As always, this issue needs greater debate. I agree with the noble Baroness, Lady Worthington, that this is an important national debate, which we cannot reduce down to one area or region.

I start by responding to the suggestion made by the noble Lord, Lord Liddle, that this is a “dump”. Such terminology is unhelpful. If we are to have an informed debate, we need to ensure that the language that we use does not generate fears among communities. Taking things seriously, we need to be able to express an informed view to the broader public, who may not be as well informed as the noble Lord, Lord Liddle.

Oil Prices: Rural Consumers

Debate between Baroness Worthington and Baroness Verma

Thursday 29th January 2015 Lords Chamber

[Baroness Verma]

My noble friend is of course right to raise the issue of people living in rural areas. There are a number of factors that account for fuel price differences in rural areas. Often as not, the transport costs are higher and there are fewer competitors in rural areas. My noble friend is right to raise this, and we have spoken to energy companies to ensure that where they can pass on the price reductions they are doing so, so that no one is left out in benefiting from reduced pricing.

[Baroness Worthington (Lab)]

My Lords, during this period of volatile fossil fuel prices, does the Minister agree that we need a real regulator, with real teeth? We should not have to resort to talking nicely to the companies. Is it not true that we should take Labour’s example and bring in a regulator with real teeth, extending its remit to cover all heating fuels, including oil delivered in rural areas?

[Baroness Verma]

My Lords, the noble Baroness’s party had an opportunity for 13 years to change the regulator but did not. We believe that the regulator has been given enough powers to ensure that energy companies are performing and passing on savings. This Government have brought in greater competition. We believe that competition is what will drive down prices. Today we see 20 independent companies competing with the big six—which, of course, was a creation of the party opposite.

Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015

Debate between Baroness Worthington and Baroness Verma

Tuesday 27th January 2015 Grand Committee

[Baroness Worthington (Lab)]

My Lords, I, too, am grateful to the Minister for talking us through these regulations and for presenting a very clear and informative case for them. I have a number of questions relating to the regulations.

I notice that in the debate in the House of Commons, where these SIs were discussed previously, the Minister responding was a little loath to answer general questions about how the RHI is delivering against its targets. Specifically, when questions were asked about the budget, including the budget going forward, no clear answer came back. I therefore begin by reiterating those general questions to the Minister. Could she tell us when we might expect an update on how the RHI is doing in relation to where we need to be to hit our targets? Could she also give us a sense of when we might hear about how we are going in terms of the budget? Are we underspent or near to an overspend, and what are the budget projections going forward?

On the regulations, we certainly welcome, like the noble Lord, Lord Teverson, the introduction of sustainability criteria for biomass. It is a good idea, and it is very important that we restore the reputation of sustainable biomass. It is very easy to have one rotten apple in the barrel taint the perception of the whole system. It is important that we have transparent and robust information about sustainability and requirements on suppliers to meet those standards.

However, there is a point at which this ever increasing pressure to incorporate every single element of carbon emissions upstream on biomass is unique. It is not something that we do in other fuel supply chains. For example, gas is in the headlines a lot at the moment, and we hear debate about fracked gas versus LNG and versus gas coming from Russia, all of which have a different carbon intensity and carbon footprint, but that fuel supply chain is almost ignored and is not paid the same degree of attention. I understand why, but would just question when we might start to see a slightly more equal handling of fuel supply chains across the piece. Biomass certainly has a role to play in decarbonisation, but it should not be singled out. We ought to apply equal and fair treatment to all fuels, if we are going to pursue this very detailed accounting of upstream emissions.

I certainly welcome the list of suppliers and the department’s attempts to try to simplify this for both end-users and suppliers to ensure that the industry can get off to a good start.

I am also encouraged to hear from the Minister that she believes that biomethane injection to grid could be an important contributor to our renewable heat targets, but I am just curious to know to what extent biomethane is delivering. I imagine that we are now introducing tiered tariffs because there has been a relatively good uptake. What does the department now believe the potential for biomethane is? It would be very helpful to have it as the percentage of the total demand for renewable heat and gases, just so that we can get a sense of how we are doing and what the potential is. We expect that the RHI will uncover information about this market which, as has been said elsewhere, is a world first in terms of creating an open and widely applicable subsidy scheme for renewable heat. We would expect it to deliver quite interesting findings in terms of the least-cost options for decarbonisation. We simply have some curiosity as to where we see biomethane injection as we progress towards our targets.

We support the new powers to cause payments to be stopped and the interventions that are now possible. We have said this before in debates on the RHI. We remain concerned, and hope that the Government share our concern, that we must not see abuses of the RHI. We cannot afford negative headlines in the press about subsidies being abused or any wrongdoing, so it is important that the enforcement and sanctions parts of this intervention are got right. Why were these powers not originally included in the proposals? I am glad that they are there now, but I question why we had not thought through the need to do this earlier. I reiterate that I hope everyone in the department is fully aware of the need to ensure that, even if we take a slightly light-touch regulatory approach, we are very vigilant in ensuring that there is no potential for misuse of the funds, which are public funds in this case, not bill payers’ funds.

I have a question about the overall way we are going to move forward on the RHI. As we have seen from today’s discussions, this is now quite a complex policy area which has many triggers within it, including digressions and abilities to change different levels and to move technologies and bands. During the passage of the Infrastructure Bill through this House, an amendment was introduced by the Government that removed the need for an affirmative resolution for changes to some important parts of the RHI. At the time, I asked the Minister whether it would apply to tariffs and budgets applied to different technologies and whether it was appropriate. I am grateful to the Minister for writing to me on 17 November to confirm that moving from the affirmative resolution procedure to the negative resolution procedure would apply to tariffs for technologies. I reiterate my concern. I do not fully understand why it should be felt necessary to remove this part of the process which allows us to comment on statutory instruments and changes to statutory instruments. In her letter, the Minister said that it was to enable the Government to act quickly, but this is not a particularly slow process. It is an important part of the democratic process that ensures that we get proper scrutiny and an opportunity to question changes. It reassures the industry that due process will be applied to changes which will substantially affect plans for investment.

So again I ask: what is the real rationale for removing this important process? Perhaps it is for no other reason than that we will have fewer of these conversations, and that would be a great shame because I enjoy talking about the RHI. As the noble Lord, Lord Teverson, said, it is refreshing to be talking about something other than power when it comes to energy. I think we should maintain full scrutiny of these changes. This is a complex policy area, but it is an important one that we need to get right.

I am also slightly not reassured by the Minister’s statement that the Government will continue to “engage” properly with industry. I would like to hear a bit more about what engage properly with industry that means. I say that in the context of experience where, for example, on feed-in tariffs for solar, we saw very hastily introduced changes that were not properly consulted, and a great deal of bad feeling was created. If a change to the way we consider these SIs leads to anything like that in this market, it would be a great shame.

I would welcome the Minister’s comments on why we are moving away from the affirmative resolution procedure and, if they continue to pursue the negative resolution procedure, what the Government will do to ensure that they are properly listening to industry and engaging. Other than that, I am happy to support the regulations.

[Baroness Verma]

My Lords, I am extremely grateful to my noble friend Lord Teverson and the noble Baroness, Lady Worthington, for their support for the regulations. They have raised a number of questions. I shall endeavour to answer as many as I can, but if I miss out on any question, I shall write to them.

--- Later in debate ---

[Baroness Worthington]

Perhaps I did not articulate my question clearly enough. What I was asking about was not equal treatment within the RHI, but equal treatment across the energy sector. Why do we take a full “well to wheel” approach or a full lifecycle approach to biomass, but not to fossil fuels which, let us be honest, are inherently less sustainable? We do not treat them equally with biomass. My point was a broader one than simply about the RHI.

[Baroness Verma]

I am extremely grateful to the noble Baroness for that clarification, and clearly I failed to recognise the question as she originally put it. I think that the response needs to be made in a fuller, more formal letter to her. These are detailed criteria going forward, and of course what I cannot do is look retrospectively at the energy sources we have already.

Going forward with the schemes that we have control over today, we need to make sure that they are as sustainable and environmentally friendly as they possibly can be. Where we may have had trade-offs in the past, we want to ensure that those are now reduced to a minimum so that we can look not only at value for money for the consumer, but also that we play an active role in environmental protection, which is absolutely right.

I suspect that I have missed a number of questions, but since inspiration is not coming from behind me at this moment, I must assume that we will write.

I shall conclude by saying to the noble Baroness and to my noble friend that the contributions made by these schemes rightly should be reviewed regularly so that we can ensure that we are achieving the best value that we can offer to consumers without burdening the new sector itself. We also need to listen carefully to those in the sector to ensure that we do not inadvertently put up barriers that hinder their progress. We want to see newer technologies entering the marketplace, so a balance needs to be struck between reducing support when a technology matures and no longer needs so much support and encouraging the emerging ones. The noble Baroness mentioned the solar industry. Frankly, that is now seen as a mature part of the sector which needs less support, and rightly so.

In thanking both noble Lords for their support, I commend these regulations to the Committee.

Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015

Debate between Baroness Worthington and Baroness Verma

Tuesday 27th January 2015 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, on 11 December I laid before the House a draft statutory instrument containing the decision of my right honourable friend the Secretary of State for Energy and Climate Change, as justifying authority under the Justification of Practices Involving Ionising Radiation Regulations 2004, that the generation of electricity from the nuclear reactor design known as the UK ABWR—the UK advanced boiling water reactor—is justified. Regulatory justification is one of the regulatory steps which are necessary before new nuclear power stations can be built in the UK. It is based on the recommendations of the International Commission on Radiological Protection which are used around the world as the basis for radiological protection.

These recommendations form the basis of the Euratom basic safety standards directive, which requires member states to ensure that, before any new practice involving ionising radiation—such as a new design of nuclear reactor—can be introduced, it must first undergo a high-level assessment to determine whether its economic, social or other benefits outweigh the health detriment that it may cause. The requirements were implemented into UK law by the 2004 regulations, which provide that a decision on whether to justify a new practice should be taken by the justifying authority—in this case, my right honourable friend the Secretary of State.

The decision follows two public consultations by my department. There was first a consultation on an application from the Nuclear Industry Association for justification of the UK ABWR. Following that, the department last year published a second consultation on a proposed decision that the UK ABWR should be justified. After considering the responses to these consultations, we announced on 11 December our decision that the UK ABWR was justified. Copies of documents setting out detailed reasons for the decision have been deposited in the Library of the House.

In summary, we see a clear need for the generation of electricity by the UK ABWR because of the contribution that it can make through increased security of energy supplies and reduced carbon emissions. One UK ABWR will be able to produce 1,350 megawatts of electrical power for a high proportion of its operating lifespan of 60 years—enough electricity to power 2.5 million homes. Nuclear power has long been a significant source of low-carbon energy and it can continue to contribute to our energy mix. Energy companies are investing significantly in the prospect of new nuclear power stations, including Hitachi-GE Nuclear Energy Ltd and Horizon Nuclear Power, which are proposing to build two UK ABWRs at each of the two new nuclear power stations at Wylfa in Anglesey and Oldbury in Gloucestershire.

Beyond direct investment and employment from new nuclear power stations, we can benefit through the development of a globally competitive nuclear supply chain and an improvement in the quality of the UK’s skilled workforce. Against these benefits, there is the potential for detriment, but this potential is small, well understood and guarded against by an established regulatory regime. The radiation dose which members of the public would receive from the normal operation of a UK ABWR on an annual basis would be below detectable risk levels in the context of overall radiation exposure, including medical procedures and background radiation. The safety features of the designs and the regulatory regime, which sets limits on the release of radiation and monitors compliance, will ensure that emissions will be minimised. The risk of health detriment is therefore very low.

Justification decisions apply to the management and disposal of radioactive waste that new nuclear power stations will produce, as well as to their operation. In making our decisions, we are satisfied that the regulatory regime will limit the risk of health detriment from waste management and disposal to very low levels. We are also satisfied that there is a robust process in place to identify a suitable site for a geological disposal facility and are confident that a site will be identified and that a GDF will be built. We also concluded that the possible environmental detriments arising from new nuclear power stations are likely to be avoided or adequately mitigated by the licensing and planning regime.

We considered the risk of detriments arising from an accident or terrorist incident. Such possible detriments already exist, and the risk of such incidents should be seen in the context of the regulatory regime, which is intended to prevent accidents and protect against terrorist attack. We are confident in the regulatory regimes for the safety and security of civil nuclear installations and materials in the UK, and consider that the likelihood of an accident or other incident giving rise to a release of radioactive material is very small.

We have therefore concluded that the significant potential benefits outweigh the potential detriments, and that the generation of electricity by the UK ABWR should be justified. I commend the regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing these regulations. Obviously, we support the regulations and we see that greater diversity in reactor designs in the UK will be a good thing. We generally support the building of new reactors at the site in Wylfa and believe that it is important for the UK to continue to keep its nuclear capabilities and capacity as we move towards decarbonising our electricity system.

My comment on the process, however, is perhaps more general. This process, which we are required to undertake under Euratom to justify activities involving non-ionising radiation under the 2004 regulations, means that we treat nuclear infrastructure in a very different way from other risks that exist in society. I have a question about what the Government think is the right way forward in terms of balancing risk, when it comes to assessing the role that nuclear power can play as we go forward. My reason for asking is that we have a particular regime for ionising radiation; however, as the noble Baroness pointed out, radiation is a naturally occurring phenomenon and background radiation levels differ greatly around the country.

There is probably now a need for a national conversation about risk and how we deal with it. In this case, nuclear power seems to be being singled out for treatment that is not necessarily commensurate with the scale of risk. I say that because, in aggregate, US climate scientist James Hansen often points out that nuclear has a massively beneficial impact on health in terms of lives saved from avoiding air pollution. That is just one example of the advantages of nuclear power when it is used sustainably and safely. There is a need for a public discourse about our perception of risk, particularly, as in other sectors of the economy we have nowhere near as tight regulation on activities that pose threats to human health. I include among them vehicle emissions and air pollution more generally, and the use of chemicals in our environment, particularly those which have the potential to disrupt endocrine systems. The list is a long one, but in this case we seem to have developed an incredibly detailed system which has a regulatory burden attached to it.

I would simply ask this: do the Government think that we should have a conversation about this, and if so, how would we go about it? As we weigh up the costs of mitigating climate change going forward, it is important that we have a thorough and detailed understanding of the relative risks. On nuclear, my sense is that we need to look at the issue again.

[Baroness Verma]

I am extremely grateful to the noble Baroness for her support for the draft regulations, and of course I agree with her that the sector by its very nature is heavily regulated, and rightly so in order to build confidence. I also agree that the discussions need to be much fuller and more informed, and of course I hope that we will take the opportunity to open that debate going forward. However, perhaps we need to wait until after May to begin so that it can be fully informed by all sides. I accept that what we do not want to do is single out a sector which is helping us to meet our carbon targets. We should not overly prescribe for one sector as against others. Given that, we need to ensure that there is confidence, trust and transparency in the system, so it is right that, until we have had that debate, we should continue in this vein. I am pleased that the noble Baroness has expressed her support and I commend the regulations to the Committee.

Electricity Generation

Debate between Baroness Worthington and Baroness Verma

Thursday 8th January 2015 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, the Minister is correct to say that the lights are not in imminent danger of going out. Interconnectors are increasing and delivering, demand for electricity is going down and gas prices are softening, so there is no imminent danger. However, we now find ourselves in a strange situation where we are paying old polluting coal stations to stay open at the same time as paying to close them. When will the Government address that anomaly?

[Baroness Verma]

My Lords, the noble Baroness is absolutely aware that we need to ensure that we are also being cost-sensitive to the consumer. Consumers cannot be bearing the brunt of us closing plants down and putting the prices up.

Climate Change: UN Conference

Debate between Baroness Worthington and Baroness Verma

Wednesday 7th January 2015 Lords Chamber

[Baroness Verma]

My Lords, I am always grateful for my noble friend’s interventions. I reassure him that to try to bring so many countries from across the globe to a meeting to discuss a point which currently affects us all is most important. Given that we know that sea levels are continuing to rise, polar ice continues to melt and we have increased global temperatures, we need to bring people to the table to discuss such important matters.

[Baroness Worthington (Lab)]

My Lords, I am encouraged to hear that the Minister thinks that we need to increase current levels of effort. As noble Lords will be aware, we negotiate in climate talks as the EU, and the EU is currently on track to comfortably exceed its current targets. Does the Minister agree that to unlock ambition, it might be time for the EU to review—and be prepared to increase—its 2020 target, which we may meet as early as this year?

[Baroness Verma]

My Lords, the noble Baroness is right that we need to ensure that ambition is always at the heart of what we do. However, we need to make sure that the rest of the world is coming with us so that we all remain competitive as well. Although the noble Baroness is right that we keep raising our ambitions, we need to make sure that others’ ambitions are raised as well.

Wales: Fracking

Debate between Baroness Worthington and Baroness Verma

Tuesday 2nd December 2014 Lords Chamber

[Baroness Verma]

My Lords, I think that many of these issues were raised during consideration of the Infrastructure Bill, and many of the commitments that the noble Lord was asking for were agreed to. I think that he should be reassured that monitoring and reporting of the processes will be there and available, because the companies know that to generate confidence they have to be open and transparent.

[Baroness Worthington (Lab)]

My Lords, will the Minister please acknowledge that during the debate on the Infrastructure Bill we put forward a comprehensive plan of measures to improve the environmental regulation. We do not wish to stop fracking but we want to see that it is done, wherever it is done, in an environmentally safe way. The Government have put forward regulations but not a single one relates to changes in the environmental regulatory regime. Can she explain why that is?

[Baroness Verma]

My Lords, this country has a proud reputation of being one of the most robust regulators in the world.

Infrastructure Bill [HL]

Debate between Baroness Worthington and Baroness Verma

Monday 10th November 2014 Lords Chamber

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, I thank the noble Baroness, Lady Worthington, for proposing these amendments and all noble Lords who have contributed to the debate. It gives me the opportunity to respond in full to both amendments in the group. They seek to extend the maximising economic principle objective to include,

“co-ordination of the transportation and storage of CO₂”,

and would require,

“the establishment of a strategic vision for the permanent storage of CO₂ in depleted fields”.

I reassure noble Lords that the UK has one of the most comprehensive programmes on CCS anywhere in the world in order to support the commercialisation of the technology and develop the industry. The programme includes a competition with up to £1 billion capital plus operational support for large CCS projects and a £125 million research, development and innovation programme. In addition, the Government set out how we are supporting the carbon capture and storage industry in a policy scoping document published in August. The document sought evidence and views from experts and stakeholders on a range of issues affecting the CCS industry going forward, including CCS with enhanced oil recovery. The deadline for submitting those views passed just over two weeks ago. Given that we are analysing the responses we have received and are in discussions with HM Treasury over its review of the fiscal regime for oil and gas, it would seem premature to make provision in primary legislation at this time.

The Government recognise that captured carbon dioxide could play a role in enhanced oil recovery, and likewise that enhanced oil recovery could play a role in the UK’s carbon capture and storage industry going forward, but the extent of any interaction between the CCS industry and the concept of maximising economic recovery of petroleum is not yet clear. Carbon dioxide transport and permanent geological storage is a nascent industry, so although it is important to promote the industry where possible it would be wrong to be too prescriptive now. That point was made eloquently by my noble friends Lord Jenkin and Lord Caithness. Further discussions with industry and the relevant trade associations are needed before we can say with certainty how the MER UK principle should apply to areas such as CCS.

The Oil and Gas Authority will have a significant function in considering the role of CCS when determining whether companies are operating in line with the maximising economic recovery strategy. The OGA will issue carbon dioxide storage site licences and approve carbon dioxide storage permit applications. It will also have responsibility to ensure that CCS is considered as part of a proposed decommissioning plan and will take into account the viability of utilising captured carbon dioxide in enhanced oil recovery projects. In addition, the transfer and storage of carbon dioxide is an important technology, which is why it is likely to form a key element of the technology and decommissioning sector strategies that will be developed by the OGA, in consultation with industry. These strategies will help to underpin the overarching strategy related to maximising economic recovery.

The right reverend Prelate the Bishop of Chester asked how this would help us to meet our emissions reduction aims as set out in the Climate Change Act 2008. Implementing recommendations contained in the Wood review will be done in a way compatible with the legally binding climate change targets. Our overarching energy strategy seeks to underpin secure and diverse energy supplies, including renewable, nuclear and indigenous resources. The carbon plan has shown that Britain will still need significant oil and gas supplies over the next decades while we decarbonise our economy and make a transition to a low-carbon one; projections show that in 2030 oil and gas will still be a vital part of the energy mix, providing around 70% of the UK’s primary energy requirements as we seek that transition.

The right reverend Prelate also asked about the costs of carbon capture. If he and noble Lords would allow it I would like to write to him and ensure that the Committee gets sight of the letter.

Having given those reassurances and demonstrated that the Government see that carbon capture and storage will be a part of our strategy in the future, though we are still at an early stage, I hope that the noble Baroness can be persuaded to withdraw her amendment.

[Baroness Worthington]

I thank the Minister for her response and for the comments of noble Lords. I am encouraged to hear these explicit references to the work of the OGA in relation to CCS and EMR. It is not unnecessarily prescriptive to add it to this part of the Bill. As we go forward and if the Government come forward with other legislation to transfer the OGA from an executive to a private company, we may have a chance to revisit this. We are in a world where CCS is being taken seriously and EMR is often associated with that. We are also in a world where offshore oil and gas fields are running down. If CCS can achieve the double aim of reducing our carbon emissions and helping to maximise economic recovery, that should certainly be pursued. I do not see why it cannot be explicitly stated, as it seems such an obvious win-win, but I am happy to withdraw my amendment.

--- Later in debate ---

[Baroness Verma]

I am extremely grateful to the noble Lord, Lord Young. He is absolutely right to point out that exploration is immediately stopped once the level of 0.5 is reached. However, I will clarify the point and write to him, and put a copy of the letter in the Library.

With these reassurances, I hope that I have been able to convince the noble Baroness to withdraw her amendment.

[Baroness Worthington]

My Lords, I am grateful to the Minister for her comments and to noble Lords on all sides of the House who have spoken in this illuminating debate. As is characteristic of this place, it has been based on fact and has reflected the care and understanding that is always applied to these issues. However, having listened to the noble Baroness’s response, I have to say that she has not reassured me that the Government are listening on the very important issue of the need, for the industry’s own sake and for the economic benefit of this country, to be absolutely certain that, while we have a world-class regulatory system in place today, we will not see it become overwhelmed as the use of this form of extraction of the UK’s natural resources expands. There is an absolute and clear link between requirements in statute and the resources that are made available to meet those legal standards. I think it was the noble Baroness, Lady Young of Old Scone, who pointed out that it is imperative that we have a clear and transparent regulatory system so that we know what is required of everyone and so that adequate resources are made available to ensure that, in the future, fracking has the best chance of proving to its detractors that it can be done safely. It is not correct to say that everything is in place for a world-class regulatory system today. There are loopholes and, while the noble Baroness has sought to give us some reassurances on independent inspection, I do not believe that she has addressed all the questions that have been raised in the debate. On that basis, I will not withdraw the amendment and I seek to test the opinion of the House.

--- Later in debate ---

[Baroness Worthington]

My Lords, I am grateful to noble Lords who have contributed to this debate, which has been another interesting exchange of views on how best to get the fracking industry off on the right foot and to minimise the degree of public opposition that might arise.

I recently visited the Lake District, which is one of my favourite parts of the country. I visited a mining museum and, in doing so, I realised that we often see such parts of the country as having a great value now in terms of tourism, wildlife and appreciation of scenic beauty, but that they have in previous times been quite diversely economically active and been able to accommodate different activities within the boundaries of the parks as we know them today. Therefore, I for one am not of the opinion that these special places need to be preserved in aspic but that it is about achieving the right level of balance.

That said, it is absolutely clear that, when you have a Government who say that they are all out for fracking and that it will be the silver bullet that solves all our energy needs, and slightly overhype it, you can see why people get nervous that all due consideration and care are not being taken. I shall be interested to hear the Minister’s responses to the two amendments. The second of them, Amendment 115, points to something of an inconsistency, with planning guidance having been issued for national parks and AONBs but not for other nationally significant sites. Such sites, because they tend to be smaller, more fragmented and under considerable pressure from a wide range of economic activities already, arguably deserve even greater levels of protection than those larger national parks and AONBs, which I think can accommodate economic activity within them and generate jobs and economic benefits. I look forward to hearing the Minister’s response.

[Baroness Verma]

My Lords, I welcome the commitment of the noble Baroness, Lady Young, to protected areas and was grateful for our meeting prior to today. Such areas are nationally and internationally important in terms of their environment, and all noble Lords who have contributed today, from whichever perspective, have highlighted their significance.

As the noble Baroness made clear in Committee, these areas are the jewels of our country and we agree that they need to be accorded appropriate protection. While I recognise the intent behind the noble Baroness’s amendments, which is to ensure the necessary protection for habitats and species in or near to protected areas, I assure her that such areas are already offered a high level of protection derived from EU directives transposed into domestic policy and through the planning system, as noble Lords have alluded to today. The National Planning Policy Framework, the supporting planning guidance and a government circular on biodiversity and geological conservation all recognise that there are areas designated for natural conservation and biodiversity value, including sites of special scientific interest, special protection areas, special areas of conservation and Ramsar sites, and that they should be given a high level of protection. They are clear that protected areas need to be fully and appropriately considered by mineral planning authorities when exercising their planning duties, both in preparing local plans and determining planning applications.

The planning authorities assess each application for shale and geothermal development on a case-by-case basis. For example, the National Planning Policy Framework makes it clear that development should not normally be permitted if, either individually or in combination with other developments, it is likely to have an adverse effect on a site of special scientific interest. That applies even if the development is outside site of special scientific interest boundaries.

The Conservation of Habitats and Species Regulations 2010, which transpose the EU habitats and wild birds directives, ensure strict controls on any plan or project that might affect European sites such as special protection areas and special areas of conservation. Development cannot occur on or near such protected areas unless it can be shown to a high degree of scientific certainty that there will be no adverse impact on the integrity of the site. This is a very high bar for securing development in such areas. In addition, the Natural Environment and Rural Communities Act 2006 and the Nature Conservation (Scotland) Act 2004 place a duty on all public authorities, including the Secretary of State for Energy and Climate Change, when exercising their functions, to have regard to the purpose of conserving biodiversity. Public bodies also have comparable duties relating to national parks, areas of outstanding natural beauty and sites of special scientific interest.

It is important to note that the regulatory system in the UK fully recognises these protections. Before any oil or gas operations can begin, operators must gain a permit from the environmental regulator, the Environment Agency or an equivalent agency. The Department for Environment, Food and Rural Affairs is currently preparing revised guidance on protected wildlife sites as part of a wider project to make all the department’s guidance quicker to use and easier to understand—the noble Baroness raised that when we had our meeting the other day. This will help ensure that these requirements are clearly communicated to developers and regulators.

The noble Baroness, Lady Worthington, said that the Government looked on shale as being a silver bullet. We have always maintained that we do not see it as a silver bullet but that we see its potential for ensuring that we have home-grown supply and energy security and for helping drive down costs to the consumer. The debate should be in that context rather than shale being taken out of context in the wider arena.

In drawing the attention of the noble Baroness, Lady Young, to the robust regulatory regime that is already in place and the full recognition that the planning system already gives to protected areas, I hope that she is reassured that such areas are already accorded significant protection and, on that basis, will withdraw her amendment.

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[Baroness Worthington]

My Lords, I am grateful to my noble friend for tabling his amendment and for continuing the discussion that we started in Committee. I am sympathetic to the intention behind these amendments and am particularly interested in the aspect of liability arising from orphaned sites. We are talking about a potential new industry that will see a large number of distributed sites developed. We may well see smaller companies that perhaps do not have the assets or deep pockets of more traditional extractive companies, and there would be considerable potential for orphaned sites. I am very interested to hear from the Minister how we would address any liability arising from such orphaned sites.

I think my noble friend Lord Whitty said that he is seeking for the Government to demonstrate foresight. It strikes me that the Government are demonstrating foresight in some respects of fracking, in imagining the future benefits and future economic wealth that will come. Over the weekend, we even heard comments about the imagined spending of all this great tax revenue. We shall debate that aspect shortly. That foresight is possible, but perhaps we should apply it in the slightly more realistic context of learning from previous experiences of extractive industries in trying to plan for what happens if everything does not go according to plan. I would have thought that companies would be able to take out insurance against some of these liabilities. Again, I would be interested to hear from the Minister about what type of insurance she might expect companies to undertake and what liabilities would be insured. We are entering uncharted territory in the types of company, the types of project and their distribution across the country. It is right that we should proceed with caution.

There is a lot of merit in the amendments tabled by my noble friend Lord Whitty. He started by saying that he was trying to help out the Government. A number of us have tried to help out the Government during tonight’s debate. However, I suspect that the Government are not listening and do not want to be helped out, but there we are. I look forward to the comments from the Minister in response to this amendment.

[Baroness Verma]

My Lords, I am always grateful to the noble Lord, Lord Whitty, for trying to help out the Government. I have listened very carefully and of course I recognise his concerns and those raised by the noble Lord, Lord Judd. However, as my noble friend Lord Jenkin very eloquently put it, there is already a lot in place that addresses the concerns raised by the noble Lord, Lord Whitty. The existing regulatory system covering onshore oil and gas is robust. We already have more than 50 years’ experience of regulating the onshore oil and gas industry. There are controls and regulations in place to ensure on-site safety, prevent water contamination, mitigate seismic activity and minimise air emissions.

While the Government are keen for shale and geothermal exploration to go ahead, shale gas development must be safe and environmentally sound. I agree with noble Lords that we need to be sure that we are responding robustly to the perceived concerns that the public raise. One of the central aims of the current regulatory framework is to ensure that wells are appropriately designed and operated, and that when operations cease they are properly decommissioned.

A petroleum licensee cannot search for, bore for or get petroleum without a petroleum exploration and development licence, the terms of which are in the model clauses set out in secondary legislation. All drilling or production operations, and the abandonment of any well, require the consent of the Secretary of State. In addition, there are regulators and controls that can be relied on to minimise risk and any impacts associated with oil and gas activities. Those controls include conditions attached to environmental permits issued under the Environmental Permitting Regulations 2010 in England and Wales and the equivalent regime in Scotland, as well as safety scrutiny by the Health and Safety Executive.

The current regime, as it applies to shale gas, includes the management of mining waste and naturally occurring radioactive minerals, the scrutiny of well design and construction, the suitable restoration of sites, the protection of habitats and 10 different EU directives addressing environmental concerns. In addition, the Environmental Protection Act 1990 and the domestic Environmental Damage (Prevention and Remediation) Regulations 2009 provide for the remediation of contaminated land and serious environmental damage. This regime, together with the operators’ responsibilities under their licences and permits, is sufficiently robust to ensure that operators are required to remediate any damage or pollution to the environment.

If, for any reason, these controls were not enough—we have no reason to think that this would be the case because the UK has a well developed and very strong regulatory regime—and if any damage were to occur, in accordance with statutory requirements and government policy, remediation of the damage would be dealt with under the main regimes for dealing with contamination. These regimes are sufficiently robust to ensure that, if a company causes damage, harm or pollution to the environment, operators can be required to remediate the effects and prevent further damage or pollution. This is the same approach that applies to other industries, and we believe that the existing law is robust.

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[Baroness Worthington]

My Lords, I am grateful to the Minister for speaking to her amendments. As she said, there are three aspects to this group. The first is the potential for somebody other than Ofgem to administer the RHI. I am intrigued by this aspect and I wonder whether we may be creeping towards a bit more joined-up government in terms of renewable energy. There is always a tendency to equate renewables with electricity, whereas under the EU mandatory targets agreed for 2020 we are required to move forward on renewable energy, which means electricity, transport and heat. There has been rather a stop-start process of renewable transport fuel support, and a separate body oversees that. Under the RO the renewable electricity side has been the responsibility of Ofgem, and it is now moving to the department, for the Secretary of State specifically to oversee, while Ofgem has been given the RHI to look after. It would seem sensible to me to have one consolidated agency to deal with all renewable energy, so that we could properly assess the best application of our renewable resources to the different markets.

If we apply a biomass unit of energy to the generation of heat we get far more efficiency and far more displacement of carbon in the heat market than we would by going into electricity—or, indeed, into transport fuels. We need a bit of joined-up thinking on our various ways of supporting renewable energy. I wonder whether this gives us an opportunity to have a look at the regulatory framework.

On the second part, about third-party payments, I am very supportive of the amendment. It will help to overcome a barrier about which people have personally petitioned me, and said how much of a barrier it is.

On the third point, however, I am afraid that I am not quite so supportive. I do not want to detain us too long, but the Minister and I have spent many a pleasurable afternoon in Committee discussing the RHI. It has not been unnecessarily time-consuming or difficult—we generally tend to get through SIs quickly—but it gives us an opportunity to revisit the RHI and see how it is doing. It would be a shame if we were to create any uncertainty in the industry by moving to the negative resolution procedure. I seek clarification from the Minister. She speaks of uncontroversial straightforward changes and describes them as technical. If that group of potential changes included changes to the subsidy levels for different technologies, that might cause alarm for some people in the sector—particularly if they felt that they would not have the opportunity to petition Members on both sides of the House, to discuss and to raise concerns.

This is an industry that has seen quite a lot of changes, and is subject to rigorous derogations and price control mechanisms. They are incredibly complex, and I do not really want to spend any more afternoons debating them—but I would do so if that would give comfort to the industry. It is a new and growing industry, and we are not quite on track yet for meeting our targets. We need to see considerably higher growth in renewable heat if we are to meet the challenging targets that we have set ourselves. I am seeking reassurances from the Minister that these negative resolution procedures will not increase uncertainty in an industry that we need to see getting stuck into the job of delivering and putting us on a strong footing with regard to our EU targets.

[Baroness Verma]

My Lords, I agree completely with the noble Baroness that we must ensure that there is proper parliamentary scrutiny. I assure her that the amendment aims to achieve greater flexibility while retaining appropriate parliamentary scrutiny. The amendment stipulates that some use of the powers is important in areas that remain subject to the affirmative resolution procedure. We will not move away from that where there is cause for it. Where we just want to make some minor, technical changes is where it is probably more likely that we would wish to use the negative resolution procedure.

[Baroness Worthington]

Will the noble Baroness write to me? What I am most interested in is change to the level of subsidy given to different technology bandings.

[Baroness Verma]

I of course undertake to write to the noble Baroness and place a copy in the Library.

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[Baroness Verma]

My Lords, I thank the noble Baroness, Lady Worthington, for yet again bringing this subject to the attention of the House. As my noble friend Lord Caithness eloquently said, we debated this amendment during the passage of the Energy Bill less than a year ago. Noble Lords will recall that, after careful consideration, this House and the other place decided that it should not be adopted. I do not propose to set out in detail again the reasons why the Government did not support this amendment when it was last considered. However, noble Lords will recall that the Government’s main concern was that it could lead to circumstances where existing coal plants closed prematurely, leading to a need for more generation capacity to be built earlier than would otherwise be necessary, and resulting in totally unnecessary and avoidable cost to consumers.

I want to address the points made by the noble Baroness that developments since we last considered this amendment make it necessary to reconsider the conclusion we reached at the time. It is true that there have been a number of developments over the course of this year. We have set about implementing our electricity market reforms, which include taking the actions that are delivering new investment and our plans for a secure, affordable and low-carbon electricity system. That is well demonstrated by the allocation in April of the first contracts for difference to eight renewables projects. These projects include offshore wind farms and coal to biomass conversions, which alone will provide up to £12 billion of private sector investment by 2020, supporting around 8,500 jobs and providing a further 4.5 gigawatts of low-carbon generation capacity to Britain’s energy mix.

The noble Baroness pointed to the capacity market and the fact that four of the 11 remaining coal plants are seeking a three-year capacity agreement to refurbish their plant. She said that that is evidence that these plants will upgrade to comply with the industrial emissions directive allowing them to continue operation long into the future and generating at levels inconsistent with our decarbonisation plans. She also pointed out that the freezing of the carbon price floor improves the economics of continuing to operate coal-fired power stations. The fact is that neither of these developments is expected to have a significant impact on the overall future outlook for coal.

The Government’s latest projections, which take into account recent changes to the carbon price floor, suggest that virtually all coal will have retired by the end of 2025. Only one of the four plants seeking a three-year capacity agreement has fitted the equipment needed to comply with the directive and operate without constraint when it comes into force on 1 January 2016, as my noble friend Lord Caithness rightly said. We are not aware of evidence that any of the other plants will be compliant with the directive at the time it comes into force.

Even were these plants to achieve compliance at some point in the future, our assessment remains that overall levels of generation from coal will decline over time as multiple factors, including age, environmental regulation, increasing levels of low carbon generation and a strengthening carbon price, act to reduce coal generation, although the additional resilience to our energy system that comes from a small number of compliant plants while they are still economic to operate would not be unwelcome.

The risks that would be created by this amendment are also more immediate. I would like to draw the attention of noble Lords to the first auction under the capacity market that will be held in December, which is our response to ensuring security of supply at the least cost to the consumer. A potential impact of this amendment is to constrain the ability of plants to generate when it is otherwise economic for them to do so. Accepting this amendment will therefore create a significant regulatory risk to those plants seeking refurbishment contracts in the capacity market. Their response may therefore be to seek a higher capacity clearing price to compensate for this possible reduction in electricity market revenue, particularly in the years preceding the first delivery year in 2018-19. Alternatively, these investments may not go-ahead. Neither scenario is desirable, with the risk that the cost of the capacity market is pushed upwards with no accompanying benefit to security of supply.

We should also consider what sort of signal it sends to investors of all types of generation, not just coal, now and in the future. They will interpret this as further intervention of a measure that has already been rejected by this House and so close to the first capacity market auction where we will be seeking competitive commitments from over 48 gigawatts of capacity to ensure continued security of our electricity supplies over the course of this decade. It is also important to remember that over 10 gigawatts of new gas has come forward to participate in the December auction, highlighting that we have the right incentives in place to ensure security of supply at the least cost to consumers and to encourage competition through new investment. As we discussed last year, I will oppose an amendment that has the potential to increase consumer bills and increase the risks to security of supply.

There is an almost unanimous consensus on the need to substantially decarbonise our electricity system on the pathway to cutting our greenhouse gas emissions by at least 80% by 2050. There is a similar consensus that it is only with carbon capture and storage that coal will continue to play a role in that future. The measures we agreed last year to reform our electricity market are already bringing forward the investment needed to achieve this cost effectively and securely. Against this background we continue to believe that applying the EPS as proposed by this amendment is a potentially risky intervention in the market.

I hope I have gone half way to convincing the noble Baroness that the developments since the Energy Bill was before this House less than a year ago are unlikely to have the impact she assumes and I hope on that basis she will be willing to withdraw her amendment.

[Baroness Worthington]

My Lords, I thank the Minister for her response. It may well be true that up to 10 gigawatts has bid into the capacity market but my point is that not one of those apart from Carrington, which is already under construction, will successfully be awarded a capacity mechanism contract. They are going to be frozen out by contracts that will be given to existing coal. It is pointless telling me that lots of people out there want to build gas if in reality we are going to keep coal open at the expense of those investments in cleaner, more efficient technology.

We have spent the largest part of this evening talking about fracking rather than the need to develop the resource of gas so that we can use it as a bridging fuel. There is absolutely no point us investing in that if there are not going to be any stations in which we can burn it efficiently. The losers in this capacity mechanism at the moment are the operators of existing gas stations and those who wish to build new ones. That is because we continue to tell ourselves that the lights will go out if we constrain coal and that that will necessarily force a higher price on to consumers. The money we are spending on propping up old coal is going to be money wasted—we will have to shut these stations anyway at some point. Why we seem to be perpetually telling ourselves that we cannot do without these ageing dinosaurs in our electricity system is beyond me.

I do not intend to detain the House any longer at this stage and I will, of course, withdraw my amendment. However, I reiterate the words of Dr Gross from Imperial College that we will not see the end of old coal without government intervention. If this Government refuse to do it then it will fall to another Government. There is a future for coal; it is with CCS and only with CCS. Unabated coal is simply not something we should be sustaining through the 21st century and no end of anyone telling me otherwise is going to persuade me. However, I will withdraw this amendment now.

Infrastructure Bill [HL]

Debate between Baroness Worthington and Baroness Verma

Wednesday 5th November 2014 Lords Chamber

[Baroness Verma]

It would require proper consultation. We would have to go through the proper consultation processes to ensure that, having seen what has worked or not worked with these initial schemes, when going forward on including other schemes we are able to respond to the needs of those technologies. That is what local communities will ultimately have to face. It is not about primary legislation; it is about looking at how we would be able to add those new schemes through consultation. We have said very clearly that we are not stopping or excluding other provisions of electricity supply. We would have this opened up but we are starting with the focus on the renewable sector. I hope that I have been able to make that a little clearer to the noble Baroness. If I have not done so, I will repeat what I have already stated: these provisions would apply only to renewable electricity schemes. To clarify my noble friend’s point, we would have to readdress it in primary legislation.

[Baroness Worthington]

My Lords, there we have it. This does not feel to me like appropriate primary legislation. If we have the potential for bringing in new definitions of what these schemes apply to, perhaps we should put it in a schedule or in secondary legislation and have this slightly less draconian in order to give us that flexibility. The Minister has made it clear that this is quite a new thing; it is not tried and tested. I find it quite surprising that this is coming from an anti-regulation Government, and that we should be imposing this quite bizarre new set of regulations on an industry that is growing and developing and delivering great economic benefit to the regions. Yet here we are, imposing this ownership requirement from on high. Although it is obvious that the Government have consulted the industry, it is none the less really unhappy about this—that goes certainly for the solar industry. It does not see the right as something that will help it boost investment; rather, it sees it as an impediment to increasing investment. I am afraid that I am not persuaded.

On which technologies are mature, we have been using various forms of renewable electricity for many decades, including hydro, energy from waste and biomass, but these are excluded. The Government have chosen just two technology types, which happen to be, coincidentally, a little bit contentious politically, and have decided that they are going to impose this ownership right on them.

It is not appropriate to be rushing this measure through with primary legislation at this stage. I have not been persuaded that the definitions are clear. I suspect that this will be an issue that is returned to when this Bill passes to another place. However, at this stage, I do not feel inclined to divide the House, and I am happy to beg leave to withdraw the amendment.

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[Baroness Worthington]

My Lords, it is very late and I do not wish to detain the House. However, I want to add my strong support for the amendments tabled by the noble Lord, Lord Jenkin of Roding. They seem very sensible. I am absolutely convinced that we need to ensure that there is a proper consultation process. It is absolutely right that we should be stipulating that this should not have a retrospective element. I hope that the Minister will be able to put our minds at ease by at least helping us to understand that this should not apply retrospectively. I have looked carefully at the schedule, but it does not seem to be explicit there and it needs to be clear. Should there be any doubt over that, it would set a difficult and unwelcome precedent so we are supportive and we look forward to the response.

[Baroness Verma]

My Lords, I thank my noble friend for tabling these amendments. The first part of Amendment 109 seeks to include a requirement on government to conduct a progress review of the voluntary approach and report the findings to Parliament before regulations may be made in respect of onshore facilities. The second part seeks to require government to appoint a panel of experts to review, advise and report on community stakes in relation to offshore renewables before regulations may be made in respect of offshore facilities.

To start with the first element of the amendment, as I mentioned in an earlier discussion, the Shared Ownership Taskforce published its final framework on Monday. I appreciate that there has not been much time to consider it, so I will set out today the relevant commitments that the taskforce has made in relation to reviewing and reporting progress. In doing so, I hope to demonstrate that there is already a clear process in place for reviewing and reporting. As such, there is no need to include these additional requirements in the Bill, as my noble friend proposes.

The taskforce intends to set up a monitoring group to ensure that progress is evaluated and reported. It proposes six-month and 12-month reviews and will report its findings to my department. As set out in the Community Energy Strategy, the Government will conduct a review of progress next year. The findings from the taskforce’s progress reviews will be critical to this. The Government wholeheartedly support the work of the taskforce. We will be formally responding to its report early in the new year. In it, we intend to endorse its monitoring and reporting process and confirm that this process will feed into the Government’s review next year. Both the Shared Ownership Taskforce and the Government will be monitoring and evaluating the success of the voluntary approach prior to backstop powers coming into force in line with the Government’s Amendment 129, which we will debate a little later.

Turning to the second part of the amendment on offshore renewables, our focus now is on increasing community shared ownership for established onshore technologies such as onshore wind and solar. These are the technologies covered by the Shared Ownership Taskforce’s voluntary framework. Having said that, the community electricity right powers provide future flexibility to include offshore technologies, but we have been very clear from the start that this would be on a longer timescale. This is not to say that we would not encourage offshore developers to offer a stake to communities where they choose.

The suggestion that my noble friend Lord Jenkin makes in Amendment 109 is sensible. If the Government were ever to consider exercising these powers for offshore renewables, I agree it would make sense to set up a panel of independent experts to provide advice on offshore renewables in advance. This would be a similar approach to the one we have taken for onshore renewables with the Shared Ownership Taskforce, which is comprised of experts from the renewables industry and the community energy sector. However, at this stage our focus is firmly on onshore renewables. It is not our intention to establish a voluntary process for offshore renewables right now. As such it would be premature to commit to this and to restrict ourselves at this point to the wording that my noble friend has proposed. We should therefore wait and consider the option of a panel of offshore experts when we have a clearer position on whether this is needed, and if so, what any panel might look like and report on.

Amendment 110 seeks to introduce an obligation on the Government to consult a range of interested parties in advance of exercising the community electricity right provisions and developing any secondary legislation. I completely agree that consultation is essential to ensure that the Government hear the views of all relevant stakeholders and take them into account before deciding the best course of action. These views will also be critical to the formation of secondary legislation that is fit for purpose and can be implemented successfully. However, I do not believe the amendment is necessary. In Grand Committee I made it clear that the Government intend to conduct a formal consultation before exercising the powers. That position has not changed. The consultation would be open to everyone, including the parties listed by my noble friend in Amendment 110, such as community groups, developers, the Scottish and Welsh Governments and Ofgem. My noble friend’s amendment includes some of the very organisations and bodies that we would expect and encourage to contribute to a public consultation given their clear interest, knowledge and understanding of this area.

I will provide a single response to Amendments 111 and 112 as they are inextricably related. I recognise that this is an extremely important aspect of the provisions, particularly in terms of providing future certainty to the renewables industry. The community electricity right provisions would apply to new renewable electricity projects coming forward in the development process. I confirm that the provisions would therefore not apply retrospectively nor to projects that have already received planning consent. The Government have always been clear that this is our policy intent. For example, the Explanatory Notes to Clause 28(5) explain that this provision ensures that the regulations would not apply retroactively and would apply only to facilities that have not, at that date, reached a specified point of development.

While I am keen to provide these reassurances in the House, it would not be right for me to commit to include in primary legislation a qualification that the regulations may not apply to projects that have applied for, but not yet received, planning consent. That may be an appropriate approach to take, but as I am sure my noble friend will understand, the Government would wish to consult on this matter before making a final decision. In doing so we would look closely at the experiences of successful shared ownership schemes including lessons learnt from the voluntary approach. In conclusion, I hope that I have provided noble Lords with enough reassurance about the Government’s position on these matters and, on this basis, I hope my noble friend Lord Jenkin will withdraw his amendment.

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[Baroness Worthington]

My Lords, briefly, I again support the noble Lord’s amendment and welcome the government amendment which will indeed delay the “when” aspect of this question. There remain considerable questions about why these provisions have been brought forward, given that the voluntary approach is moving forward. I still think that we are unfairly singling out two technologies relative to other forms of electricity generation. However, I am happy that we now have more time to think. I absolutely echo the words of the noble Lord, Lord Jenkin, that this should be seen as a backstop power, which we hope should not need to be enforced.

[Baroness Verma]

My Lords, I am grateful to my noble friend and the noble Baroness for their contributions. We listened carefully to my noble friend in Committee and I have very much taken on board all the views that were expressed on that matter, including those of my noble friend, industry stakeholders and the Shared Ownership Taskforce. I am pleased, in response, to bring forward government Amendment 129 which revises the date of commencement of these provisions to 1 June 2016. That ensures absolute clarity on the minimum amount of time the Government intend to allow for the voluntary approach to take effect. It means that the Government could not exercise these powers before 1 June 2016 at the very earliest. This date allows just over 18 months from the date on which the Shared Ownership Taskforce published its voluntary framework, earlier this week, to when the powers may be exercised. I hope that by bringing forward this amendment I shall allow my noble friend to go home feeling satisfied with his input, which—as much as is possible—is always my intention.

Green Climate Fund

Debate between Baroness Worthington and Baroness Verma

Monday 27th October 2014 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, on Friday the IPCC will publish the synthesis report for its fifth assessment report into climate change. It is likely to say, yet again, that there is now incontrovertible proof that climate change is a serious issue and we all must take notice of that. Does the Minister accept that Friday might be a good opportunity to point that out to some of the Back-Benchers in her party?

[Baroness Verma]

The noble Baroness is right. The fifth assessment report has concluded that, and many around your Lordships’ House recognise that. It is not just about Back-Benchers on my side; it is about ensuring that we deliver an informed debate, and perhaps thus far that debate has not really taken place.

Energy: Winter Supplies

Debate between Baroness Worthington and Baroness Verma

Monday 20th October 2014 Lords Chamber

[Baroness Verma]

No, my Lords. We have a sensible policy in this country, and people across the world look at what we are doing to encourage green energy as well as traditional fuels. If we are to leave a cleaner planet for future generations, we have a part to play.

[Baroness Worthington (Lab)]

My Lords, demand for energy has fallen so far this year. In the first half of this year we saw a 17.5% reduction in gas demand and a 5.7% reduction in electricity demand. People are walking around today in T-shirts. There is no need for the hysterical headlines that we are seeing about closures in plant. We have 25% of our energy today coming from wind. The question is: does the Minister agree that it is time to create an energy security board so that we can stop the alarmist headlines, have a mature debate and get our energy security and demand management policy back on track?

[Baroness Verma]

I agree with the noble Baroness that we need to have a sensible energy debate; maybe she could take that message back to her leader.

Infrastructure Bill [HL]

Debate between Baroness Worthington and Baroness Verma

Tuesday 14th October 2014 Grand Committee

[Baroness Worthington]

My Lords, I thank the Minister for her response although, again, I am not wholly reassured. Particularly, one of her final comments served to illustrate why there is a level of distrust in the current approach. Put simply, if you leave it to the operators to do everything on a voluntary basis, including paying for all of this, where is your reassurance that it is done to the correct standards? Obviously, a profit motive drives this. Let us not try and beat about the bush. This is about not UK sovereignty of energy but shareholders and people making money. If you ask them to pay for monitoring, they will do monitoring in the best way they think fit. That may well be simply a handheld device or the very minimal level of monitoring, which will not be good enough to establish whether we have a problem, either in terms of establishing the baseline or keeping on monitoring against it.

[Baroness Verma]

Of course, the Environment Agency has to be satisfied. As the noble Baroness is aware, it is among the toughest of the regulators we have.

[Baroness Worthington]

Absolutely, but the noble Baroness will also be aware that it is under quite considerable pressure in terms of its budget. This is an additional new task that it is being asked to perform but is it being given the budget to do it properly?

[Baroness Verma]

Again, I apologise for intervening but I should like to reassure the noble Baroness that the Environment Agency has reassured us that it has adequate resources.

[Baroness Worthington]

Then perhaps my anecdotal point about the money being asked for in order to do the very best in laser monitoring is not true. Perhaps we can have some more correspondence about that before Report.

I will not dwell on this for too long. I think it is fine to say that we are going to take a risk-based approach but exactly how are we going to do this, what level of monitoring will be done and how are the Government going to keep monitoring all these voluntary approaches that are being proposed—voluntary EIAs, for example? The industry can say that but are the Government monitoring whether applications are going in at a local authority level without EIAs? I have certainly had representation from groups saying that they are going in without publicly available impact assessments. I hope that that is not the case but my sense is that the Government are taking rather a lackadaisical approach to this in thinking, “Well, if the industry says it’s doing it, it must be doing it, so that’s fine”. I am afraid that that is not how you engender trust.

I hope that more can be said about the role of the water companies as well. It is not just us who think that they should be statutory consultees; this is coming from Water UK. Therefore, it is certainly something that the Government should take seriously. Of course, if the water companies are required to make a response, they do not have to make it a voluminous response; it can be very short. However, they will then at least be part of the process and there will not be the potential for them not to be involved, which would severely weaken the level of information and knowledge that local planning officers have.

I shall leave it there. I am sure that we will return to this on Report but, at this stage, I am happy to beg leave to withdraw the amendment.

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[Baroness Verma]

My Lords, I am grateful to the noble Baroness for tabling these amendments. I know that many of us heard the well rehearsed arguments during the passage of the Energy Bill. I agree with the noble Lord, Lord Whitty; I do not think it was four years, although it probably felt like four years. Whatever, we all got a lot of grey hairs from it—I remember that.

The measures in the Bill and our electricity market reforms have demonstrated that they are already working and starting to deliver new investment in electricity infrastructure: a clear demonstration of industry confidence. In April, we announced the allocation of the first contracts for difference to eight renewables projects. These projects included offshore wind, coal-to-biomass conversions and a dedicated biomass plant with combined heat and power. By 2020, these projects alone will be able to provide up to £12 billion of private sector investment, supporting 8,500 jobs, and could add a further 4.5 gigawatts of low-carbon generation capacity to Britain’s energy mix. This builds further on the major growth in the UK’s renewable electricity sector that we have seen, with capacity more than doubling since 2010 and with renewables now providing around 15% of our electricity. I wanted to point that out before I came back to the noble Baroness’s amendment.

We recognise that the intent behind the Energy Bill amendment was to achieve outcomes broadly consistent with those to which the Government are firmly committed. The potential uncertainties of applying the EPS in the way proposed by the amendment, on balance, pose risks that the Government should be unprepared to take.

The noble Baroness has already helpfully explained that existing coal-fired power stations will need to invest in fitting equipment in order to meet the requirements of the EU industrial emissions directive. That directive succeeds the large combustion plants directive and sets much more stringent limits on emissions of oxides of sulphur and nitrogen from 1 January 2016. However, I recognise that there have been a number of developments since last year as we have set about implementing our electricity market reforms.

I do not share the noble Baroness’s analysis of the current position or her prediction of the future. I am therefore not convinced that in the case of this amendment there is a need to revisit the conclusion reached by both Houses on this point less than a year ago. I do not think that I want to go back and rehearse the arguments made during the debate on the Energy Bill that led to the rejection of the amendment previously. They highlighted the risk that it could lead to a scenario where coal plants closed earlier than might otherwise be necessary to most cost-effectively achieve the decarbonisation of the electricity system. Were this to happen, the need for more generation capacity to be built earlier than we currently project could result in an increased cost to consumers. The noble Baroness may be prepared to risk imposing such unnecessary cost but I am not. The argument in recent months has been how consumers feel about the cost of energy.

I think there is almost unanimous consensus on the need substantially to decarbonise electricity generation by 2030. There is similar consensus that there will be little or no role left for unabated coal generation in future. However, we continue to believe that applying the EPS as proposed by the amendment is unnecessary and potentially a risky intervention to the market. It is our other EMR policies that will work to deliver the outcomes that we all wish to see but without risking our security of supply and ensuring that we are able to give consumers energy at as low a cost as possible.

The noble Lord, Lord Whitty, asked why we allow existing coal stations to participate in the capacity market. We do it so that the market ensures security of electricity supply at the least cost to the consumer. It is important to reiterate that all existing coal plants still need to meet their environmental commitments and will be subject to the carbon price floor. I assure the Committee that it is also about the fact that we have seen 7 gigawatts of new gas plant come forward seeking capacity agreement, which indicates that the capacity market is bringing on new investment.

I am not convinced that we need to revisit this argument. I know that the noble Baroness is absolutely committed to raising this issue again but I hope that I am able to convince her that the steps we are taking in the broader argument are ensuring that we are able to deliver at a cost value to the consumer and that security of supply remains, and that we remain committed to bringing on as much low-carbon energy as possible through the reforms that we have made in the Energy Act. I hope that on that basis she is able to withdraw the amendment.

[Baroness Worthington]

My Lords, I am grateful to the Minister for her reply. I am particularly grateful to the noble Lords who contributed. It is certainly true that the noble Lords, Lord Teverson and Lord Whitty, explained what the amendment does more clearly than I was able to do. For the avoidance of any doubt, we were simply seeking to limit the amount of time that old coal-fired power stations could run so that they did not provide base load power. That is the purpose behind it. It would not mean that they should shut or that they should not upgrade; it would simply mean that we had a mechanism for preventing them from base loading and thereby displacing otherwise clean capacity.

It is true that one of the cheapest ways of reaching a lower carbon intensity is to run your gas stations first and your coal stations as peaking plant; that is just incontrovertible. Every kilowatt hour produced with gas produces half the emissions compared with a coal station. In the act of upgrading these stations, those kilograms of CO₂ per kilowatt hour will increase. That is because it takes energy to run the filters. So we are taking an already inefficient station, making it less efficient and more carbon intensive, all apparently in the interests of keeping the lights on, when, in fact, we have seen that far more capacity than is needed is coming forward. This coal will displace investment in gas if that gas turns out to be more expensive. Therefore, it does not deliver on security of supply, and it does not deliver on cost-effectiveness because it forces us to do more of the more expensive things. We will have to decarbonise in other ways if we do not close coal, and that will be expensive. It is about cost-effectiveness, and that is why we want this amendment.

The Government do not have a coal policy. They do not have a plan for phasing out coal. Everyone can say fine words about it but coal stations are in the ownership and hands of the private sector. If they can make a profit from running these plants, they will. The Government put nothing into the Act dealing with EMR that stopped old coal—in fact, the reverse. They have created a new incentive, and by allowing firms to apply for three-year contracts the Government are paying them to upgrade. Eight gigawatts of coal is a lot of capacity. Eight gigawatts of new gas would engender a large amount of lower-carbon capacity that would be more flexible and, in the long run, cheaper and more reliable.

We listened with great care to the arguments put forward in the previous debate. The world has changed since then, not least—as my noble friend Lord Whitty pointed out—because policies have changed. The Government took the opportunity in the Budget, shortly after Royal Assent, to freeze the carbon price floor, which was a key defence mechanism. I shall not go on any further. This is a fundamental flaw in the Energy Act. I would like to revisit it, and I am not persuaded by the arguments that have been made. However, at this stage, I beg leave to withdraw the amendment.

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[Baroness Verma]

My Lords, as I made clear during previous discussions on the Energy Bill—now the Energy Act—a decision to exercise this power is absolutely not something that should be rushed into or done in isolation. We had some very long discussions around this target so I will not go back and repeat those. But such a target would have a significant implication for the power sector, the so-called “non-traded” sector, for consumers and the wider economy. It is therefore vital to understand fully, based on evidence, whether a target represents the best approach to meeting our economy-wide carbon budgets cost-effectively and, if so, at what level it should be set.

It is for these reasons that the Government have maintained that the right time to consider whether to set such a target is in 2016. That is the point at which, in line with the requirements of the Climate Change Act, we will undertake extensive analysis to set the level of the fifth carbon budget in law which will cover the year 2030. This will allow us to consider the target in the context of the whole economy and what is required to ensure that the UK not only meets its 2050 emissions target but also remains competitive with other member states. In 2016 we will also have a better understanding of how the market will respond to the reforms that this House debated in the passage of the Energy Act and a clearer idea of EU and global climate change ambition. It is about timing. We laid out very clearly that 2016, in line with the fifth carbon budget, is the right time for this. I suspect that the noble Baroness and I will not agree here but I hope that at this point she will withdraw her amendment.

[Baroness Worthington]

My Lords, I do not propose to detain us any longer on this. I listened to that response. I sincerely hope that whoever is in government will set a challenging decarbonisation target in 2016. It would be better if we let the next Government make that decision but I am very happy to withdraw at this stage.

Renewables Obligation Closure Order 2014

Debate between Baroness Worthington and Baroness Verma

Thursday 24th July 2014 Grand Committee

[Baroness Worthington (Lab)]

My Lords, I am sad to see the end of the renewables obligation. It is tempting to say that everything was dysfunctional, that nothing was working and was not it awful. However, we should look at what we have achieved: at how much renewables capacity we now have in the UK and at how quickly and efficiently it has been deployed. This was largely achieved because of the RO, which replaced the NFFO scheme.

It was a highly innovative scheme which was introduced to allow the market to choose the projects it thought it should bring forward. It was obliged, of course, to meet targets set by Government but, by and large, it chose what to do. There were merits in that because it created an obligation. As we know, faced with having to do something or not do something, most people would choose the latter, stick with what they know and remain encumbered with technology that they understand and assets that they can continue to sweat. One of the benefits of the RO was that it did not allow that to happen. The ways in which penalties were repaid back to your competitors encouraged you to build new bits of kit, and to do so under a market-driven system. Over time, of course, it changed to ensure that we were not paying too much and that consumers were getting a good deal.

Over the years that we have been debating EMR, I can remember someone saying to me—I do not know whether or not it is true—that when EDF first approached government and said, “We want to build a new nuclear power station”, its first suggestion was, “Simply give us a ROC band. We can do it. We can build you Hinkley if you turn it into a low-carbon obligation and allow nuclear to be eligible”. Would it not have been a lot simpler if we had just said “Yes”? We did not, but we have come up with a new system, and we are where we are. However, I want to put on record that RO was successful; it brought forward a lot of capacity and brought diverse players into the market. We saw a great diversification of the number of companies that took part in the electricity market because of the RO. I, for one, am slightly nervous that we are abandoning what was a functioning system and embarking on a new, glorious path. I hope that the CFD will be as successful.

However, one suggestion is that it would be good for the department—perhaps this talks to my noble friend Lord Whitty’s point about communicating with the public in ways that it understands—if we could have an assessment of the RO, how much capacity was brought on, the diversity of that capacity and of the investors in that capacity. That would give us a good baseline from which to measure the success of the CFDs. We want CFDs to be more successful—we want them to bring on more capacity from a more diverse range of participants. Therefore, although it is not strictly speaking part of this regulation, and nothing in there requires it, it would be good for the department to undertake to provide us with a summary and a review of the effectiveness of the RO. From there it could move on to use those parameters of diversity and deployment against the CFDs, so that we can measure how successful they are.

My noble friend Lord Whitty raised an important point, that once the RO closes and the CFDs move on, there is a danger that we have mid-range technologies which fall into a sort of valley of death between FITs and the new CFD arrangements. I echo his question. We want to clarify that we will not see technologies that are currently receiving support either through FITs or the RO being lost in translation towards the CFDs. However, other than that, I thank the noble Baroness for her presentation.

[Baroness Verma]

My Lords, I am extremely grateful to all noble Lords for their contributions. This has been a very short but interesting debate. I will respond very quickly to one or two of the points that were raised. Again, if I do not respond fully, I undertake to read Hansard carefully and to respond in writing.

The noble Lord, Lord Whitty, asked whether Citizens Advice would be consulted on the use of powers relating to the RO; the answer is yes. He also asked about financial support for solar PV. We have consulted on the proposals to close RO across Great Britain to new solar PV capacity above 5 megawatts from 1 April 2015. Those proposals will apply to both new installations and to additional capacity added to existing ones. From the noble Lord’s expression, I am not sure whether that was the answer he expected.

Electricity Capacity Regulations 2014

Debate between Baroness Worthington and Baroness Verma

Thursday 24th July 2014 Grand Committee

[Baroness Worthington (Lab)]

Can the Minister clarify something for me? There are seven instruments listed on the Order Paper, including the Renewables Obligation Closure Order.

[Baroness Verma]

That one will be debated separately.

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[Baroness Worthington]

On a point of clarification, I did not ask whether CCS was eligible; I stated that I knew that it was and asked whether the standard contract terms in the third regulation before us were suitable for CCS. That was my question.

[Baroness Verma]

In direct response to the noble Lord, Lord Oxburgh, who did ask that, I think that I have laid that out clearly. I will wait for some inspiration to come my way in answer to the noble Baroness. Concerning coal in the capacity market, I say to the noble Lord, Lord Oxburgh, that the purpose of the capacity market is to ensure security of electricity supply, providing all forms of capacity with the right incentives to be on the system and to deliver energy when it is needed. Ruling out existing coal would add unnecessary cost to consumer bills. In addition, it acts as an important bridge while new nuclear and renewables come online, leading to a natural need not to have more coal.

The noble Baroness, Lady Worthington, asked about Hinkley Point C. The Commission considers the UK’s Hinkley Point C state aid notification as part of the normal process. We are working closely with the Commission. As the noble Baroness will be aware, these things take time to go through the various stages, but it is not significant to us that it is taking this long, because it is a big project. Of course we need to ensure that we comply with all the things that the Commission expects of us on state aid issues.

The noble Baroness asked about existing coal stations bidding for capacity agreements of up to 15 years. As I said to the noble Lord, Lord Oxburgh, all types of generation can in theory bid for a capacity agreement of up to 15 years. However, we do not expect any existing coal capacity to do so. The thresholds have been set so that the capital expenditure would have to be of a level similar to building a new plant to qualify for a 15-year agreement, so even if an existing plant could justify making that level of capital investment, it would be unlikely to do so. Modelling demonstrates that the wider market conditions, such as the carbon price floor, will make coal uneconomic in the 2030s. As I said to the noble Lord, Lord Oxburgh, ultimately it is about value for money for the consumer and energy security—both objectives that I do not believe for a minute noble Lords opposite or other Members of the Committee would be against.

The noble Baroness also asked whether the Secretary of State could change the auction parameters, such as the amount of capacity to procure, without consultation. The regulations give the Secretary of State the power to determine auction parameters, including the amount of capacity to procure, before each auction. They are not subject to consultation; they are made when published. The Secretary of State has the flexibility to change them between the pre-qualification period and when the auction takes place so as to be able to take account of issues such as the amount of capacity that has been pre-qualified and the plant that has opted out but will remain operational.

The noble Baroness also asked why the Government did not use the capacity market to support other means of capacity, such as interconnection or demand-reduction programmes, rather than support dirty coal. The capacity market is open to a wide range of capacity, from gas to CHP, as well as technologies including demand-side response and storage. All are eligible to participate in the first, main capacity auction. As we announced last year, we were unable to find a way to include interconnector capacity to allow it to participate in the first auction. However, that is an issue only for 2014, and interconnection will be eligible to participate early in 2015. We will bring forward amending legislation in early 2015 to facilitate that.

The noble Baroness also asked about eligibility for fixed generators in receipt of low-carbon support. The capacity market is open to technologies as long as they are not in receipt of other low-carbon support, such as a carbon capture and storage grant or a long or short-term operating reserve contract.

[Baroness Worthington]

Some of my questions have perhaps been a bit lost in translation. One of my questions on coal was also specifically about the definitions of new plant. If you get a 15-year contract under the new plant definitions in the capacity mechanism, should it not therefore mean that you are equivalent to a new entrant or a new plant under the EPS regulations? When we were debating this back in the summer of last year, nobody was aware that coal could qualify for 15-year contracts. I would really welcome a comment on that.

In terms of the demand-side management, I know that the generators are eligible but my question was more about whether there will be any room for them, given that we have 56 gigawatts of thermal capacity chasing an auction of fewer than that. It is conceivable that existing generators will be able to outbid them in that T-1 auction. I seek reassurances on how the Secretary of State is going to ensure that there will be space for the demand side to bid in.

[Baroness Verma]

I am grateful to the noble Baroness but I do not think that it got lost in translation. I responded to her but perhaps my response was not full enough, so it may be helpful if I undertake to write to her and to the Committee on that issue, as well as on the issue that she has just raised.

As I have said from the beginning of this debate—and it is now two hours later—the delivery of these new arrangements will be a significant achievement. They will ensure that we keep the lights on and ensure a clean, sustainable and competitive mix of electricity generation. We also want to do that in a way that secures value for money. I have always made the point to noble Lords that it is really important, as well as reducing carbon emissions, to look at value for money because, ultimately, all our measures have an impact on consumers. I commend these instruments to the Committee.

Infrastructure Bill [HL]

Debate between Baroness Worthington and Baroness Verma

Tuesday 22nd July 2014 Grand Committee

[Baroness Worthington (Lab)]

My Lords, when you have had such a rich and excellent debate, you find yourself in the position where everything you were going to say has been said before you by very eminent and noble people. I thank everyone for their contributions to this debate.

We are very supportive of this amendment in principle. I look forward to hearing from the Minister some, I hope, positive words about how the Government will take this proposal forward in principle and introduce it into the Bill during its passage. It is clear that, when we look at the Infrastructure Bill as a whole, this area represents something of a missed opportunity under this Government. Of the pipeline of infrastructure projects in the UK that the Treasury has collated into its Excel spreadsheet, more than half are energy projects. It is the single biggest sector in terms of the value of projects in that list. Energy is central and fundamental to any infrastructure policy. Yet here we are with not very much in the energy part of this Bill to start with. A few amendments have been added but this is really a missed opportunity to set out a very strong and strategic direction.

I am sure that the Minister will point to the fact that we spent much of last year talking about energy in the energy market reform package but that is still being implemented. On Thursday, we meet to discuss some of the detail of the statutory instruments and there are still significant issues that were debated during the process that are unresolved. I would argue that energy efficiency is one of them.

I am delighted that the noble Lord, Lord Deben, raised the fact that today we saw the Government finally remove the question mark hanging over the fourth carbon budget. It was a recommendation from the Committee on Climate Change that was accepted but a rather insidious caveat was inserted that it would be subject to review. This has been hanging over the carbon budgeting process for some time. Today we saw final clarification that the fourth carbon budget will remain as drafted, as it is in law, and will not be subject to review. That is a very good thing. I particularly extend congratulations to the noble Lord for the work that I am sure he and his committee did in trying to ensure that the Government saw logic on this issue. I also commend the Government for listening to logic and ruling out any changes to that fourth carbon budget.

However, as the noble Lord pointed out, this now has quite serious implications for policy. The first implication is that we must—must—secure a 40% greenhouse gas reduction target in Europe if we are to have a chance of meeting our targets in the traded sector. In the non-traded sector, which means the heat market and the transport market, we will have to up our game significantly and improve the energy efficiency of our transport and heat networks. That is really the nub of this amendment. For too long, we have ignored those essential components of energy policy. How we heat our buildings, homes, offices and industries and our transportation have been sidelined in favour of big glamorous projects in the power sector. There has been—although I hope it is shifting—a perception in the department responsible for energy that real men build power stations. I have heard anecdotally that there have been posters to that effect in certain parts of the department. I hope that they have now been expunged. We have women in that department now, which is great, and a new member in the shape of Amber Rudd who I am sure will contribute greatly.

Energy is not just about cutting ribbons on large projects. It is much more complex than that. It involves massive amounts of infrastructure, which extends all the way to the buildings, housing, homes and roads that we use to transport ourselves and to live and work in. Those aspects of infrastructure should be front and centre in any infrastructure project. It will have escaped no one’s attention that energy security and reducing our reliance on imported energy are of huge importance, particularly in current times. The most sensible way to do that is to reduce the amount of energy you need to use in the first place. That is why energy efficiency is now receiving far greater attention at European level and why we in the UK should similarly up our game on this aspect in meeting our carbon budget and in helping people to occupy, live in and work in buildings that are fit for the 21st century. I see this as fundamental to the question of infrastructure. How we transport ourselves and what we live in is part of our infrastructure. It ought to be in the Bill.

There is another important point. My noble friend’s amendment covers existing infrastructure and new infrastructure. It is important that if we are embarking on this large programme of infrastructure spend, we do so wisely with energy efficiency front and centre in everything we do. This amendment is not simply about retrofitting existing infrastructure. It also requires us when we are embarking on infrastructure projects to think carefully about the energy efficiency of those projects.

People might be considering how we make this real and what energy efficiency looks like. I have three examples. I mentioned our housing stock: we have among the worst housing stock in Europe. It is appalling that a country of our wealth and history should have people living in fuel poverty in damp and unheatable homes. This has to be stopped. We have to make sure that our housing stock is upgraded to give us warm and healthy homes to live in. It is not just that. There are also large swathes of commercial and retail buildings that could be re-engineered to become smart buildings and upgraded so that they use energy wisely and minimise the amount they use.

There is also lighting. There is huge potential for reduction in emissions and energy demand from lighting from the new LED lighting that is coming on board. When we are building roads and extending infrastructure, we should be planning to have the most efficient and up-to-date technologies that will save us money in the long run.

I do not want to detain the Committee any longer. This has been an amazing debate—I thank all noble Lords for their contributions. I am very much looking forward to the Minister’s response. I hope that before the legislation reaches the statute book, we will see a positive response to these amendments.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I agree with the noble Baroness that this has been an excellent debate. Everybody has spoken with great passion. Each and every one of us shares a common approach to making sure that we deal with energy efficiency in the round, not just for people in fuel poverty but as a commitment from our country to our carbon targets. Before I respond to the amendment moved by the noble Lord, Lord Whitty, I shall put on record for my noble friend Lord Deben and the noble Baroness that some of us are not playing with boys’ toys and are not interested in them but have spent a lifetime making sure that the subject that we are so passionate about is properly addressed. For those who like wearing helmets, good luck to them. I am just not one of them.

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[Baroness Worthington]

My Lords, I thank noble Lords who spoke on this amendment and the others in the group. I thank the Minister for her response. I cannot say it has done much to assuage my cynicism. I feel that this is more to be used in leaflets on doorsteps in Tory constituencies than anything else. That said, I understand and am grateful for the detailed responses.

This feels a slightly too restrictive interpretation of what we want to achieve with community engagement. I fear that it is slightly motivated by a desire to make renewables seem like a very special case and that there is something about them that is inherently difficult which you have to live with on your doorstep and therefore you will be given a special right which does not apply to any other type of energy project. I do not know that that is necessarily going to be a good thing.

The noble Lord, Lord Teverson, made a valid point about how far you go with this right to buy. I do not quite share his logic in saying that this might not be perfect but we should get on with it. This is so far from perfect that I am not sure that that logic applies.

I am very grateful for the responses. I will follow with interest whether charities end up being included on the list. I am sure that if they are not other people will be reading Hansard with great care and will follow up on that issue in particular. I do not follow the logic of the Government’s approach: “We have said it this way; therefore it has got to be this way”. There was a circular logic in some of the answers: “We have not included energy efficiency; therefore we cannot include energy efficiency” and “We do not think it should apply to offshore; therefore it does not apply to offshore”. Those are not principled responses because they just say, “This is what we are currently doing and therefore we are legislating to do what we are currently doing”. That is not necessarily the right approach.

[Baroness Verma]

My Lords, I have said that there will be times when formal consultations are held, so it will be useful to wait and see what the results of those formal consultations are.

[Baroness Worthington]

I thank the noble Baroness for that, and indeed it will be interesting to see what comes back from stakeholders and whether offshore generators will accept that this is a necessary provision. It feels like this is less about securing community engagement and more about trying to send a message along the lines of, “We know that renewables are really difficult and we are sorry. We will try to do something about them”. Anyway, I look forward to the debate on the next group of amendments.

[Baroness Worthington]

I thank the noble Lord for attempting to reject my cynicism. We know that there is an issue with the coalition Government. We know that one department is pushing renewables while another department is calling all the renewables projects in and objecting to them. I do not think that I am being paranoid in saying that there is a problem in the signals being sent to investors in renewable energy projects. It is quite apparent in the statements being made by different Ministers.

[Baroness Verma]

My Lords, I apologise. We should move on to the next group. However, I want to clarify that it is healthy to have these debates. The noble Baroness’s own party is also having them. To make this into a political debate is, I think, wrong, because the underlying premise of the noble Baroness’s amendment is what we are all trying to achieve—greater community engagement.

[Baroness Worthington]

I do not dispute that. I say again that I have nothing against community engagement—in fact, I positively encourage it for all the reasons the noble Lord, Lord Teverson, has outlined. As I said, it clearly helps people to move forward with renewable energy. I am simply saying that this approach is very narrow and that it inevitably puts an administrative burden on to a certain class of developers which does not apply to other developers. That is my concern. I am sure that we will talk about these issues in the next group of amendments. I do not think that I am wrong to express a healthy degree of cynicism and I am glad that I tabled these probing amendments so that we could have this debate. It is now on the record, so let us see how we get on. I am sure that it is something which will evolve over time. I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Worthington]

I thank the noble Lord, Lord Jenkin, for a characteristically thorough, thoughtful and detailed speech on this very important issue. I hope that if I attain his high level of expertise, I will be able to make similar speeches during my time in the House of Lords. I look forward to the Minister’s response. Some very important points of principle have been raised. Indeed, we aired some of the same concerns when considering the previous group of amendments. I support the noble Lord, Lord Jenkin. He sought to point out that essentially this feels like a solution in search of a problem. There is a predetermined view which says, “This is what we want to do, so now let us do it”, on not a great deal of evidence and the potential to send a rather unfortunate message to an industry that should be encouraged to expand. Given the Government’s usual approach to regulation as reflected in their Red Tape Challenge, which insists that if a new regulatory burden is put on an industry another one should be taken away, can the Minister tell us which of the renewables industry’s current regulatory impediments is going to be removed in order for this to be introduced? This is an impediment on industry. I am very grateful to the noble Lord, Lord Jenkin, for quoting Ofgem. That confirmed the fears I had. How is this to be administered? Will it be able to be enforced? What are the costs involved in doing this? Is it justified by any evidence that there is a problem that is not being addressed through the much more flexible, creative and, I hope, successful voluntary approach?

I strongly support the noble Lord, Lord Jenkin, and his opposition to the clause, which I am sure is designed to elicit reassuring comments from the noble Baroness that this is not a straightjacket that the Government are rushing to introduce and that we can take some time to get this right.

[Baroness Verma]

My Lords, I am extremely grateful to my noble friends Lord Jenkin and the Duke of Montrose, and to the noble Baroness for her contribution. This debate on Clause 26 allows me to lay out why we consider that what the Government are doing is absolutely the right approach. At the same time, I will address the matter of my noble friend’s Amendment 98AB, which seeks to delay commencement of the provisions by two years.

As we all agree, shared ownership is a key way to galvanise support and acceptance from local communities. That is critical for the future of the renewables industry. I have said previously that this Government have set out a logical and sensible approach to achieving that, first, through a voluntary means. Then, only if that is not successful, would we consider bringing forward legislation—and that only following a formal consultation.

With that in mind, I will respond to the points that my noble Friend Lord Jenkin raised today. First, I do not agree that the Government do not trust industry to deliver the voluntary approach. As I said before, the Government have set up an industry-led task force to drive an increase in shared ownership. We hope and believe that shared ownership will be achieved in that way. If we do not trust industry, as my noble friend suggested, why would we have set up a task force in the first place? I welcome the fact that the Shared Ownership Taskforce is—

[Baroness Verma]

I am grateful for my noble friend’s intervention but reiterate that we are working closely with industry. That work, through the Shared Ownership Taskforce, is going well. We commend the publication of its draft report. However, it would be naive to expect all those in industry to welcome this with open arms. Taking legislative powers has helped bring this matter to the forefront. The possibility of legislation has encouraged industry to take this matter seriously and provide the commitment necessary for the voluntary approach to succeed. The Government’s firm view is that the backstop powers are needed precisely in order for the voluntary approach to work. It is basically a call to action.

My noble friend made the point that there is nothing stopping Government legislating, even if the voluntary approach works. I would like to be absolutely clear that that is not our intention. The backstop powers would be exercised only if the voluntary approach does not succeed. In determining success, we will be guided by the task force and the outcome of its review in 2015. The Secretary of State for Energy and Climate Change addressed the task force to reassure it on that point. In addition, he provided further reassurance that, in order to give sufficient time for the voluntary process to take effect, there was no intention of exercising any power before 2016, if at all. In the Queen’s Speech debate in the other place, he reiterated this point:

“Since we are pursuing a voluntary approach, the power in the Bill is a back-stop. The community energy sector was clear that the voluntary approach should be given a chance to succeed, and I agree”.—[Official Report, Commons, 5/6/14; col. 139.]

[Baroness Worthington]

This reminds me of a debate that we had on the Energy Bill, where there was a similar backstop measure. On the decarbonisation target, for example, we were asked to accept a form of wording that said it could not be set until 2016. Perhaps something like that could be formulated for this Bill to give people reassurance that the intention is that it will not be done until 2016.

[Baroness Verma]

As with all things, I listen with great care and will, of course, having done that, discuss this with my officials. If we can improve the writing of legislation, I am always happy to look at that. However, I reiterate that this is basically a backstop power. We expect industry to deliver, but let us not be naive: there will be parts of industry that do not and will not, and we therefore need to have that measure in place. Finally, exercising this power would, of course, be subject to affirmative resolution procedures and would therefore require the consent of both Houses.

The Delegated Powers Committee’s view is that these provisions are not inappropriate, in particular since they provide for the affirmative parliamentary procedure to be used. The committee hoped that we would provide as much information as possible on the shape and content of secondary regulation, and we are currently considering what we can do to satisfy this. As I am sure my noble friend is aware, when I am asked by the Delegated Powers Committee, I try my level best to ensure that as much information is available to it as possible.

I have spoken previously about the importance of not prejudicing the models coming forward through the voluntary approach and the outcome of any formal consultation. It is for these key reasons that we have not set out the finer details of implementation within primary legislation. However, I take on board my noble friend’s concerns and hope that I can offer him some comfort. We are currently considering the recommendations of the committee and, in particular, whether we can provide further briefing on what any secondary legislation might look like. The Shared Ownership Taskforce is due to publish its final report in October. Following that, we could consider how its final approach influences the details of implementation, but going any further than this now could prejudice the outcome of the task force’s consultation, which we would be loath to do. I hope to provide an update to the Committee on this matter before Report.

The amendment proposed by my noble friend would introduce a two-year delay to the commencement of these provisions, which I do not believe is the right approach. I will set out a few reasons for that. First and foremost, the current timescales associated with the voluntary and mandatory approaches are aligned. The policy as a whole creates the right impetus and drive to achieve our objective of substantially increasing shared ownership from next year. The potential to introduce backstop powers is intended to nudge industry to ensure that the voluntary process is sufficiently robust, but it also sends a very clear signal that we want to see offers to communities being made on the ground from 2015.

By contrast, the approach proposed by my noble friend would mean that when the voluntary approach is reviewed in 2015, if it were found to be unsuccessful, it could be at least until the end of 2017 or early 2018 before the powers could come into force. This would follow a formal consultation and the development of secondary legislation which is inconsistent with the approach set out in the community energy strategy.

--- Later in debate ---

[Baroness Verma]

I have been assured that it is a reserved matter.

[Baroness Worthington]

Will there be any regulatory deregulation on the renewables industry to compensate for these new regulatory powers? What are the administrative and cost implications of this for how we are going to police and monitor it?

[Baroness Verma]

I apologise for not being able to respond to the noble Baroness. I had a note to say that I would be writing to her because it was a detailed question. I will ensure that Members of the Committee get a copy.

I hope that I have been able to reassure my noble friend Lord Jenkin as to why Clause 26 should stand part of the Bill and convince him that delaying commencement of these provisions is not the right approach.

--- Later in debate ---

[Baroness Worthington]

My Lords, I am grateful to the noble Baroness for describing her amendment and will comment briefly on the group. Starting with the last point about making administrative changes to the way the RHI works through the negative process, I do not think that is necessary—we are not there yet and I would not support it. One of the benefits we have had over the last year or two as we have been talking about the RHI is that we have had regular opportunities to discuss the issue. It is definitely not the case that everything is hunky-dory and that we can just forget about it and let it all roll on. There are still some quite important issues, and we will need to return to them and have parliamentary scrutiny over them.

Having said that, it is also true that there are some issues with the RHI that we need to see streamlined. I do not wish to sustain a bureaucratic and complex jungle of regulations, but this is a complex piece of legislation and removing parliamentary scrutiny is not going to resolve that. It is fundamentally about improving the policy over time as we become more comfortable with what the RHI is delivering. The other reason for not supporting that element of the amendment is that, unlike the RO and the FITs, this is money from the public purse and therefore requires a higher degree of public scrutiny.

I was interested to see this amendment last night, but I am afraid that I did not get a chance to speak to the noble Baroness beforehand about the background to it. Not so long ago I was at a party when someone came up to me and said, “We have just installed a renewable heat boiler”. I will not reveal any names, but the person was concerned that in order to get it going, they had had to work around the regulations as they stood because of the restriction on who can receive payments and the fact that it is not the same as self-owned or self-installed renewable technologies. I would be interested to learn about the background to this amendment and certainly I will be interested to hear what the Minister has to say in response to it. It is about flexibility around the finances that are required for what are often quite capital-intensive projects. The funding has to be arranged in a flexible way so that people who do not have a lot of capital upfront are still able to engage with the RHI through arrangements that may not be standard. There is something here that I would strongly recommend the noble Baroness to look at and perhaps come back to us. As I say, it is a simply a coincidence that someone raised this issue with me personally.

On whether Ofgem is the right body to deal with this, well, if we have a Labour Government we will not have an Ofgem, so we can revisit that question then. We will certainly have a regulator, but we will look again at how these things are taken care of. Again, I thank the noble Baroness for tabling the amendment and I look forward to the Minister’s response.

[Baroness Verma]

My Lords, I thank my noble friend Lady Eaton for her amendment and I thank the noble Baroness for her comments. I know that we have discussed these issues on many an occasion in the Moses Room. Of course we want to make sure that the scheme is as efficient and cost-effective for the taxpayer as it possibly can be. It should deliver the benefits that have been so clearly outlined, which is something that the Government are strongly keen on pursuing.

Perhaps I may respond to my noble friend on using an alternative to Ofgem. We have seen Ofgem already successfully administering a number of schemes for the department through Ofgem E-Serve, including both the domestic and non-domestic RHI, the Renewables Obligation and feed-in tariffs. Ofgem has significant expertise in the area and has experience of running these programmes. It is also frequently evaluated to ensure that lessons are learnt both by the body and the department in order to improve the customer experience and value for money in policy administration. I think that Ofgem is the right body to be the administrator for these tools. The Government want the best kind of body to reach out to consumers. However, I take the points she raised and, listening to the noble Baroness, we have discussed on many occasions how we can improve the process. It is, of course, a complex tool so we need to ensure that it does not inadvertently exclude the very people who we are trying to assist and help.

As with all things, I must look at the upsides and the downsides of my noble friend’s amendment. What I would like to do is take it away and consider it. The amendment seems very sensible, but I would prefer to give it some thought first. Perhaps I may come back to her on Report with some further consideration.

Financial Services and Markets Act 2000 (Regulated Activities) (Green Deal) (Amendment) Order 2014

Debate between Baroness Worthington and Baroness Verma

Monday 30th June 2014 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I am pleased to open this debate. Since its launch in spring 2013, the impact of the Green Deal has been steadily growing. At the end of May, more than 230,000 Green Deal assessments had taken place, and almost 24,000 of those took place in May alone. More than 800,000 energy efficiency measures had been installed in almost 700,000 homes through ECO, cashback and the Green Deal by the end of April. That is a great achievement and I look forward to seeing that momentum continue.

On 9 June 2014, we launched the Green Deal home improvement fund. The fund will help even more people to install energy efficiency measures in their homes by providing them with money back on the contributions they have made towards their improvements. People in England and Wales can now get up to £7,600 back through this new fund so that they can take control of their energy bills and have warmer, greener homes. This includes up to £1,000 for installing two energy efficiency measures from an approved list, up to £6,000 for installing solid wall insulation and up to £100 refunded for their Green Deal assessment.

Those who have bought a property in the 12 months prior to application can also receive up to an extra £500 when they carry out energy efficiency improvements. We have already made it clear that by learning lessons from the Green Deal cashback scheme we will strive to improve it, so we have simplified the customer journey even further and expanded the range of companies that can participate. More than 800 companies have already registered.

DECC is working hard to improve the energy efficiency of the private rented sector. Action to improve the energy efficiency of private rented properties is badly needed. The high proportion of inefficient properties in the sector contributes to the high level of private rented-sector households in fuel poverty: an estimated 21%, or one in five households, compared to 8.5% of households in the owner-occupier sector.

We expect to consult shortly on our proposals for the implementation of new energy efficiency standards in the private rented sector using powers in the Energy Act 2011. The Green Deal provides a mechanism that did not exist previously for tenants to work with landlords to improve the energy efficiency of their homes. We want to make sure that tenants do not live in cold, damp, draughty houses and still pay too much for their energy.

The Green Deal’s pay-as-you-save principle creates a win-win for both landlords and their tenants. Landlords will benefit from having an improved property, and the electricity bill payer, who is normally the tenant, will contribute towards the cost of the improvements through instalments collected via the electricity bill while also benefitting from a warmer house. Green Deal repayments will appear on the tenant’s electricity bill and will be collected by their electricity supplier.

The amount that can be borrowed to pay for improvements using Green Deal finance is protected by the golden rule, which limits repayments to the level of savings that a typical household can expect to make on their energy bills.

Tenants will only pay Green Deal instalments that fall due while they are paying the bill for the property—that is, while they occupy the property and are benefiting from the improvements. When a tenant leaves the property, the responsibility for repayments will pass to the new electricity bill payer—or the landlord if the property is not re-let.

At the end of February, my department made important amendments to the Consumer Credit Act 1974, introduced by the Consumer Credit Act 1974 (Green Deal) (Amendment) Order 2014. Those amendments clarified who was to be treated as the “debtor” and “creditor” under a Green Deal plan, to help Green Deal providers to write Green Deal plans in the rented sector.

The amendments resolved two key issues. First, to address concerns relating to the difficulty of determining whether a particular Green Deal plan was regulated, the February amendments provide that almost all domestic Green Deal plans will be regulated by the Consumer Credit Act, regardless of who is making the energy efficiency improvements to the property. Tenants moving into the domestic property can therefore be reassured that they will receive the protections afforded by the Consumer Credit Act. Non-domestic Green Deal plans will be regulated only if the person arranging the improvements is an individual, and not a business. That approach greatly simplified the process for Green Deal providers and ensured that in all appropriate cases Green Deal plans would receive statutory rights and protections under the Consumer Credit Act— including, for example, where a Green Deal plan is set up by a corporate landlord during a void period. Secondly, the amendments also ensure that landlords and tenants signing up to the plans will receive the statutory rights and protections that they need under the Consumer Credit Act at the right stage. The Green Deal Finance Company and the landlord organisations have welcomed these changes.

I turn to the amendment that we are debating today. On 1 April 2014, responsibility for consumer credit regulation transferred from the Office of Fair Trading to the Financial Conduct Authority. As a result, the consumer credit regulatory regime was also transferred to a different legislative framework—that established by the Financial Services and Markets Act 2000. To ensure that the new regulatory regime for consumer credit remains consistent with the changes that were made to the Consumer Credit Act in February, we need to make some consequential amendments to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, known as the RAO for short. The RAO sets out which activities are regulated for the purposes of the new regime.

The order that we are debating today puts these important consequential changes into effect. The amendments to the RAO mirror the policy approach that was taken in the Consumer Credit Act. The drafting of the RAO amendments has therefore been kept in the same terms as the amendments that were made to the Consumer Credit Act in February as far as possible. The order clarifies who is to be treated as the “borrower” and “lender” for the purposes of the Green Deal under the RAO. The definition of “borrower” follows the same approach as was introduced for the definition of “debtor” as part of our February amendments. The “lender” for the purposes of the RAO will be the Green Deal provider, again reflecting the definition of “creditor” introduced in February. The order also explains which Green Deal plans are to be treated as “credit agreements”, and therefore regulated under the new regulatory regime. Our amendments to the RAO will therefore ensure that Green Deal plans will continue to receive Consumer Credit Act protections in line with the policy introduced in February.

The order makes transitional provision to ensure that—for plans which have been entered into since 1 April and which, but for the amendments made by this order, would not have been regulated—the CCA applies in a way which is appropriate. That balances the Government’s desire to ensure that consumers are protected and receive adequate information about their credit arrangements, with the need to ensure that Green Deal providers are not subjected to unfair requirements.

The amendments brought about by this order do not change Green Deal policy; they are important in consequence of consumer credit regulatory changes that were introduced on 1 April. They ensure that the Green Deal plans will continue in a manner that was agreed by noble Lords in February. These changes will ensure that Green Deal providers will continue to have the clarity and confidence that they need to issue plans to consumers across all sectors. I commend this order to the Committee.

[Baroness Worthington (Lab)]

I thank the Minister for her introduction of this order and for her very comprehensive explanation of what it achieves and why it is needed. We fully support it and have very little to say other than it is purely a technical amendment to maintain continuity and to keep things functioning in the light of consequential amendments arising from changes to another piece of legislation.

We still hope that the Green Deal will succeed in its intended aims. It got off to a slow start but there are now signs that it might be picking up a little. In general, we are fully behind the Government’s attempts to bring about a successful policy that encourages consumers to undertake energy efficiency improvements under the pay-as-you-save model. It is important to keep it under review and there will obviously be a point when fundamental changes will have to be assessed to show whether enough people are coming forward.

We are concerned that if this policy is only ever taken up in a small pocket of households it will not become normalised, and there is a risk that people who want to sell property with a Green Deal might have to take a penalty and be unable to realise the true value of their house because of fear over this mechanism. It is likely that that will be the case in the early days of the policy. Therefore, it is important that we have cross-party consensus to try to ensure that we do not see a class of stranded consumers. We will come back to that general point in the future when we have the opportunity to discuss other technical amendments in policy-related debates, but for now we have no problems with this order.

[Baroness Verma]

My Lords, I am pleased that the noble Baroness welcomes the order. I absolutely agree that these policies must be kept under review. We have done that, so we have been able to improve and simplify the measures and mechanisms needed to go out there and reach a greater number of people. I accept what the noble Baroness says about wanting to normalise the Green Deal into every home where improvement is needed.

I shall finish on a positive note. Assessments are going on. There were 234,050 assessments made up until the end of May 2014, which shows that we are on an upward trajectory. We cannot be complacent. We must make sure that we are reaching out to the very people who need to have their homes improved. I am very pleased that the noble Baroness welcomes the amendment and I commend it to the Committee.

Climate Change

Debate between Baroness Worthington and Baroness Verma

Tuesday 17th June 2014 Lords Chamber

[Baroness Verma]

The noble Baroness is of course right that we need to talk about climate and finance. We are already scaling up climate finance through our own investment in the International Climate Fund and other programmes. The UK has committed nearly £4.5 billion to international climate finance between 2010 and 2016, of which £3.87 billion is in the International Climate Fund.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for her reference to China. In fact, Premier Li Keqiang is in the UK today. Could the noble Baroness confirm that the Prime Minister will raise the issue of climate change with the Premier, or would he dismiss it perhaps—I paraphrase—as green nonsense?

[Baroness Verma]

My Lords, I am sure the Prime Minister will have a number of discussions, and I am sure climate change will among them.

Renewable Heat Incentive Scheme (Amendment) Regulations 2014

Debate between Baroness Worthington and Baroness Verma

Monday 12th May 2014 Grand Committee

[Baroness Worthington (Lab)]

My Lords, I am very grateful to the Minister for her introduction to the regulations to be considered today. As we have spoken on the subject in the past, I reiterate our strong support for mechanisms to incentivise the uptake of renewable heat. Indeed, my Question in the House last week touched on that. We said that we would have a debate and here we are, so I am very grateful for this opportunity.

I have made these points in the past, so I will not spend too much time on them. We are very interested in the rates of deployment under the scheme and would like to see as much emphasis as possible from the Government on progress to date, an analysis of what could be done differently and how things can be improved to increase the rate of uptake. The time between now and 2020, when we face our renewables energy targets under the European renewables directive, will elapse quickly so it is important that we make good progress. As the noble Baroness pointed out, heat emissions account for 45% of our total energy system, so it is a hugely important area.

These regulations are welcome. There are many aspects of them which show that the Government are listening, having taken proper and due account of what stakeholders are feeding back, and have made appropriate changes. That is very welcome. Having said that, I still have a fundamental worry about the scheme being complex. Many elements are quite prescriptive. The schedules setting out all the budget elements per fuel type or per scale are complex. These sums of money are now being put into ever smaller parts, with digressions and various rules which are complex to understand. My fear is that if you are a small business or a company out there trying to build a business on the back of the regulations, they look very complex. My gut instinct is that markets thrive on simplicity, with the Government dictating outcomes and allowing the market to find the best solution. I recognise that in the renewable heat industry, we are dealing with a nascent market and it might need this kind of administratively controlled system to start it off, but I hope that we will hear from the Minister about the future support for renewable heat. Can we get to a slightly less administrated, inflexible system of budget management than we have and towards a broader, more market-based system, which it would benefit from? That is my first point.

The second general point is that in terms of value for money for the consumer, renewable heat provides some of the best and least costly options we have for decarbonising and diversifying our fuel mix. You can see that by looking at some of the pence per kilowatt hour tariff levels that have been set. Some of those technologies are very cost competitive with some of the renewables technologies that we are funding in the electricity sector.

In particular, that is true if we look at biomass. Not only do you find relatively cost-competitive rates at which you can deploy biomass—mainly commercially; I think that the domestic sector is slightly separate—you also save on fuel imports, because for every tonne of biomass that goes into an energy system, a large proportion of it can be converted into heat, whereas only roughly one-third of it can be converted into electricity. For biomass in particular, where there are some associated sustainability issues, it makes an awful lot of sense to ensure that your biomass goes into the heat network ahead and above of it going into the electricity network.

To what extent does DECC monitor the incentives that are in place and compare them against each other? What does the RHI biomass subsidy tell us compared to the subsidies being paid under the RO, the FITs and the CFDs that apply to electricity? Can we discuss whether those incentives are pointing in the right direction and whether we have the right incentives to deploy biomass in the most efficient way in both carbon and cost terms?

My other question is on the solar thermal element. The Minister mentioned that the cap of 10p per kilowatt hour has been maxed out for that technology but it is still less than the industry says it needs. I wonder about the rationale for setting the cap at 10p per kilowatt hour; it is probably somewhere in the literature and I apologise if I have not absorbed it. I would be interested to know whether some of the CFDs or feed-in tariffs that we are offering in electricity go beyond that 10p cap. If so, why are we capping heat but not electricity in the same way? I am curious about that.

I have one question about the changes to the way that projects will be accredited. The tariffs for CHP state that the rules will be relaxed to allow CHP units that have both fossil and biomass to be eligible. How do we then police that? We know that all our HI payments are on a deemed basis. If people have one unit that can fire on either fossil or biomass yet they get a deemed payment, what is the evaluation, monitoring and verification process and how will we police it to ensure that we do not create some kind of weird incentives there?

I have raised in the past my keen interest in bio-oils being used to replace heating oil. I think I am going to meet officials informally to talk that through; I mention it again because it is still a low-hanging fruit that we should explore having.

Those are my main points. I say again that the regulations are welcome. My questions are probing in nature and from a desire better to understand the regulations. I look forward to hearing the noble Baroness’s reply, and if she would care to meet on this topic subsequently, that would be great.

[Baroness Verma]

I am extremely grateful for the general support that the noble Baroness has given to the regulations. As she and I are both aware, given that the scheme is the first of its type in the world, there will be lessons to be learnt as we go in looking at how technologies respond and react to the work we are doing. As she rightly points out, renewable heat is really key to being able to manage some of the stresses that will be put on the power sector in the longer term.

To respond to one or two of the noble Baroness’s direct questions, she asked about the solar thermal element and the difference between the incentives there. The key, of course, is that to achieve our 2020 renewables target we have to be able to set tariffs to consider all technologies. The width of the question is about ensuring that all technologies are able to partake in there without distorting the market for any technology that wants to come in but cannot find space to be supported. Of course we have to work to value for money as well.

Russian Gas

Debate between Baroness Worthington and Baroness Verma

Thursday 8th May 2014 Lords Chamber

[Baroness Verma]

My Lords, I do not agree with the noble Lord. We have significant gas storage in place. Two units have recently been completed and two are in the process of being built. We have more than enough gas available to us. We should not underestimate the amount of dependency that we have on our own sources to be able to provide energy for our country.

[Baroness Worthington (Lab)]

My Lords, I agree with the Minister that diversity is the answer to this problem. Will she comment on what the Government are doing to encourage the greater use of renewable gas in our markets? A report in 2009 from the National Grid identified that up to half our domestic demand for gas could come from renewable sources. It is currently being used in the much less efficient generation of electricity and it should be used in the heat market.

[Baroness Verma]

The noble Baroness is right. We need to look at all aspects of usage of our energy supplies. But this feeds into a much wider question which will take a little longer to debate. The bigger point is that we need to ensure that we have a diverse mix of energy. That is what this Government pledge to do.

Climate Change: Extreme Weather

Debate between Baroness Worthington and Baroness Verma

Wednesday 9th April 2014 Lords Chamber

[Baroness Verma]

My noble friend raises a range of very important issues. Of course, climate is measured in average conditions over the long term, but I agree with my noble friend that it is about both adaptation and mitigation. We cannot have one or the other; we have to have both. It is important that, going forward, we encourage not only ourselves but the international community and our partners to respond to the serious issues of increased carbon emissions.

[Baroness Worthington (Lab)]

My Lords, it is absolutely clear that the evidence is now showing that climate change is manmade and that we must act. Would the noble Baroness agree with me that, on discovering a flood in a bathroom, you would not make your priority to turn your house into a swimming pool? You would turn the tap off. That is precisely what we need to do. It is regrettable that we have some prominent Members of the Benches opposite who do not seem to accept this logic. I hope that the noble Baroness will continue her spirited and consistent defence of action on climate change.

[Baroness Verma]

My Lords, we have been consistent on this side of the House that we need to address mitigation and adaptation.

Climate Change

Debate between Baroness Worthington and Baroness Verma

Thursday 3rd April 2014 Lords Chamber

[Baroness Verma]

The noble Lord is of course right to raise that, but I assure him that climate change is embedded in thinking across all departments.

[Baroness Worthington (Lab)]

In that case, my Lords, perhaps it might be time for the noble Baroness to comment on the fact that we have a climate change sceptic leading our environment department. How can that be?

Ukraine: Gas Supplies

Debate between Baroness Worthington and Baroness Verma

Wednesday 2nd April 2014 Lords Chamber

[Baroness Verma]

My Lords, I am, as always, grateful for my noble friend’s intervention, because it enables me to lay out exactly what the department is doing. We are trying to streamline the planning processes so that we do not have unnecessary hurdles in the way. The Government have established the Office of Unconventional Gas and Oil to help to develop the shale gas industry in the UK. My noble friend will be aware of the new tax allowance recently announced by the Treasury, which will reduce the tax on a portion of a company’s production income from 62% to 30% at current rates. However, as with all projects, including shale, it must be subject to rigorous scrutiny through the planning system and the regulators and there must be proper engagement with local communities.

[Baroness Worthington (Lab)]

My Lords, I am glad to hear that the Minister now appears to accept that linking gas demand with Ukraine is not far-fetched but a very important issue. In reality, we are more reliant on coal from Russia than we are on gas: 70% of our coal is now imported, 40% of that from Russia. Will the Minister confirm that we must maintain every effort to support home-grown energy, including wind power, to reduce our dependency on both expensive gas and imported coal—which, I might add, would improve our air quality substantially?

[Baroness Verma]

As the noble Baroness is aware, the Government are encouraging a diversity of supply. I am sure that she will join me in congratulating Siemens on investing in offshore wind in Hull, generating 1,000 jobs.

Domestic Renewable Heat Incentive Scheme Regulations 2014

Debate between Baroness Worthington and Baroness Verma

Wednesday 26th March 2014 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I am pleased to open the debate on the Domestic Renewable Heat Incentive Scheme Regulations 2014. Before focusing on the details of these regulations, I will take time to provide some background to the scheme, which I shall now refer to as the RHI.

In November 2011, we introduced the world’s first long-term financial support programme for renewable heat—the non-domestic RHI. Today, I am very pleased to introduce the regulations to extend this innovative and ambitious scheme to householders.

This decade, the RHI will help to contribute to meeting the country’s 2020 renewables target. The RHI also has a longer-term ambition. By encouraging people to switch to renewable heating now, the RHI is preparing the country for the widespread rollout of low-carbon heating from 2020 onwards, helping us to achieve our 2050 aim of near-zero carbon emissions from household heating. The RHI and, in particular, the domestic scheme also have an immediate aim—to help householders to reduce their heating bills. Heating is the single biggest energy use for householders. For people living off the gas grid whose costs are greatest, this represents a significant burden. Off-gas grid consumers could see between 10% and 40% savings in their heating bills, as well as saving carbon by moving away from fossil fuels. Moreover, renewable heating systems function better within properly insulated homes. The domestic RHI, working with the Green Deal, can therefore offer a whole-house solution to high energy bills.

The RHI covers the whole of Great Britain, with Northern Ireland running its own scheme. Our non-domestic scheme, launched in 2011, supports the installation of renewable systems that heat commercial, public or not-for-profit properties and systems that heat multiple homes. The latest published figures show that we already have in excess of 4,700 applications, more than £38 million paid in RHI support and more than 978 gigawatt hours of heat generated from renewable sources under that scheme.

It has always been our intention that the RHI will be extended to cover the domestic sector. The innovative nature of the domestic RHI as a world first means that it has been a challenging and time-intensive policy to develop. We have consulted extensively. In September 2012, a public consultation was launched to seek views on proposals for the domestic scheme. This provided us with a huge amount of valuable evidence from stakeholders and a wide range of views, all of which we have to consider.

Given the current economic climate and the need to deliver value for money through government expenditure, it was particularly important to get the scheme right. Following this period of extensive analysis, the finalised scheme outline was published in July 2013. Providing support until the launch of the domestic RHI, the renewable heat premium payment grant scheme has, to date, supported the installation of more than 17,000 renewable heating systems by homeowners and social landlords. The budget for the domestic RHI allows for more than 35,000 installations in the first year of the scheme before a reduction in tariffs is triggered.

The domestic RHI scheme which these regulations will implement will extend RHI support to renewable heating systems that heat individual homes, provided they were installed on or after 15 July 2009. The scheme will be open to everyone, whether they are connected to the gas grid or not. Those who live off the gas grid with high heating costs will benefit the most from switching to renewable heating. Homeowners, social and private landlords, their tenants, and self-builders can all benefit.

The domestic RHI will support biomass-only boilers and pellet-only stoves with integrated boilers. It will also support air-to-water, ground-to-water and water-to-water heat pumps, provided that they run on electricity. Both biomass and heat-pump systems will be eligible only if they deliver heat via a liquid—for example, through radiators—and provide space heating only or both space heating and hot water. Evacuated tube and flat plate solar thermal panels will be eligible too, although only if they provide just hot water. Panels that generate electricity as well as heat will not be eligible. The list of technologies that will be eligible at the launch of the scheme is fixed. That said, however, we recognise the importance of innovation and we will consider including other technologies in the future.

To provide consumer protection, the regulations require that all products meet specified, recognised European technology standards. Furthermore, an installation must be certified by the Microgeneration Certification Scheme or an equivalent scheme. MCS is a quality mark that demonstrates compliance with industry standards. It has a framework in place to deal with any potential disputes between homeowners and installers. We also want to protect air quality from any potential impacts of increased uptake of biomass; the domestic RHI therefore follows the non-domestic scheme by setting emissions limits in relation to the two main pollutants for new biomass installations: particulate matter and oxides of nitrogen. Heat pumps need to meet an additional requirement: they must have a minimum efficiency rating—known as a seasonal performance factor—of 2.5 in order to ensure that they are genuinely renewable. Apart from self-builders who will already be meeting the requirements of current building regulations, we are also tackling the energy efficiency of homes by requiring loft and cavity wall insulation to be installed, where appropriate, and by requiring that a Green Deal assessment be undertaken.

Renewable heating technologies work best in an energy-efficient home and reducing the size of the heating demand from each house means that each home saves money on its fuel bills and that we can support more households through the RHI. The domestic RHI will provide ongoing support in the form of tariff payments based on a set rate per unit of renewable heat produced; the rate depends on the technology installed. Tariff rates compensate for the additional costs of installing a renewable heating system compared with a conventional off-gas grid system, such as an oil boiler. Ofgem will administer the domestic scheme and will make the payments over seven years. They will be calculated quarterly and adjusted to reflect inflation each year. The basis for the payments will be the amount of renewable heat produced by the technology. In most cases, it will be based on an estimate of the amount of heat that the home needs in a year, known as deeming. For biomass and heat-pump systems, this estimate will be taken from the property’s latest energy performance certificate. For heat pumps, the figure will be adjusted to take into account the estimated efficiency of the heat pump in order to ascertain the renewable proportion of the heat produced. For solar thermal systems, payments will be based on the estimate of system performance produced as part of the installation.

In certain circumstances, applicants will need to install meters and will be paid based on their meter readings—for example, where the installation is in a second home or where there is an additional system in place that also provides space heating. Any payments based on metering will be capped at the amount set by the deeming approach. On top of their RHI tariff payments, a householder could receive additional payments if they take up the metering and monitoring service package. These packages are similar to a service contract and will allow the householder and the installer to view detailed information about the heating system in order to improve its performance. Only heat pumps and pellet-only biomass boilers will be eligible for these additional payments. The payment for heat pumps will be £230 per year and for pellet boilers it will be £200 per year. A mechanism for managing the budget for the domestic scheme will be in place using degression to control costs. Degression works by gradually decreasing tariffs as quarterly thresholds of spend are reached. Any reductions will be announced with one month’s notice and the reduced tariffs will apply only to new applications. DECC will also publish monthly updates of spend and progress towards triggers which will allow applicants and installers to determine the likelihood of a future decrease to their tariff.

RHI participants will need to provide annual declarations and, in certain circumstances, further information about their ongoing compliance. Ofgem will also have the power to investigate further and to withhold or claim back payments of non-compliance.

Finally, a random selection of applicants will be chosen to have meters installed which collect data on performance of technologies for evaluation. The cost of the installation will be covered by DECC.

These regulations will have effect in England, Scotland and Wales. RHI policy in Northern Ireland is devolved. Scottish Ministers have given their consent to regulations as required by the Energy Act 2008. Northern Irish Ministers administer a separate but equivalent scheme and have been notified of these regulations, as have Welsh Ministers.

These regulations represent a significant and exciting step towards the goal of reshaping our heating market. The domestic RHI scheme will sit alongside its non-domestic counterpart in a world-first approach to incentivising the uptake of renewable heat. Its short-term aim will be to help households save on fuel bills and contribute towards helping the country meet its 2020 renewables target.

However, the ambition goes beyond that. It will also set the country on the path towards the wider rollout of renewable heating everywhere from the 2020s and onwards. Driven by RHI, we hope to see the industry expand, costs to reduce and consumer awareness and familiarity to increase. The result will be renewable heating becoming a viable and competitive alternative for all households. I commend these regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing these exciting regulations. This is a real step forward; we have been waiting for it and we are pleased that it has finally arrived.

Perhaps I may first ask some general questions on how we are doing on the RHI. We have had previous debates on other orders and I am always keen to know how we are doing in relation to our target. This is a world first and things may not be going as fast as we would like. That is understandable—it is a complex policy area—but it would be good to have an update on where we are in relation to the terawatt hour target for 2015-16, which I believe was set at five to seven terawatt hours. It is not that long away now and I would be interested to know how we are doing.

I have raised the issue of underspend before. There is a budget surplus under the RHI and I hope that we will increase the speed at which we get through this budget and that measures will be installed. The regulations refer to the earlier scheme, the renewable heating premium payments. It was a sensible move to introduce an early scheme in order to assess take-up and it would be interesting to know what the take-up was and how many people came forward to receive payments under that scheme. My questions are related to getting a sense of how we are doing and the background against which this policy should be judged.

On integration with the Green Deal, it is sensible that we should try to join up policies, particularly policies that involve interaction with householders. The Green Deal and the RHI should complement each other well.

How are we going to make sure that Green Deal assessors are fully cognisant of all RHI technologies? Perhaps the Minister could say a few words about how we make sure when training Green Deal assessors that they are fully aware of all of the RHI technologies, how they can be applied and the properties and situations which would be beneficial for consumer take-up. If they are not joined up, they could otherwise become a barrier. If we are not integrating this, people may not be aware of RHI and its availability; equally, there might be a barrier the other way in requiring a consumer to have a Green Deal assessment—if an assessor comes in and perhaps is not aware or does not give information about the RHI, that could be an unnecessary impediment towards the take-up of this technology. I want to make sure that we really are joining up the policy at a delivery level.

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[Baroness Worthington]

I thank the noble Baroness for her comprehensive answers. However, if she would write to me on a couple of matters, I would be grateful.

I was specifically interested in how we are doing on the terawatt hour target for the RHI and not only renewables targets overall. A short note on that would be very helpful. On the new build installations, how will the microgeneration be counted towards the target? We do not want to miss things out of our targets, so that would be helpful. I would like to take the opportunity of having a meeting on biofuels because I do not quite follow the logic.

[Baroness Verma]

The noble Baroness asked two questions. On the second question, while new build installations are not supported through the domestic RHI, other than self-build, they will still be counted towards our renewables target through the use of market intelligence from the renewable energy sector based on sales figures.

I am extremely grateful to the noble Baroness and the Opposition for their support for these regulations.

Energy: Green Deal

Debate between Baroness Worthington and Baroness Verma

Wednesday 26th March 2014 Lords Chamber

[Baroness Verma]

Absolutely. My noble friend is right to raise that issue. Energy efficiency measures are there to ensure that we reduce costs to the consumers. I come back to the point that this Government have taken some major steps to ensure that there is investment within the sector and in energy efficiency measures. I would like to know what the party opposite would do. Would it put back the £50 that this Government have taken off?

[Baroness Worthington (Lab)]

My Lords, it is clear that, even in opposition, we are setting energy policy. Government statistics show that in February only 33 new finance deals were taken out. The problems with the Green Deal are getting worse, not better. Does the Minister agree that it would be helpful if the Prime Minister, rather than using instability in Ukraine to talk up shale gas, were to put more effort into promoting energy efficiency via the Green Deal, which can immediately reduce our demand for gas?

[Baroness Verma]

My Lords, the party opposite really does not get long-term investment in the energy sector. To bring Ukraine into a Green Deal question is a little far-fetched.

Renewables Obligation (Amendment) Order 2014

Debate between Baroness Worthington and Baroness Verma

Monday 17th March 2014 Grand Committee

[Baroness Worthington]

No, absolutely not. It is about the flow, compared to the stock. I am sure that CO₂ values differ throughout the year and a large part of that depends on how much foliage we have. CO₂ is not permanently in the atmosphere, it is sucked in and out, depending on the atmosphere and the biosphere and how those interrelate. What we are doing with fossil fuel, as noble Lords will know, is extracting carbon that was once stored and releasing it very rapidly into the atmosphere, which is changing its composition. Concentrations in the atmosphere are now at record levels, touching 400 parts per million, and they have not been at that level for many hundreds of thousands of years.

[Baroness Verma]

My Lords, I am grateful for the support of all noble Lords—my noble friends and the noble Baroness—for the changes that we are making. A couple of questions have been raised that I will endeavour to answer quickly. My noble friend Lord Teverson asked if other member states were doing similar things, in line with our standards. We are aware that the Netherlands, Denmark and Germany are introducing their own criteria, but imports from the EU would be required to meet our standards here. We propose to notify these standards under the technical standards directive to ensure that we can insist that fuels used under the renewables obligation meet our standards. I think that should reassure my noble friend that we are maintaining our standards.

My noble friend Lord Ridley mentioned the Mail on Sunday article. Unfortunately I did not read it but will take my noble friend’s word about its content and the argument that biomass is dirtier than coal. We need to reflect that in all the debates we are having around bioenergy—biogas and alternative sources of fuel. We need to ensure that we work towards a cleaner availability of fuel. There will be debates either way, and we need to discuss it fully and properly.

It is absolutely right that there are questions still to be answered and which need a proper and thorough debate. I am sure noble Lords are all up for that debate but would say to my noble friend that the argument that biomass is dirtier than coal is only based on the model assumption that all wood removed from the forest, including the high-value, high-quality sawlogs used in energy, does not make it any dirtier. Perhaps that is a debate for another day.

The noble Baroness, Lady Worthington, asked about early RO closure and competition. My notes say that no decisions have been taken on any changes to the RO, and the Government would obviously seek to protect companies that have made significant financial commitments from the impact of any changes. However, we will have consultations on this and will invite comment on whether and how to make any changes that might affect stakeholders. I am sure we will reflect on that and then respond on that basis.

I thank noble Lords for their contributions. I will read Hansard very carefully tomorrow because we go into the extreme of technicality when I discuss anything like this with the noble Baroness, Lady Worthington. If there is anything outstanding, I of course pledge to write to all noble Lords. I think that we are seeing two very important changes today, the first on transition and the second regarding biomass, to encourage a greater delivery of carbon savings. On that note, I commend the order to the Committee.

Electricity and Gas (Energy Companies Obligation) (Amendment) Order 2014

Debate between Baroness Worthington and Baroness Verma

Monday 17th March 2014 Grand Committee

[Baroness Worthington (Lab)]

My Lords, I thank the Minister for her introduction to this order. Like the noble Lord, Lord Teverson, we welcome many things here. The order helps to clarify, simplify and tidy up a number of issues about the way the ECO order is currently implemented. I shall say a word about the broader picture, to which the Minister referred. Changes to ECO have been much talked about and were introduced as the Government’s attempt to reduce costs for bill payers.

It strikes me as odd that this is where the Government are choosing to focus. After all, measures to increase the energy efficiency of homes are one of the clearest measures we have for reducing bills. They may add to the incremental unit cost very marginally but, overall, people who have measures undertaken will see their bills fall, yet the Government have chosen to reduce the level of activity under ECO by extending it over a longer period—that is, for measures that do not relate to fuel poverty. We understand that the fuel poverty measures remain in place and are being extended to 2017, which is sensible. However, it seems that overall the effect of the Government’s policy on ECO has been to see a reduction in activity. We have certainly had representations from the insulation industry which is very concerned that the level of activity has dropped off precipitously.

I am sure we have an afternoon ahead of us in which we will discuss many issues, including gas pricing and fracking. All that will relate to this key topic of trying to keep bills affordable and making sure that we are decarbonising at least cost. In that sense, making ECO work more effectively is obviously a good thing.

I have a question on the excess actions credit. Perhaps I was unable to devote enough time to it, but I am not sure whether it is a kind of trading mechanism that enables suppliers to transfer overachievement to another supplier, whether it is a financial action between suppliers or whether it is something involving Ofgem and the Government. Perhaps the Minister can say a few more words about how it will work. I imagine the provision is there because some suppliers were expecting to be required to comply in full, and it was only when the Government rather hastily decided to extend ECO without increasing the level of activity that they perhaps found themselves with an overabundance of credit and are trying to find out what they can do with it. It would be helpful to hear a bit more about that.

On the other measures, I am pleased that the void period is being addressed, which seems entirely sensible. I want some reassurance from the noble Baroness that the provisions on giving credit to glazing and on changes to solid walls will not encourage less activity but that the right activity is being incentivised. I am sure that these orders are sensible.

[Baroness Verma]

My Lords, I thank my noble friend and the noble Baroness for their warm welcome of these minor changes to the legislation. As to their question about excess actions, perhaps I may first assure my noble friend that it does not involve public money. It is an activity that energy bill payers have already paid for. We do not want them to pay again. This amendment therefore helps to reduce or prevent that risk.

As regards the question around glazing, under current legislation—and I am sorry if I did not make myself clearer—suppliers receive only a partial score when they install a glazing measure. Policy officials received information that suggests that our scoring policy may inadvertently affect people’s choices about the measures that were right for their property. This amendment allows glazing measures to receive the full score for carbon savings. That will ensure that suppliers are encouraged not to deliver replacement panes, which do not fall into the definition, but to put in full replacement double glazing, which is far more effective at saving energy.

As regards the noble Baroness’s point about changing ECO, we had to do so because we, like her, want to ensure that bill payers—those who came back to us saying that they were finding difficulty—have some sort of mechanism to help them to reduce that burden. The Government listened carefully, and that is why we proposed the changes. We have not reduced the measures that we are going to take. In fact, we have extended the period, which enables us to carry out not only those measures but further measures. We must not be cynical about these matters. We listened carefully, we needed to respond, we have responded and all those who have responded have done so favourably. While we, of course, want to make sure that the measures are on track, we need to ensure that we are reducing carbon emissions and putting into place energy efficiency measures. We should see this in the round. The noble Baroness and I have often debated this issue. There has to be value for money in addition to all the other measures that need to be taken into account, otherwise those measures will not be taken up.

I reassure noble Lords that these amendments go a little further in ensuring that the energy efficiency measures that we are all keen on are taken up. I hope that I have reassured noble Lords enough for them to be able to commend the order.

[Baroness Worthington]

I thank the Minister. I will pick up on the point that everyone is in favour of these eco-changes. Is it the case that nobody from the insulation industry has made representations about the drop-off in the rate of measures being taken up?

[Baroness Verma]

Of course, there are difficult challenges. We are trying, through all the other measures, to reassure those industries that feared a drop-off that we have taken other measures to counter that drop-off. Whether we have done it in a way which is slightly blunter than we would have wanted, the important thing is that we have now come to part of the process where those business organisations which felt that there would be an impact are beginning to see, in the wider discussion, that they now have greater certainty that those measures will have the same sort of support that other measures were getting.

Consumer Credit Act 1974 (Green Deal) (Amendment) Order 2014

Debate between Baroness Worthington and Baroness Verma

Tuesday 4th February 2014 Grand Committee

[Baroness Worthington (Lab)]

I thank the Minister for introducing this debate and for speaking to this statutory instrument. I also thank the noble Lord, Lord Teverson, for his comments and his quite pertinent question about switching; I had not thought of that and would be interested to hear the response.

If the Committee will bear with me, I want to make a few general comments about the Green Deal and then some specific comments about the statutory instrument. I agree that if the impetus behind the instrument is to create clarity about the protections that exist for tenants and owners under consumer protection legislation, it must be a good thing and we support it.

It is interesting to see how the Green Deal more generally is playing out. We have seen 130,000 assessments undertaken but, from those, fewer than 700 financial deals being taken out. The Minister in the other place has been keen to point out that what we want is measures undertaken, and that is a good thing, but the low take-up of the financial aspects points towards something about the scheme that may need to be reviewed. It is clear that it is not as popular as we might have hoped. We look forward to further announcements from the Government on how they are going to change that. A very low take-up of the financial package creates a very small pool of people carrying a liability with them that never becomes normalised or well understood in the wider populace. It can disadvantage those early adopters if it does not ever take off. They will carry liabilities on their properties that few people understand and may instinctively dislike. So the take-up of the financial package is important. It is good that measures are being taken on personal finance and other financial mechanisms, but the Government cannot simply point to the assessments and say, “Oh, it’s all fine”. The financing was always a key part of this and we have to assess why it is not being taken up with more vigour and enthusiasm.

The other question that arises is around monitoring. The assessment of the Minister in the other place was that 80% of people who undertake an assessment go on to fit measures. That sounds great, but I am afraid that I do not know how that number was calculated or where those numbers are recorded. Perhaps we could hear more about that number. If the numbers are to be a mechanism, but outside the financing mechanism, that tips or nudges other people into action, we perhaps need to think again about how we record and monitor what is actually happening. The figure should be not a guesstimate but a hard number that we can publish and have confidence in. Perhaps it is simply a matter of requiring the companies that undertake the measures to report to an agency. Perhaps the Landmark Group, which currently monitors the EPC, could be that group; it could keep a record. I would be interested in the Minister’s comments on that.

I turn to the rented sector, which is the focus of this new clarification. This is an important issue. The Minister has stated, and it is clear, that a disproportionately large number of people live in fuel poverty in this sector, and the housing stock, with 13% of properties rated F or G, is not being invested in. A lot of people in the private rented sector are living in cold, damp homes. We must address this.

I take the point about the split incentives: it is very difficult to get this right. If it is left on the landlord, they do not feel the benefit of the reduced bills. If the bill payer carries the entire burden, they do not get the same benefit as the landlord whose property has been improved and made more attractive. The Government might say, “Well, that’s the way the balance has to tip and we’ve now tipped it back in favour of the tenant”, which is probably a good thing, but it raises a few questions. One is that, while landlords will presumably get some protection under the Consumer Protection Act, what will happen to a property where the tenant leaves but it is then left vacant for a lengthy period? Is it simply that the financial deal is suspended? What happens during that period? There could be properties that are vacant for quite a long time. What then happens to the creditor who is expecting payments that are not being made? Is the time frame extended? What happens in those cases?

There may also be landlords—this will probably not happen frequently—who decide to stop renting and to sell their property for development or demolition. What happens in those circumstances? If it is sold on as a house or as a dwelling that can be lived in, I can understand that it would pass, but if it is demolished, who then makes good the debt owed to the energy finance company?

There are questions around the rented sector that need to be looked at. The Minister mentioned an existing legal requirement to produce an energy performance certificate if a property changes hands between tenants. This is, I believe, poorly enforced. In the publication Energy in Buildings & Industry of November-December 2013, it was revealed that DCLG is currently forced to pay compensation to Landmark, the body that collects the certificates and does the administration, to the tune of £6 million because too few people are complying with this legally binding requirement from the European Union. This seems crazy: taxpayers’ money is being spent to make good a contract signed with a private company because of a failure to enforce a legally binding requirement. That needs to be sorted out. If the uptake of energy efficiency in the rented sector is insufficient, we should look first at why we are not enforcing the use of legally required energy performance certificates. The statement that new tenants will have all the information necessary to decide whether they want to move into a property sounds slightly hollow when the evidence is that the uptake of the legally binding EPCs is not present. The bedrock of enforcement seems not to be in place. Could the Minister come back to me on what we are doing to enforce EPCs in the rented sector?

My final point is that it is good that this statutory instrument is addressing the issue of uncertainty and consumer protection. That is one uncertainty too many, and it is good that it is being resolved with this change in the law. However, this policy continues to be affected by a range of uncertainties. We know that the poor take-up of the financing package is going to lead to changes. We expect it to be continually updated and changed as we find out more about how people are taking it up. That is good if it finally leads to a successful scheme. However, it has been mentioned that the golden rule may change.

If the golden rule changes, and the payback necessary to comply with the golden rule changes, you may edge into the situation where a tenant takes on a lot of debt, knowing they are going to be moving on quite soon, and the incoming tenants are then facing something quite unattractive. In those situations, I suspect that landlords are left with potentially unrentable properties. That is something that no one wants to see. It could act as a disincentive for landlords to embrace this scheme, if they fear that there will be a low take-up, high risk and the potential for their properties to be priced out of the market through measures that do not comply with the golden rule. As this policy is being modified, we need to think carefully about the detailed implications. On that point, however, we support this clarification.

[Baroness Verma]

My Lords, I thank my noble friend for his warm and supportive welcome for the order. He asked a question on switching to which I will refer in a moment. I also thank the noble Baroness, Lady Worthington, for her comments and her general support of the order. She has raised a number of questions. I will try to answer as many of them as I can. Those that I fail to answer I will get into writing and see that the noble Baroness and my noble friend are copied into those responses.

Coming back to the noble Baroness’s opening comments about the take-up of the Green Deal, we tend to assume that everything has to be done through a particular type of finance scheme. We have found that the Green Deal finance is only one payment option for getting Green Deal measures in place. We have found that self-finance—people going out, taking on measures and paying for them themselves—has been a much more popular way of getting these measures in place. The noble Baroness mentioned the numbers. We know that 500,000 measures have already been put into around 400,000 homes, whether through ECO, self-finance or Green Deal finance. To reduce the issue to being seen only through the success of Green Deal finance distorts the real picture of the Green Deal, which is that it is a long-term programme to ensure that we get real energy-efficiency measures put into homes. Those measures may be financed in a variety of ways.

I say to the noble Baroness that we need to take heart. Feedback has come back from one company that has managed to install Green Deal measures into 10,000 homes. The picture is not always as clear cut as measuring it only against Green Deal financing, which slightly distorts the programme’s actual success. Yes, it is slow, but it is a slow-but-steady-progress programme; we would expect that, because it is a long-term programme.

My noble friend Lord Teverson asked whether switching would have an impact on the rights of the customer. The customer is able to switch suppliers exactly as he or she can currently do. What they cannot do it switch to smaller suppliers that do not service the Green Deal programme. That is obviously something of which consumers will be made aware.

The noble Baroness, Lady Worthington, asked what would happen when a property was demolished or ceased to exist. The owners would still be liable to pay because the Green Deal would still be in place. She also asked about the regulations for the private rented sector. We plan to consult shortly on new regulations to require landlords to improve their homes from 2018. From 2016, landlords should not really be able to refuse measures if the regulations make them put the measures in. We ultimately want housing stock with energy-efficiency measures, to reduce energy usage and ensure that tenants in those buildings do not end up paying over the odds for energy use.

--- Later in debate ---

[Baroness Worthington]

I thank the Minister for her response. Just before she sits down, I want to reiterate the point about the measurement of these measures. There is a danger here that we are seeking slightly to rewrite history. When the Green Deal was launched, it clearly was all about the finance package, and that was meant to be what was going to unlock it. My concern is that if we move the goalposts and now say, “Well, it was always about assessments; that’s the main thing”, or, “Self-financing is the important thing”, that creates a problem where early adopters are taking on a mechanism which, if it does not become well understood or commonplace, will mean that we see people not wanting those properties. That disadvantages people who implement the measures because the understanding of the package and the liabilities—this weird thing that never becomes mainstream—stays niche. That is the issue.

On the EPC, I am encouraged to hear that the Minister’s department is working with the DCLG. This is an important issue; after all, it is a legal requirement, so it is very basic. Before we make new requirements, could we perhaps look at thinking about more public information for tenants? That could include advertising, making sure that tenants are aware of their rights to request a new certificate, and maybe adverts that are being placed should carry EPC certificates, as they often do now when you buy a house. Perhaps tenants need the same. I am encouraged by that and I look forward to hearing more about it.

[Baroness Verma]

My Lords, I am extremely grateful for those comments. I go back to my point that, while it is important that Green Deal finance is an important part of the programme, we do not seek to make that the only method by which people can access measures. Overall, we have seen that people who want to go out and get these measures done are actually doing it through their own self-financing. The Green Deal finance is available, but if they choose to find an alternative way, it is their right to do so. The suppliers make it very clear, through their installers, what measures will work and how they will be reported. We are also working with the Council of Mortgage Lenders to ensure that we educate them on the Green Deal as well, to prevent it becoming a barrier to people wanting to access mortgages.

I am extremely grateful to the noble Baroness and my noble friend. I commend this amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Wednesday 11th December 2013 Lords Chamber

[Baroness Verma]

My Lords, I am grateful to all noble Lords for their contribution to the debate. I hope that in my opening remarks I made it clear that the Government recognise the intention behind this amendment. Of course we share that intention, but I believe that the differences between us are very narrow, even though they are very important.

It boils down to an assessment of risk. All sides in this debate can agree that we neither expect nor desire large amounts of unabated coal to be operating in the 2020s, but, as my noble friends Lord Forsyth and Lord Jenkin of Roding have rightly pointed out, we cannot be sure today exactly what will be required in those years. The Government’s position is that we should take a precautionary approach, given the serious potential for security of supply implications and the impact on consumer bills if we get it wrong. We should send a clear signal that unabated coal has only a limited future in helping us to transition to a lower carbon economy by creating an EPS that applies to any new coal plant. I appreciate the attempt of the noble Lord, Lord Oxburgh, to find an alternative, but no responsible Government could or should take risks that potentially put energy security in danger.

The noble Baroness, Lady Worthington, raised a point on the capacity market; our view is that capacity payments are likely to have only a marginal impact on the overall economics of coal plant and more important drivers on occasions where upgrading will relate to the overall state of an operator’s plant, an operator’s view of the market and the value that they place on retaining coal as a hedge. Even were they able to do so, this could mean that coal plants stay open longer, but they would operate at low-load factors and hence have low carbon emissions, given the evolution of the energy market with more low-carbon generation and carbon pricing. The noble Baroness could not give complete assurance that energy security would not be at risk. She could not say that prices would stay the same—her own party’s policy does not say that.

It is time that we looked at the elephant in the Chamber—the investors. After months of uncertainty, investors are looking at us in dismay. The most important thing we need to do is to provide certainty for investors by securing Royal Assent. The Confederation of British Industry has said that the Energy Bill has undergone significant scrutiny within Parliament as well as by industry and other stakeholders and it has the broad support of industry and investors in its current shape. It is important to the success of EMR that the Energy Bill receives Royal Assent in 2013, allowing investors to make those well needed decisions about investment.

[Baroness Worthington]

I thank the noble Baroness for giving way. Will she comment on my questions about Eggborough, as that is the very first test of whether this Bill is actually going to deliver? It was part of DECC’s announcement on projects that are going forward under the FID enabling scheme but I hear that next week they will receive a letter saying that they are not eligible for the first tranche because of a new system that the Government have introduced of rationing out the CFD contracts.

[Baroness Verma]

My Lords, the noble Baroness is of course aware that negotiations that are commercially sensitive cannot be discussed; I will not go further than that because these are sensitive issues and it would not be right of me to discuss individual plants, particularly on issues of commerciality.

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[Baroness Worthington]

I will just say that the Secretary of State was at Drax unveiling a new project that is being enabled under the CFDs. If it is that confidential, why was he there?

[Baroness Verma]

My Lords, I shall continue by trying to conclude quickly. The Bill has undergone thorough scrutiny and the Government have listened very carefully to all the concerns raised during its passage through this House. I am grateful to my noble friend Lord Teverson for his warm words. We have responded to a great many of the issues raised by colleagues from all sides of the House on, for example, domestic tariffs and access to markets, and we have introduced new topics—for example, carbon monoxide and smoke alarms.

We must acknowledge that the other place has accepted 112 amendments and, moreover, has welcomed them. It has recognised the expertise that this House has brought to the scrutiny of the Bill and the real improvements to it that this House has made. However, the other place has decided with a considerable majority that it does not agree with this amendment. The elected Chamber saw an unprecedented majority for the Bill as it completed its passage through the other place. Today, we can decide that the Bill proceeds to the statute book—a Bill that is essential for protecting consumers and for ensuring security of supply and decarbonisation of our economy. Nothing will send a firmer signal to investors than that this House will do nothing that prevents the Bill receiving Royal Assent.

Energy: Gas Storage

Debate between Baroness Worthington and Baroness Verma

Thursday 28th November 2013 Lords Chamber

[Baroness Worthington]

To ask Her Majesty’s Government what assessment they have made of the adequacy of the United Kingdom’s gas storage and its effect on consumer and business energy prices.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, four new storage facilities are either in operation or will soon become operational, which will increase the capacity of our gas storage by over 20%. In addition, they will nearly double the rate at which storage can deliver gas into the gas system, and there are further projects in the pipeline beyond those. DECC has considered whether incentivising storage would bring wider price benefits and we have concluded that the evidence for benefit is not sufficient to justify that, as potentially it would put great costs on to the consumer.

[Baroness Worthington (Lab)]

My Lords, we have seen quite an extraordinary amount of flip-flopping from the Government about when it is appropriate to intervene in markets and when it is not. However, there is still no desire to stand up to the energy companies. It is true that in the UK our gas storage is at very low levels—less than a quarter of that in France and Germany. Will the Minister comment on whether she believes that to help address the cost of living crisis, the Government should now ensure investment in gas storage so that we can avoid the seasonal price spikes that come with increased demand every winter?

[Baroness Verma]

My Lords, I think that I have already stated to the noble Baroness that we have gas storage either in the pipeline or coming on line. We also have a robust and dependable gas interconnection through pipelines from Norway and the rest of Europe. Therefore the noble Baroness, who raised this point about the cost of living to consumers, should have thought about it during the 13 years her party was in government.

Renewable Heat Incentive Scheme (Amendment) (No. 3) Regulations 2013

Debate between Baroness Worthington and Baroness Verma

Tuesday 26th November 2013 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, in moving the Renewable Heat Incentive Scheme (Amendment) (No. 3) Regulations 2013, I start with an apology. These regulations correct earlier amendments made in April and September to the Renewable Heat Incentive Scheme Regulations 2011, as after further scrutiny of them some minor corrections proved necessary. I am, as always, extremely grateful for the opportunity to speak to the Committee, and am always grateful to your Lordships for helping the Government deliver a robust set of regulatory controls for the scheme.

Before I expand on the purpose of the regulations and why the corrections they deliver are now warranted, I reassure noble Lords that I spoke in good faith during the earlier debates and that our policy intent was correctly reflected in the draft regulations. In ensuring that we were absolutely sure of policy interest, we ensured greater scrutiny and, in doing so, recognised that minor corrections were necessary.

The non-domestic RHI scheme has now been in operation for two years. Over 3,500 applications have been received to date, with around £68 million-worth of RHI payments expected to be paid out in the next year. Installations that have already been accredited have generated 497 gigawatt hours of renewable heat, and biomass has performed particularly well under the scheme. My department will shortly publish details of scheme improvements to drive uptake across the full range of technologies. This will include the outcomes of a review into existing tariff levels. Detailed plans have also been announced for a domestic scheme to open from next spring, which I know has been warmly welcomed by many. We are on track to deliver this commitment.

The RHI remains a vital component in the Government’s strategy to increase the amount of energy delivered from renewable sources by 2020. It is helping to achieve this by incentivising installations that produce heat from renewable sources. By doing so, it will help to reduce the UK’s greenhouse gas emissions. The introduction of the domestic scheme and improvements to the non-domestic scheme next year will also move us closer towards our goal of working to eliminate greenhouse gas emissions from our buildings by 2050.

In earlier debates we focused on two complex yet important changes to the RHI. Those changes were vital if the scheme was to be successful in its aims to provide value for money and protect our environment. In March we debated the mechanism to control spending under the scheme until March 2015. It is crucial that taxpayers’ money is spent appropriately. In July we debated the introduction of emissions limits for biomass boilers, so that the quality of our air is protected, among other measures intended to reduce the scheme’s complexities. The House agreed to both sets of changes.

I will now speak about the corrections needed to the regulations that govern these two policy areas. The first of these corrections is to ensure that the budget management policy—or cost control mechanism—for the scheme is able to operate as intended. The policy reduces existing tariff levels if the uptake of renewable heat technologies is more than expected and the scheme spend is estimated to be greater than the budget can afford. Tariffs are then reduced—or degressed—where there is strong market growth as a way to cool uptake.

The Government published the full and correct policy explaining how the mechanism should work in February of this year. The regulations debated in March were believed to deliver this policy in full. Subsequently, we detected a small part of the policy detail that was not accurately reflected in the regulations. However, I am keen to reassure the House that where the policy has not been fully reflected in the regulations, this has not resulted in any adverse impact. This is because the situation that is incorrectly accommodated in the regulations affects only a high market growth scenario occurring after an earlier degression. Such a scenario has not happened to date. There has been no impact on tariff levels and so all applicants who have successfully applied to the scheme have received the tariff as intended by the policy.

The framework for the financial mechanism is very detailed, which is why this error occurred. This level of complexity, as noble Lords are only too aware, is necessary as the regulations must set out exactly how we will keep spending on the RHI within budgetary limits. Because of this, it is vitally important that we reduce tariffs by an appropriate amount where needed, and the regulations must be specific in how we will calculate what an appropriate amount is.

The regulations specify that a reduction is applied where expenditure limits—which are often called triggers—are hit. To avoid overreducing tariffs, the level of a first reduction is set at a rate of 5%. The manner in which this reduction can be applied is correctly set out in the regulations. Indeed, we applied the regulations in this regard to the medium biomass tariff in July.

The regulations then allow reductions to double in size each quarter from 5% to 10%—and from 10% to 20% if growth rates demand it. It is this aspect of the policy where the regulations do not reflect the policy intention. I alluded to the fact that a scenario where the application of this part of the policy would be needed has not yet occurred, but because there remains a possibility that it might occur, it is important to amend the regulations now.

The policy is purposefully flexible, and a higher rate of reduction is not automatic. My department will examine the impact of an earlier reduction applied to tariffs and ask itself, “Has it had an impact? Has it started to slow down deployment?” If the answer is no, a further or higher rate of reduction can subsequently be applied.

The regulations define the tests to be applied in this assessment of when a further reduction is needed. It is the tests in Regulation 37D(2)(c) to (e) that contain the discrepancy with our policy intent, and which we are now amending. The regulations as they stand require much higher growth rates in expenditure to occur between two quarters before a further or higher rate of reduction can be applied to tariffs.

As I said, the rationale for this approach was to build greater flexibility into the system and also to control spend. If we cannot apply the correct level of reduction, we risk breaching the budget. We then risk not being able to support some installations in future, which will damage the scheme as a whole. I therefore hope that the Committee will be able to support this minor correction.

The second minor correction I will speak about relates to air quality emission limits for biomass boilers. I have already said that biomass has performed very well under the RHI, but burning biomass clearly raises questions for some: for example, how do we ensure that pollutants from biomass fuels are controlled? Regulations were debated by this House in July that introduced measures to tackle this issue. Your Lordships supported those changes, for which I am extremely grateful.

Specifically, in relation to air quality standards, those regulations require applicants to provide an emissions certificate demonstrating that specified criteria are met. The certificate provides evidence that the installation does not exceed the stated emissions limits, that testing has been carried out by a certified test house and sets standards following a specified method.

The issue with the existing regulations relates to the specified standards against which testing must be carried out and to the issuing of compliance certificates. Simply put, certificates cannot be issued for some biomass boilers, regardless of whether they meet the emissions limits set out by the policy.

Paragraph 9 in Schedule A1 to the regulations sets out standards to which tests must be carried out for measuring particulate matter and nitrogen oxides. Those standards are suitable only for some biomass boilers, particularly those that cannot be tested by standard BS EN 303-5. As worded, paragraph 9 wrongly requires those standards to be applied to the testing of all biomass boilers. That makes it impossible to issue compliance emission certificates for boilers that are unable to be tested by those alternative standards. The latest regulations correct this error so that the most suitable standards can be used for testing.

It is vital that we amend that, as the issue currently impacts on approximately 49% of all applicants to non-domestic RHI, given the high uptake from biomass technologies. We have worked with Ofgem to ensure minimal disruption to applicants in the light of that error. All applicants who may be affected are being advised at the point of application that there could be a small delay to their accreditation date, due to the air quality requirements. Ofgem has agreed to work through all applications as normal up to the point of accreditation, which will be dependent on a valid RHI emissions certificate. Those that cannot meet this requirement will not be rejected but held until the regulations are amended.

Before I conclude on that issue, I wish to draw the attention of the House to an additional regulation which will not apply if these changes are made before 1 January. These regulations offer protection to applicants who have applied under the current regulations but cannot meet the required standards through no fault of their own. Their application can be accredited by Ofgem only once the amending regulations are made. It is possible that a tariff reduction could be announced by my department before then, and our next quarterly degression announcement, due to be published by the end of this month, will confirm that. It would not be right for those applicants to receive a lower tariff due to this error, and this addition simply seeks to ensure that it does not happen.

In conclusion, the measures contained in these regulations are needed so that the correct policy can be applied in all instances. These corrections will ensure that the RHI scheme delivers renewable heat in the most cost-effective manner, as well as ensuring that emissions from biomass have minimal impact on air quality. While I am extremely apologetic for these minor errors, I am confident that the dedicated work by my department in identifying and correcting any areas of uncertainty will help us to maintain our strong relationships with stakeholders, which is a great strength for us all.

I reassure noble Lords that my department has examined the process it follows when making regulations and is undertaking changes internally to ensure an improved quality assurance regime that will help to minimise the likelihood of such errors in the future. I hope that my explanation has been clear and comprehensive, and I commend these regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the noble Baroness for her explanation. We have debated the RHI regulations on a number of occasions and have all noted that they are very complex in nature. Therefore, I thank the Minister for her clear articulation of these two minor amendments. We are grateful for the spirit in which the regulations have been brought forward and we of course accept that these minor corrections should be agreed to. However, I will take this opportunity to ask the noble Baroness some questions in relation to the policy.

We are expecting announcements in the autumn—I think that that was what was stated—and I am interpreting that as meaning before Christmas. It is important to note that the regulations that we have debated have been very complex and technical in nature, and they have mainly focused on the Government’s almost paranoiac fascination with trying to make sure that we limit the amount of money that we pay out through the scheme. However, the figures show that, overall, we are massively underspending in relation to this policy. The noble Baroness said that £68 million was expected to be spent this year. That is against an annual budget of, I believe, around £251 million. Therefore, obviously less than a third of the budget is likely to be spent this year. Why is that? Can the noble Baroness indicate whether perhaps we have been focusing all our energies and efforts on trying to reduce incentives? Given the numbers, it seems that this policy is failing to bring forward sufficient investment.

Secondly, it is a question not just of the money that is spent but of the impact that that money has. I only have the figures for 2012, but in that year our renewable heat stood at around 2.3%. We need to get to around 12% in 2020 in order to be compliant with our overall legally binding European renewables targets. Can the noble Baroness give me any indication of where we are likely to get to at the end of 2013 after this £68 million has been spent? Are we making inroads into that target?

I have mentioned that we are expecting more announcements, and those will be very welcome. We look forward to what I hope will be good, thorough debates once we have those announcements. I am sure that that will be when Ministers are able to outline improvements and we will see an increase and uptake in this scheme.

Today’s announcements are, as has been described, technical corrections. The explanation that has been given is valid and we agree with it. Air quality, which is covered in one of these technical amendments, is of paramount importance. We are pleased that this error has been spotted and made good. As the Minister said, this applies to a number of applicants. I think 49% of applicants will be caught by it, so it is good that it is being dealt with and corrected in a timely fashion.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Tuesday 19th November 2013 Lords Chamber

[Lord Teverson (LD)]

My Lords, this is a worthy amendment. However, Parliament is grown-up enough for those of us who are interested in these issues and see them as really important to notice what happens and seek answers from the Secretary of State and the Government about carbon intensity. The issue is important but the amendment adds little to the Bill.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I thank the noble Baroness, Lady Worthington, for tabling the amendment. The Government fully support the aim of clear and transparent reporting. However, like my noble friend Lord Teverson, I do not think it necessary to introduce an additional statutory reporting requirement to the Bill as the noble Baroness proposes. I shall set out quickly the reasons.

First, as the noble Baroness recognises, at Report I made a commitment to Parliament that the Government would undertake reporting measures once any decarbonisation target range had been set. This would supplement those reporting measures that are already included within Part 1 of the Bill. I repeat what I said on Report, which was that,

“where carbon intensity is reported to have increased year on year for three consecutive years, the Government will explain the reasons why, and, where appropriate, report additional actions to address it within the annual statement of grid carbon intensity”.—[Official Report, 28/10/13; col. 1366.]

Secondly, it is important to recognise that, under the Climate Change Act 2008, there are already high levels of scrutiny of the progress made to meet our economy-wide carbon targets. This includes coverage of the power sector within the context of our wider economy. For example: the Government currently report annually on emissions in the power sector through the UK’s greenhouse gas emissions inventory; the Committee on Climate Change publishes an independent and impartial report each year on our progress towards meeting our carbon budgets and the 2050 target; the Government provide annual responses to the committee’s recommendations, which include a dedicated chapter on the power sector; and the Government publish updated energy and emissions projections each year, setting out the future trajectory we anticipate the economy taking.

Lastly, the amendment proposes that these reporting measures start from the date of Royal Assent. The Government’s view is that it is logical for any additional reporting measures to be triggered by the setting of a decarbonisation target range rather than by the enactment of the Bill. That would ensure alignment with the existing reporting framework that is already included in Clause 3, and we should not forget that we already report on grid carbon intensity ahead of any decarbonisation target range being set. Section 5 of the Energy Act 2010 requires a three-yearly report to Parliament on progress in decarbonising electricity generation. That report sets out the policy framework and explains trends in grid carbon intensity over the reporting period.

In conclusion, the Government are already proposing a clear and robust target framework that includes regular reporting on progress in meeting any target range. That is in addition to the high levels of scrutiny that are already in place to meet our economy-wide carbon targets. For those reasons, it would be unnecessary to introduce another statutory reporting requirement. I hope that the noble Baroness will agree with me that the existing commitments are sufficient and will, on that basis, withdraw her amendment.

[Baroness Worthington]

I am grateful to the Minister for her response and for the contribution from the noble Lord, Lord Teverson. I agree that we are all mature in looking at these things and that people who scrutinise and follow this in detail will raise issues as they occur. However, something is clearly not working, otherwise why is it that carbon intensity has been allowed to rise to such high levels recently with the Government apparently incapable of acting to bring it down? Obviously, many factors play into that, but the whole purpose of the Bill is to bring some of those factors under greater control and to allow the Government to intervene in the market to create contracts for difference that bring forward investment in the low-carbon economy that would not otherwise be supported by the market.

There is a problem, given that carbon intensity remains stubbornly high; the measure of the success of the Bill will be that starting to fall. It is regrettable that the Government are not prepared to start monitoring that or reporting on it, in terms of actively managing it, until 2016, which is a number of years away. I understand that the Bill has existing requirements on reporting carbon intensity, and that it is routinely reported now, so I am happy to withdraw, but this is something we need to keep a close eye on. I am sure that the noble Lord, Lord Teverson, and others will join me in ensuring that we do just that.

--- Later in debate ---

[Baroness Worthington]

My Lords, we support the amendment moved by the noble Lord, Lord Jenkin. Possibly it is merely an oversight that those who wish to become capacity providers are currently excluded from the list of consultees. As the noble Lord has explained, this part of the Bill is very important and should be open to new and independent players to attract them into the market. If all the capacity mechanism does is provide security to the existing incumbents, it will have failed in its aim to deliver capacity at least cost, with a good degree of competition enabling prices to be kept to the minimum. Given the context, it is an eminently sensible amendment and I really hope that the Minister will be able to support it.

[Baroness Verma]

My Lords, I thank my noble friend Lord Jenkin for his amendment. Both the electricity capacity regulations and the capacity market rules form the legal framework that will enable the introduction of the capacity market. The capacity market rules will be subsidiary to the regulations, for which the Secretary of State will continue to have responsibility.

Much of the content of the capacity market rules will comprise provisions of a technical and administrative nature, designed to supplement the regulations and ensure the efficient running of the capacity market; for example, the rules will set out how the delivery body is to conduct capacity auctions and the pre-qualification process, as well as its duties to maintain a capacity market register and carry out monitoring and testing.

Given the technical and administrative nature of the rules, we therefore expect changes usually to be of a minor and technical nature, with the primary purpose of ensuring the efficient operation of the capacity market. It is important to make the duty to consult on those changes proportionate, and to get the balance right between consulting widely and implementing the change within an appropriate timeframe.

Potential capacity providers may not necessarily be affected by a proposed rule change in the same way as existing capacity providers; for example, existing providers will have rights or obligations under the capacity market that might be affected by a change in the rules. I am therefore of the view that potential capacity providers should not be added as parties that the authority must consult on every proposed change.

Nevertheless, it is important that if the authority were to propose a significant change to the rules that affected a wider range of parties, consultation on that change should go beyond existing suppliers and capacity providers. I therefore reassure my noble friend that we expect the authority to consult more widely, as appropriate, for any significant changes to the rules that might affect a wider range of parties, such as prospective capacity providers. This is reflected in the draft electricity capacity regulations 2014, published for consultation in October, which would oblige the authority also to consult the Secretary of State, the delivery body and,

“such other persons as the Authority considers it appropriate to consult”.

The authority will be producing guidelines on the process it intends to follow for making changes to the capacity market rules, including its processes for consultation and for considering rule changes proposed by a third party. The authority intends to publish these draft guidelines next spring before finalising them, allowing all potential capacity providers the opportunity to comment on them.

I hope that my noble friend has been reassured that the consultation provision in the Bill is not exhaustive and that the authority can, and will, consult more widely where appropriate. I hope, therefore, that he will withdraw his amendment.

--- Later in debate ---

[Baroness Verma]

My Lords, I am grateful to the noble Baroness, Lady Worthington, and I hope that I can add a little clarity on the matter she has raised. Under the existing provisions, and save for the circumstances provided for under Schedule 4, the EPS will apply to the entire generating capacity of any new fossil fuel power station consented after the EPS comes into force. For example, where planning consent is given for a new fossil fuel power station, the generating units that comprise the consented power station are, for the purposes of the EPS, the “generating station”.

A generating station will report its carbon emissions under the EU Emissions Trading Scheme and the intention is that those reports will be used to reconcile total carbon emissions in a year against the EPS limit for the generating station, which is calculated using the formula in the Bill—I hope that noble Lords are following me thus far.

In respect of the circumstances provided for under Schedule 4, paragraph 1(1) of Schedule 4 gives the Secretary of State a power to make regulations to apply the EPS to a generating station consented before the EPS came into effect where it replaces or installs an additional main boiler—so where it effectively adds to or renews its generating capacity.

Paragraph 1(1)(b)(iii) of Schedule 4, on which the Government were defeated on Report, would extend the scope of Schedule 4 to enable the Secretary of State to apply the EPS also to an existing generating station that fitted substantial pollution abatement equipment. The exercise of the power to make regulations under Schedule 4 is at the discretion of the Secretary of State, and it would be premature to comment on whether or how that power may be used.

Sub-paragraphs (1) and (2) of paragraph 1 of Schedule 4 together allow the EPS to be applied with or without modifications and to different parts of a generating station. For example, it could be applied to only those units that are new or have replacement boilers or to only those units that have fitted substantial pollution abatement equipment.

While I recognise that the proposed amendment may be one way of determining how the EPS will apply to fossil fuel plant, it does not cater for a wider range of circumstances in the way intended by Schedule 4. The regulation-making power in Schedule 4 provides for alternative approaches and, due to the potential complexities and impacts on existing assets were we minded in the future to exercise these powers, we would want to consult fully on possible options before making regulations. I believe that this would provide a more properly informed debate and I therefore ask the noble Baroness to take my reassurances at this stage and withdraw her amendment.

[Baroness Worthington]

My Lords, I am grateful to the noble Baroness for her reply. Discretion gives flexibility but equally it gives a lack of certainty for industry. I am not quite sure why this proposal is premature as we need to give clarity to those affected by this Bill as soon as possible. It seems to me that in maintaining this discretion, we are prolonging lack of certainty for the industry. I think that it is very important that we do this consultation quickly and that we give clarity as soon as possible, whether that is through the regulations that follow or in a separate process. I am sure that there are many people sitting in boardrooms around the country looking at their assets, who need to know this information and need to know how the department is interpreting its powers.

If the department is minded to have an EPS apply only to the units which fit the filters that make the upgrade, that will have the very perverse affect of allowing unabated plant—the other corresponding units—to operate indefinitely at very high load factors. That is precisely what we are trying to avoid with this amendment. There is a very strong reason why we do not believe that discretion is necessary and why the definition should be at a plant level. However, I understand that the Government may wish to consult and to seek a little extra time before making this issue fully clear. I hope that that is completed in the shortest time possible, as prolonging uncertainty will make life harder for the industry and investors in deciding what their next move should be following the passage of the Bill. I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Worthington]

I support my noble friend’s amendment. Getting the regulator to incorporate social and environmental factors was a hard-fought battle. It would be a great shame if the passing of this Bill should see us going backwards on that front. I am grateful to the noble Viscount for the correction, although I prefer quadlemma, because we can then talk about the effect that Cuadrilla will have on the quadlemma. I look forward to the Minister’s response.

[Baroness Verma]

My Lords, I thank the noble Lord, Lord Judd, for his amendment and for raising the matter of Ofgem’s social and environmental duties. I recognise the importance that the noble Lord and others attach to this. It is recognised in primary legislation, which sets out Ofgem’s duties, including those concerned with environmental sustainability and social issues. The noble Lord will be aware that Ofgem has other duties, including its principal objective to protect consumer interests, including their interest in a reduction of greenhouse gases and security of supply, as well as duties to promote efficiency and economy and the need to ensure that energy businesses are able to finance their activities.

The Government recognise that Ofgem’s role to a large extent is concerned with identifying what is an appropriate balance between all of those different objectives. This is a case of an independent economic regulator. The Government’s principles of economic regulation state that,

“regulatory decisions are taken by the body that has the legitimacy, expertise and capability to arbitrate between the required trade-offs”.

In the case of energy, that body is, of course, Ofgem.

We are introducing the strategy and policy statement as a result of the Ofgem review, which concluded that this was necessary to provide more coherence between the Government’s strategic energy priorities and the way Ofgem regulates the energy sector. It is crucial, however, that the statement should not undermine independent regulation. The review also concluded that Ofgem should remain responsible for the consideration of trade-offs between economic goals and broader goals, including social and environmental matters. That is why Ofgem will now have additional duties to take into account the contents of the statement when carrying out its own regulatory functions, which will stand alongside its existing duties. As before, Ofgem will be expected to continue to achieve the appropriate balances between its objectives.

The strategy and policy statement will set out the Government’s strategic policy and identify policy outcomes which are relevant to what Ofgem should achieve, but it will not specify how Ofgem should act to achieve these outcomes or specify outcomes in a way that would compromise Ofgem’s independence. It is not necessary to restate Ofgem’s objectives within the strategy and policy statement and it would not be appropriate to include text which could be seen as directing Ofgem on how it should interpret its duties.

I repeat my previous reassurances that we will take social and environmental matters into account when we draft the strategy and policy statement and that there will be opportunities for interested parties to comment on its contents when we consult next year. Both Houses will be able to consider the contents of the statement before it is designated.

My noble friend Lord Jenkin raised the role of the Environment Agency. Ofgem is a regulator of the energy sector and the strategy and policy statement is aimed at achieving coherence between government energy policy and regulatory actions. It is not aimed at doing the work of the Environment Agency which, as my noble friend rightly said, is a duty on that agency.

However, the noble Lord, Lord Judd, and others have raised important points about visual amenity and other environmental concerns. Existing planning and environmental habitat legislation are operating in tandem with national policy guidance on planning matters. This provides the framework to ensure that this is done, and done properly. Environmental impacts are considered at all stages of the planning process, from the development of proposals by applicants, including, for example, through preparation of environmental statements, to consideration by the Planning Inspectorate and final determination and assessment by the Secretary of State. Environmental considerations are also taken into account when government are taking policy-making processes. Key guidance on considering planning for nationally significant infrastructure projects is contained in the national policy statements.

There is a lot already out there for Governments to utilise so, given all those reassurances, I hope that the noble Lord, Lord Judd, feels better reassured and will therefore withdraw his amendment.

Energy: Shale Gas

Debate between Baroness Worthington and Baroness Verma

Tuesday 19th November 2013 Lords Chamber

[Baroness Verma]

My noble friend again raises an important point. Water UK, which represents water companies, is working closely with the United Kingdom Onshore Operators Group—the representative body for onshore oil and gas—to make sure that any potential extra demand for water will be managed sensibly. However, water companies are already obligated to produce and update every five years a proper water plan. Water companies will therefore assess well in advance the amount of water that will be available to the operator before it is used.

[Baroness Worthington (Lab)]

My Lords, I wanted to let the Minister know that I have just returned from Poland, and fracking was a topic of great conversation there. What if anything has she done to reach out to Poland to discuss how it will pursue fracking? It could make a huge difference to Europe’s carbon emissions.

[Baroness Verma]

My Lords, I know that the noble Baroness was in Poland and was aware that she returned today. As she will be aware, the UK is always in close conversation with all its member-state partners, and of course these conversations are ongoing.

Nuclear Power: Procurement

Debate between Baroness Worthington and Baroness Verma

Monday 11th November 2013 Lords Chamber

[Baroness Verma]

My Lords, the fact is that we have a lot of interest from a lot of companies coming to the UK. We should be very proud that there is so much interest. We have an excellent skills base here and we should welcome all investors to our country.

[Baroness Worthington (Lab)]

My Lords, is the Minister aware that Sheffield Forgemasters recently completed a large-scale forging for a nuclear reactor to be built in South America? The design was Canadian, but it is not a design that is licensed in the UK. Could the noble Baroness give us an update on whether that Canadian design could be licensed here and, if so, when?

[Baroness Verma]

My Lords, it is for operators to decide on the designs and it is for the Government then to approve them, as long as the regulators are satisfied.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Wednesday 6th November 2013 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, I am grateful to my noble friend for tabling this amendment and for his pursuit of this issue in other fora. It is correct that the way that electricity is priced at the moment is illogical: the more we consume as a whole, the higher the cost of producing the electricity. Once our demand rises, we have to bring on marginal plant, which is less efficient and more costly, pushing up the wholesale price for everyone. The people who consume the most therefore cause us to carry a cost that we should not have to bear.

It should therefore be logical that we disincentivise the bringing on of marginal plant by tariff pricing and tariff structures. However, although the idea has been raised on many occasions, the moment has never been found to make it a reality. I hope—and I think that this will be the case—that once smart metering comes into play, this will become an absolute no-brainer. At that point, when we have detailed information about each individual household’s demand across a given period of time, this will become enabled. At present, though, it is a very difficult thing to bring into practice.

Noble Lords have touched on some of the issues. One of them is the question of the variance in demand between households. It can be perfectly true that you have two identical semi-detached houses with very different energy bills, because of different socioeconomic circumstances. Someone who is at home all day will have the heating on and that will increase their bills. If you have a high occupancy rate—if you have children, for example—your energy bills will go up. It is quite difficult to identify the right point at which to say, “This is a fair use of electricity and after this we are going to increase the price”.

That said, though, it is not impossible. It should not be the case that electricity companies incentivise greater usage and reduce the rate of tariffs after a certain point of consumption. If we are not yet able to get to a fully comprehensive rising block tariff system, then at least the Government could perhaps make it clear that tariffs should not have such a regressive effect that the highest price would be for the first units of consumption and then there would be a reduction in the unit price—that should be ruled out. The Prime Minister has indicated that he has a desire to make tariffs simpler. The simplest thing would be to have one unit price for everyone and for everything. Let us start there, and if we can establish that principle and stop the incentivisation of greater consumption, that will be a step in the right direction.

I still think that there is something in this idea. We need to look at it, although it is possibly true that now is not the time. I am sure that that will disappoint my noble friend; one can always say, “Now is not the time”. However, with the advent of better technology such as smart meters and a greater understanding of demand with better data, we will be able to get there. The way that the system is currently structured is illogical, and I am sure that something like this will be introduced within the next decade. I congratulate my noble friend on being so prescient and ahead of the curve.

[Baroness Verma]

I, too, thank the noble Lord, Lord Campbell-Savours, for his amendment. The noble Lord has a long-standing interest in this matter and I understand his desire to encourage more energy efficiency and to reduce the energy bills of low-income households. We considered in the past the case for rising block tariffs. When the issue was debated during the passage of the Energy Bill 2011 we were concerned, as we are now, that they would have an adverse impact on fuel-poor households with high energy consumption. I followed very carefully the noble Lord’s argument that this would not happen, but I believe that many consumers would see their bills rise under a rising block tariff.

The Committee on Climate Change has also examined the case for rising block tariffs and concluded that they,

“should not be introduced until fuel poverty has been addressed through targeted energy efficiency improvement and other fuel poverty policy measures”.

We are addressing fuel poverty through the Warm Home Discount. This year more than 1.1 million households will receive an automatic rebate on their electricity bill of £135 and more than 2 million households will receive assistance from the scheme as a whole. As the noble Lord rightly points out, we are also tackling the poor energy efficiency of our homes through the Energy Companies Obligation and the Green Deal. Some 230,000 vulnerable and low-income households will be warmer this year because of the measures installed in their homes under ECO.

Clauses 130 to 133 are intended to enable the Secretary of State to simplify the tariff market, to increase competition in the retail domestic energy market through greater consumer engagement and to get consumers on to the best tariff for them. We have introduced these clauses to give statutory backing to Ofgem’s reforms of the retail energy market. These reforms have been developed to ensure that customers are on the cheapest tariff that is in line with their preferences with their current supplier. They will introduce a simpler, clearer tariff framework so that consumers can compare tariffs across the market more easily.

The noble Baroness mentioned smart meters. I agree with her. When people have smart meters installed, that will help them recognise the amount of energy that they are paying for at the time of use, and will inform them of when to use energy at different times of the year to get the best value out of it during the day. However, we are just rolling out smart meters now. They are not yet part of a mass rollout. So a key measure is to give consumers the ability to compare tariffs, banning complex multi-tier tariffs and requiring suppliers to structure all tariffs as a standing charge and single unit rate.

Introducing a framework for rising block tariffs would cut across Ofgem’s reforms to deliver a fairer, more transparent and competitive market. We are backing its proposals, not instructing it how to regulate the market. Ofgem is an independent regulator and is best placed to assess the regulatory changes needed. Although I suspect that he will not, I hope that the noble Lord will find my explanation reassuring, and that he will withdraw his amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Wednesday 6th November 2013 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, I am grateful to my noble friend Lord Judd for tabling this group of amendments and for his incredibly detailed explanation of the points that he seeks to raise. He not only gave an incredibly detailed explanation of why the group is so important; he also very commendably addressed some of the answers that the Minister gave in Committee. We are very grateful for that.

It is absolutely clear that, at the moment, we talk about an energy trilemma—the difficulty of marrying up the needs to tackle change, to keep bills affordable and to keep the lights on—but actually it is a quadlemma, if noble Lords can bear my coining a new phrase, because in the process of meeting those three objectives we cannot see the sacrificing of social and environmental standards in the process. For that reason, this group of amendments is very important.

I came into environmental campaigning through an interest in the natural world and the natural environment. The Countryside and Rights of Way Act was one of the first pieces of legislation that I worked on because I care passionately about preserving areas of beauty, species and habitats and the diversity of the natural world for future generations. But that is not incompatible with moving forward into a low-carbon energy system.

The noble Viscount, Lord Ridley, has singled out wind for particular opprobrium in terms of despoiling our landscape. It is easy to forget that one of the major sources of despoiling our landscape is industrialisation in general. This includes mining, particularly opencast mining, and the new form of industrialisation which may well be coming upon us in the form of gas fracking. If you want visual disturbance, then the rigs that will need to be placed for fracking will also have an impact.

The noble Viscount was correct in also highlighting pylons and grid connections as an issue. However, those apply to all forms of generation, not just wind. The reinforcement of the grid for nuclear will also be an issue that needs to be taken into account.

We are very supportive of the principle behind these amendments. It is important that the first amendment is about demonstration of compliance. If noble Lords read these amendments, it might be easy to dismiss them and say, “Of course they have to comply with laws. That is why we have laws”. However, I think that my noble friend’s point is about the degree to which the authority is required to demonstrate compliance.

The very important point is that the Bill seems to be removing and repealing existing guidance and replacing it with a second-order replacement. I look forward to hearing the Minister’s reassurance that that is not the case and that social and environmental guidance is not being made subordinate to other primary concerns.

The final amendment on public consultation is also very important. I look forward to hearing the Minister’s reply. We are sympathetic to this. It is rather late in the day and other forms of wording might be more appropriate but I very much support the principle behind these amendments.

[Baroness Verma]

My Lords, I thank the noble Lord, Lord Judd, for his amendments. The Government recognise that energy production and consumption should be sustainable. That is why Ofgem has been given duties to contribute to the achievement of sustainable development and to have regard to the effect on the environment of activities connected with the conveyance of gas and the generation, transmission, distribution and supply of electricity.

Ofgem can also consider sustainability implications when it carries out impact assessments for important regulatory decisions. The amendments before us would require Ofgem to demonstrate that it has complied with its general environmental duties. We agree that Ofgem should be accountable. It already has to produce an annual report on matters that fall within the scope of its functions, including its environmental obligations. This accountability will be reinforced by the strategy and policy statement as Ofgem will be required to set out its strategy for implementing the statement in forward work programming. It will also be required to report annually on its contribution towards furthering the delivery of the policy outcomes.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Monday 4th November 2013 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, I am grateful to my noble friend for tabling these amendments but, although we are sympathetic to their intent, it is fair to say that we would take a different approach.

This part of the Bill, which introduces measures to try to protect independent generators, is a clear indication that there is something very wrong with our electricity market. It is another layer of complexity that the Bill introduces to the market, and it is needed because we have probably all had considerable representation from independent generators saying that they are simply not able to gain access to the market on fair terms. That is very regrettable and a clear sign that something major needs to take place in the shake-up of the electricity market. Unfortunately, the Bill does not do that and was never intended to, and I am inclined to agree with my noble friend Lord O’Neill that another Bill would be needed to sort this out.

As I said, this is an extra complexity, and my general rule of thumb is that increased complexity equals decreased efficiency. I am sorry that we have had to enter into this market with new provisions to enable independent generators to gain access. All electricity ought to be sold into an open and transparent pool or market so that everyone has a fair crack at the whip and ultimately everybody can gain fair access to customers through supply companies. I fear that these amendments, although welcome, are something of a sticking plaster and would not really get to the root of the problem.

The Labour Party has made it very clear that our solution to this is to split up the vertical integration of the big six and to introduce a new regulator with real teeth, focusing squarely on the consumer and delivering better competition in all aspects of the electricity market. The amendments go some way towards achieving that but I do not think that they do enough, so I am afraid that, although we are sympathetic, we are not able to support them.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I thank noble Lords for the debate on the amendments and I shall speak to them after I have spoken to my own amendments in this group. The amendments standing in my name pertain to powers that enable the establishment of a power purchase agreement scheme, which could provide generators with access to an offtaker of last resort. The offtaker of last resort mechanism will benefit both independent renewable generators and investors by providing a guaranteed backstop route to market through which generators can sell their power. This will enable generators to use new and different routes to market, ending their dependency on established players and stimulating new entry and innovation in the PPA market.

The amendments I am speaking to today address specific concerns raised in Committee that the price at which electricity is purchased in PPAs under the scheme should be determined by reference to the current market price. Amendment 61 clarifies that a PPA under the scheme is an arrangement under which a supplier agrees to purchase electricity,

“at a discount to a prevailing market price”.

This amendment confirms our policy intent that the offtaker of last resort mechanism is exactly that: a last resort. Electricity purchased through the PPAs under the scheme must be purchased at a discount to a market price. This will give confidence to suppliers that they will not be required to purchase electricity at above-market prices. I assure the House that it is the Government’s intention that the level of discount should also represent a sufficient level of revenue to enable generators to raise finance. The discount level will form a key part of our consultation in early 2014.

Amendment 63 enables the Secretary of State to make provision in licence or code modifications to determine the appropriate discount and market price for PPAs under the scheme. I believe that these amendments clarify our policy intentions.

Amendment 61A, tabled by the noble Lord, Lord Berkeley, and the noble Viscount, Lord Hanworth, would mean that a PPA under the scheme is an arrangement under which a supplier agrees to purchase electricity at a discount to the market price and that the discount is no more than 5%. It is important that the discount is large enough to ensure that PPAs under the scheme are a last resort. The requirement for the discount to be no larger than 5% is not compatible with that; given that open-market PPAs typically have larger discounts, the scheme would quickly become a first, rather than last, resort. This would undermine new entrants to the PPA market and mean that anticipated benefits of the scheme in terms of facilitating a more dynamic and competitive PPA market would not materialise.

On Amendment 59A, I begin by stating my strong, and, I believe, shared desire to see ambitious action to improve wholesale market liquidity, which is crucial to allow independent generators and suppliers to compete without restriction. That is what Ofgem is doing through its ambitious package of reforms to address low levels of liquidity in the market, and what this Government will do should Ofgem’s reforms be delayed or frustrated. If it proves necessary for the Government to act, they should consider all options to achieve their objectives, including those listed in Clause 43. However, it would not be prudent to tie our hands to a particular course of action at this stage.

I hope that noble Lords have found my explanations reassuring and that the noble Lord will agree to withdraw his amendment.

--- Later in debate ---

[Baroness Worthington]

My Lords, I support Amendment 60. I am grateful to all noble Lords for their contributions to this debate. I will not reiterate my earlier comments, which are that I consider this whole section of the Bill to be a sad necessity that need not have been there had the Government grasped the bigger picture of properly introducing competition during their energy market reforms. However, Amendment 60 seems to be eminently sensible. It is clear, from all the contributions we have heard today, that there is insufficient confidence among independent generators that the Government are serious about introducing something to assist them at this time. It is also quite clear that the clauses we are now debating are a last-minute addition to the Bill.

When the Government started out on this process they maintained that there was no problem and nothing to be worried about; I suspect that this was because they paid far too much attention to what the big six were telling them and insufficient attention to what the independent generators were saying. We therefore have these four clauses, which do not go far enough in providing the detail or the certainty that investors require. Ministers should at the very least be able to concede that these arrangements will be in place in time for the awarding of the first CFDs; that would be the absolute minimum.

On the other amendments, which are slightly more detailed—I agree with the noble Earl, Lord Caithness, that they may be too prescriptive for primary legislation—the regulations that flow from these clauses must be published before the Bill leaves this House, as we need to see the detail. I apologise if the draft regulations have in fact already been published; they may have been lost in the huge number of documents, for which we are grateful, that have been issued to us. However, if they have not been published, can the Minister tell us when they will be so that we can see how this policy will work and appreciate the detail? I hope that that will go some way to reassure the noble Lords who have spoken in this debate this afternoon.

[Baroness Verma]

My Lords, I thank my noble friends Lord Roper and Lord Jenkin, and the noble Baroness, Lady Liddell, for their amendments on the issue of route to market for independent renewable generators. Taken together, these amendments would place the Secretary of State under a duty to ensure that: a PPA scheme is in place by the time the first contracts for difference are allocated; the terms of PPAs under the scheme are demonstrably viable for eligible electricity generators and will enable them to borrow money on reasonable terms; eligible generators can obtain a PPA under the scheme within seven days; and that all generators eligible for a CFD are eligible for a PPA under the scheme.

I am grateful to noble Lords for the opportunity to clarify the Government’s intentions, which are very much in keeping with the spirit of these amendments. I assure the House that, as my right honourable friend Michael Fallon has said, the Government are committed to consulting on the introduction of an offtaker of last resort mechanism, and that they intend, subject to consultation, a scheme to be in place by the time the first CFDs are signed. That will give generators and investors the certainty that they need to make investment decisions. However, it would not be appropriate to place the Secretary of State under a duty to establish a scheme by a particular date before the final policy design has been completed and consulted upon.

The Government are also committed to ensuring that the mechanism is viable for eligible independent generators, which should enable generators to borrow money on reasonable terms. However, the Government cannot guarantee that, since access to finance and the viability of the scheme for individual generators are affected by a variety of factors that are out of our control. We also fully intend that those generators which need to access a PPA under the scheme will be able to do so quickly and simply via a transparent and fair process.

It is important that the scheme is targeted at those generators which genuinely need to access it. The scheme may not be suitable or necessary for all CFD-holding technologies, so we do not judge that it is appropriate for this to be required in primary legislation. I also assure the House that the Government intend to grandfather the terms of PPAs under the scheme, including the level of discount, from the date a generator signs its CFD.

I met with the Independent Renewable Energy Generators Group last week to reassure it on these points. It confirmed that it believes that the offtaker of last resort is a viable solution to its concerns, subject to the final decision—sorry; subject to the final design. The details of the offtaker of last resort mechanism will be specified in secondary legislation following consultation early next year, so it is not appropriate at this stage to set them out in the Bill. I reassure noble Lords that we aim to have secondary legislation in force by the time the first CFDs are signed. This is a challenging timetable. It is subject to consultation and parliamentary process. However, this should not have a material impact on generators since they will not need access to backstop PPAs until after projects have been commissioned, which is likely to be several months after signing the first CFD.

Noble Lords also asked when the first CFD allocations will become available. We have already signalled that we intend to consult, possibly in the early new year, and aim to have secondary legislation in force by the time of the first CFD. I hope that I have reassured noble Lords that the Government’s intention is to ensure certainty for smaller generators. We want to see greater competition. We believe that the measures we are taking and the mechanisms we are using are the right ones. I hope that the noble Lord will find my explanations reassuring and will therefore agree to withdraw his amendment.

--- Later in debate ---

[Baroness Worthington]

My Lords, I am grateful to the Minister for explaining the amendments that she has tabled and spoken to today. I am particularly grateful for new Clause 66, which was something that we debated in Committee.

The issue that was under discussion was that we are, in this Bill, removing the renewables obligation—the policy that has supported renewables and has led to a significant increase in renewable energy and different forms of renewable electricity. The removal of the renewables obligation is significant because it contained an inbuilt incentive on the big six to keep investing in new clean technology. We are now removing that through this Bill. Unfortunately we have not been able to convince the Government to replace any form of obligation into this Bill on either the Government or the suppliers. We are now entering a period where we have to entice investors rather than oblige them. That is an issue that may come back to haunt us—a phrase that has been used before today.

I seek words of reassurance that, in the detailed arrangements that are set out in the regulations that close the RO, the Government will not prescribe a date until they are absolutely certain when the CFDs can come into operation. The issue here is that this Bill is going to be subject to state aid clearance; we need to be absolutely confident that we do not wind down the existing support mechanism before we are completely sure that we have a new support mechanism in its place.

There has been mention of the year 2017 in numerous government consultation documents and documents on this topic. At this stage we cannot be sure that 2017 is the right year. I urge the Minister to make sure that draft regulations are not overly prescriptive and that they give us the flexibility we need to ensure that there is a very good transition from one successful policy to a new untested policy which we hope will deliver but, as has been mentioned on a number of occasions, we still have concerns that it will not—especially for independent generators.

[Baroness Verma]

My Lords, I thank the noble Baroness and reassure her that we are of course mindful of all the concerns that she has raised. The RO closure date of 31 March 2017 was chosen in order to allow for that period of parallel running between the RO and the CFD. If we were to extend the RO, we might need to hold a further banding review for the post-2017 banding levels, and generators would not know the post-2017 banding levels until 2015-2016.

Any accreditation after 2017 would receive less than 20 years of RO support. The RO is subject to a 2037 end date. It would be wrong to extend this given that the CFDs are being put into place to provide better value for generators.

[Baroness Worthington]

I merely point out that these amendments remove the need for banding reviews, so I do not think it is true to say that we cannot have more flexibility over the end date because of banding reviews as these amendments remove the requirement on government to review the banding. I urge the Minister to reconsider that.

--- Later in debate ---

[Baroness Verma]

My Lords, I will speak to the amendments in my name. I am grateful to my noble friend Lord Teverson and the noble Lord, Lord Whitty, for their amendments and to all those who have contributed to this debate. I remind the House of the policy intent behind the EPS. It is to ensure that no new coal-fired power station is built without CCS, and that it is done in a way that does not undermine the investment we will need in gas generation to keep the lights on at a reasonable cost to consumers.

Amendment 72 seeks to shorten the grandfathering period of the EPS from the end of 2044 to 2029. This shortening by some 15 years will increase uncertainty for gas investors. Without this certainty, we risk deterring or increasing the cost of new gas investments, with the obvious potential consequences for security of supply and costs to consumers. I recognise that 2044 is a long way off but this date is derived from what investors tell us is required. Under the current provisions, new gas plants consented in the later part of this decade and built in the early 2020s would have a little over 20 years of certainty in respect of how the EPS will apply to those assets. That is the amount of time that investors tell us is required to pay back all debt and see a return on equity in the project. In other words, with grandfathering, the EPS is not a barrier to financing new gas generation plants.

Noble Lords may be concerned that we may be locking in high levels of unabated gas generation well into the future that could risk achieving our legally binding 2050 carbon emissions target. I reassure noble Lords that the other measures under our market reforms will ensure that this is not the case and, therefore, that the EPS is consistent with our 2050 decarbonisation target. This is because unabated gas generation will be increasingly displaced by low-carbon generation over time. The Government set out clearly in our gas generation strategy how we expect gas plants’ load factors to decline as low carbon comes on to the system, and how in the very long term we expect it to be economically attractive for gas plants to retrofit carbon capture and storage equipment. Grandfathering the EPS until 2044 will not prevent this from happening. Grandfathering to just 2029 would risk deterring or increasing the cost of the investment in the new gas plants that we need to be built up to 2030.

I turn to Amendments 71 and 73. The approach proposed by my noble friend is very close to the one that we have already adopted. The Government have already committed to a regular three-yearly review of the EPS. The EPS will also be reviewed as part of the statutory review of EMR under Clause 58 of the Bill. The amendments would enable the statutory rate of emissions and the period for which it will apply to be revised very quickly following a review by way of an order. This is an approach that the Government have considered but have concerns about. The ability to revise the EPS very quickly could result in a specific investment hiatus in the run up to a review, due to the uncertainty that the review process introduces. Pre-development costs for power projects can run into tens of millions of pounds, so investors will be very aware of the risk that a quickly implemented decision to revise the EPS could render a project economically unviable, with the financial loss that could result.

That is why we have taken the approach that any future changes to the EPS should be by way of primary legislation. Combined with the three-year period between reviews, this will help to ensure that projects that are already in the planning system—by that stage having already had significant financial commitment—are able to complete that process before any changes to the EPS that would affect their project come into force. However, I recognise the spirit in which my noble friend has brought this amendment and the helpful intent to bring greater certainty to the review process and the process for making any future changes to the EPS. I will reflect on his suggestions with a view to how we might underpin his concerns without creating any unnecessary investment hiatus.

Turning to Amendment 74, the Government’s goal is an orderly transition away from coal to lower-carbon fuels over time in a way which does not create unnecessary costs for consumers. While we do not expect large numbers of coal plants to invest in clean-up equipment, a very small number of our more efficient plant may wish to do so. This amendment is very likely to deter that investment. In this scenario, more coal stations would have their operation constrained, and there could be more stations closing around the end of the decade than might otherwise be the case. This could require more gas plant to be built earlier to fill the gap at greater cost—ultimately, to consumers. Why should we close down our options in this way now when it could put our security of supply at risk and significantly increase costs to consumers? A small number of cleaned-up coal plants could provide greater diversity and bring additional resilience to the electricity system in the coming years, helping to ride any bumps in the road, given the significant investment challenge that we face.

I have also considered carefully the argument that by taking action to drive the closure of all of our coal power stations, we would be giving certainty to investors in new gas generation. While this may be conceptually true, it could also be true to say that you would give certainty to investors in electric cars if you banned all petrol vehicles, but that does not mean it would be a prudent or cost-effective thing to do.

[Baroness Worthington]

Is the Minister aware that the setting of the EPS on these refurbished plants would not cause them to close but would simply prevent them baseloading? They would still be available for the rest of the decade and the decade beyond to act as backup plant.

[Baroness Verma]

If the noble Baroness will allow me to continue, I may be able to illustrate further and more clearly the Government’s intentions.

The Bill is about creating the conditions for investment. Intervening in this way and targeting the EPS on a particular set of generators and their assets risks damaging the confidence of investors in the UK as a place to invest in the energy sector. This is precisely the opposite of what the Bill is designed to achieve.

The amendment would also create a direct interplay between the EPS and what is a complex European directive, and I question whether the proposed amendment would be compliant with the UK’s European obligations, especially those under the industrial emissions directive. The way in which European law interacts with our domestic law in this area is complex, and the Government are not in a position to reassure the House today that the amendment would be compliant.

In summary, to accept this amendment would not be consistent with the purpose of the EPS. It is unnecessary and could potentially have negative impacts. Our position is supported by the CBI which said in its Report stage briefing,

“the current EPS proposal should remain unchanged”.

Do not be mistaken, the Government do not want old coal hanging around for ever. We want, through the combined effect of all the measures in this Bill, to create the conditions for an orderly, cost-effective transition away from high-carbon coal through investment in lower carbon alternatives. We want this to be achieved in the way that best protects the consumer.

I turn now to the amendments that stand in my name. They seek to assist the development and commercialisation of carbon capture and storage by providing that a time-limited exemption to the emissions performance standard will apply to carbon capture and storage projects during their commissioning phase. While this has always been the Government’s policy intention, these amendments seek to provide certainty in the Bill. Amendment 73B provides for a three-year exemption period for fossil fuel plant that use a complete CCS system. It also provides that the exemption period may only begin once the complete CCS system is ready for use and is physically in place. The exemption is time-limited and available until the end of 2027. This reflects our view that the exemption is a temporary measure designed to assist the development of CCS and we expect learning from the first projects and those expected quickly to follow to remove the need for an enduring exemption.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Monday 28th October 2013 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing this group of amendments. This goes to show that the Government are listening—at least to the Delegated Powers and Regulatory Reform Committee if not, perhaps, to all sides of the House. It has obviously had more success in amending the Bill than some of us in our many days in Committee over the summer. There are a number of amendments here, many of which implement the recommendations.

To strike a serious note, it is important that the Government have listened and accepted the advice of the Delegated Powers Committee. This is quite an extraordinary Bill. It is quite an extraordinary intervention into the market and it carries with it quite considerable enabling powers that give the Secretary of State a huge amount of discretion in how he or she will intervene in the electricity market. It is only right and proper that those powers are subject to the affirmative resolution procedure in as many places as possible, so there can be a degree of parliamentary oversight in what is going to be a hugely significant intervention into the market.

The noble Baroness spoke to some of the amendments which relate to the allocation of contracts for difference under the levy control framework. I seek some form of comfort, and confirmation from the Minister that we will not descend into a system of micromanagement, trying to split up the pot of money into ever smaller, more precise groupings of technologies. We have seen this happen with other DECC policies; with the renewable heat incentive, for example, and the banding of FITs. This temptation to micromanage, to carve up the market and pick winners to make sure that we have control over what comes forward can make for a regrettable situation. It is regressive because it does not allow the market to demonstrate where there is a success. It does not allow the market to find solutions.

I find it quite odd that I am here on the Labour Benches chastising the Conservative Government for not allowing the market to deliver. However, it is clear that this is the current thinking: that we should not allow the market and competition to dictate but somehow try to use the powers in the Bill to organise and plan everything from the top down. That is a recipe for disaster. I am sure that others will agree with me that where we have already seen that in operation, with FITs and RHI, it has been shown to be really sub-optimal. I only say that as an illustration of why it is so important that the many regulations which will flow from the Bill are subject to full and proper parliamentary scrutiny, so that we can try to prevent some of those worst examples being repeated on a much larger scale.

I am grateful to the noble Lord, Lord Roper, for tabling his amendment, which is intended to correct one of the few issues which the Government have not conceded in response to the Delegated Powers and Regulatory Reform Committee. I look forward to the noble Baroness’s response to that, because it is evidently important that it has been raised here.

[Baroness Verma]

My Lords, I thank my noble friend Lord Roper for Amendment 41, which would remove paragraph (b). I am aware that this is in line with the recommendation of the Delegated Powers and Regulatory Reform Committee.

Before concluding on my noble friend’s amendment, I will respond to the noble Baroness, Lady Worthington, on splitting and micromanagement of the levy control framework. We are not looking to pick winners, but to ensure that costs can be controlled and that new technologies can come to the market. Like the noble Baroness, we want to see greater competition and new entrants. The last thing that we would want to do is to micromanage that and pick winners and losers. However, as with all things, there needs to be some management of ensuring that costs do not overrun or become artificially maintained.

I say to my noble friend Lord Roper and other noble Lords that I will consider carefully the committee’s recommendation and my noble friend’s amendment to the proposed powers in Clause 28 with a view to addressing them at Third Reading.

--- Later in debate ---

[Baroness Verma]

My Lords, I thank the noble Baroness, Lady Worthington, for this amendment. It offers us another opportunity to debate the important matter of competition within EMR. Amendment 7 relates to the competitive allocation of CFDs. I begin by reassuring the noble Baroness and noble Lords that we have carefully considered competition throughout the design of EMR. Of course, CFDs themselves will enable new low-carbon generation to compete in the market.

We recognise the role that the competitive allocation process, including auctions, can play in ensuring least-cost decarbonisation for consumers. Indeed, the Secretary of State has stated that the reforms in the Energy Bill are specifically designed to,

“blaze a trail towards competition”.

However, we view the competitive allocation of CFDs as a means to ensure low costs to the electricity consumer rather than as an end in itself. Competitive allocation can help drive value for money only when market conditions allow. Key tests of the market conditions include the supply of new low-carbon generation exceeding the amount we need to meet our decarbonisation commitments, and there being enough potential players to ensure sufficient competitive tension.

Moving to competitive allocation before these conditions are met may increase risks to developers and costs to the consumer, without necessarily bringing the benefits of a competitive allocation. Of course, it is possible that the conditions for competitive allocation may be met relatively soon. In respect of most renewable technologies, we have said that we will consider moving immediately to allocation rounds and introducing constraints for certain technologies or groups of technologies, which might have the effect of triggering auctions for those technologies. In respect of nuclear and carbon capture and storage technologies, our officials are already working with stakeholders to explore how competitive tenders could work for those technologies. Where competitive allocation processes are not feasible or effective, I can reassure noble Lords that any final allocation decision will still be subject to strict value-for-money considerations and an assessment of an overall budget constraint.

Therefore, I say to the noble Baroness and to noble Lords who have expressed the concerns behind this amendment that we do care about value for money, but I do not think that a requirement to run competitive allocation processes within five years of enactment of the Bill is the right way to ensure value for money. Instead, we should focus on the action that we are taking to improve underlying conditions for new low-carbon generation and reduce barriers to entry, which may enable a faster move to competitive allocation processes. As I set out in an earlier debate, these include Ofgem’s ambitious package of reforms to improve market liquidity and meet the needs of independent generators, and our amendment to the Energy Bill to allow for the establishment of a power purchase agreement scheme, which will bring greater competition to the PPA and generation market.

The noble Baroness asked for an update about state aid. As she knows, we do not comment on discussions that we have with the Commission on state aid. As noble Lords might expect, it is likely to place importance on competition, as we do. However, I assure the noble Baroness that those conversations on state aid are taking place.

The noble Baroness also asked about the timescale for moving. Throughout my speaking notes I have tried to reassure the noble Baroness that we move as fast as we can. I therefore urge the noble Baroness to withdraw her amendment and be reassured that the Government take her concerns very seriously.

[Baroness Worthington]

I thank the Minister for her response. I am not fully reassured by her comments, but I am grateful for them. There is a bit of a problem here. The basic premise is to try to get to a point where all technologies can be treated equally. However, as the noble Baroness points out, not all technologies are at the same stage of development, so we find ourselves in quite an odd situation. We cannot allow this to persist. We must apply a discipline and a timetable to ourselves to ensure that when we move to the next decade, we will arrive at a point where we are able to compare apples and pears more adequately. We want to get to a position where, for the sake of the consumer, we fund only technologies that can deliver cost-effectively.

It is very good to hear the Minister mention value for money, as that is at the heart of my concern. At the moment we have strike prices here and there, and different contract lengths. We must seek to simplify this so that the best technologies can come forward. That will obviously take time. I hope that we can move swiftly to a much clearer and more competitive process, and I hope that time will achieve that. I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Worthington]

In moving Amendment 22, I will speak to Amendments 23 and 24 in the same group. I will not detain the House any longer than is needed.

This amendment raises a very important issue that should be at the heart of the Energy Bill, and which the legislation is not sufficiently clear on at the moment—the nature of the contracts for difference. Noble Lords may remember that in a very early draft of the Bill—the one that went into pre-legislative scrutiny—there was a hint that it might be possible to sign a one-way contract for difference. That underscores any potential profit for a contract holder, but completely removes the downside risk. That means that if the contract holder was due to pay money back because the wholesale price was higher than the strike price, they could keep that money. The wording has now been changed sufficiently for that not to be in the current Bill, but there is still a question mark over the degree of latitude that the Secretary of State has over these contracts for difference.

I seek a strong reassurance on behalf of consumers and bill payers that we will not sign contracts in cases where, if the strike price is below the wholesale price, that money will simply end up in the profits of the company that holds the contract. It must flow back to the consumer. For this to be a fair system, we want to see contracts for difference that provide a stable price for the holders, but they should not be completely guaranteed profits over and above that. That is an important concept. I look forward to hearing the noble Baroness reassure me that one-way contracts will not be signed, and that all contracts for difference will be two-way.

[Baroness Verma]

My Lords, I thank the noble Baroness for her amendments and for prompting the debate on the matter of payments to suppliers. I am pleased to reassure her that the intention of her amendment is already delivered in the Bill. The purpose of Clause 11 is to allow the Secretary of State to make regulations to ensure that the counter party can pass payments from generators under the CFD on to suppliers and, furthermore, that the regulations we are consulting on specify that this must happen.

Amendment 22 provides that the regulations must set out the amounts to be paid to suppliers. I want to be clear why some flexibility is needed here and therefore why there is not already such a duty within the Bill. It is indeed the Government’s intention that surpluses will be returned to suppliers. A duty would, however, fix that this happened by way of a repayment of sums. The Bill as drafted allows us instead to use payments from CFD generators to offset future supplier payments. Offsetting such payments could be more efficient than making payments out to suppliers and then asking for payments back in again. This could provide more value for money for consumers and greater transparency of costs and savings.

Amendment 23 states that sums passing to suppliers must be rated at zero. I want to reassure noble Lords that if it is appropriate for sums to be paid back to suppliers—for instance when, as the noble Baroness has said, under a CFD the reference price is above the strike price—then the counter party is required to do so through draft regulations. However, sometimes the reference price will not be above the strike price and the sums to pay back would be zero. This amendment could lead to unintended consequences where the counter party has to pay suppliers money it does not have. This would then need to be recovered from suppliers, and this uncertainty is likely to be passed through to consumers and ultimately lead to increased consumer bills.

I turn now to Amendment 24. Clause 11(2) allows for regulations to include provision for the counter party to calculate any amounts it might owe to suppliers against specific criteria. It also enables regulations to allow for such calculations to be carried out on behalf of the counter party. Although we expect a settlement agent to carry out such calculations on behalf of the counter party, this amendment would impose a duty which would remove the long-term flexibility to consider how to carry out the calculations, whether in-house or otherwise, in the most cost-effective way. I hope that the noble Baroness has found my explanation reassuring.

[Baroness Worthington]

I am grateful for the reply. It does obviously reassure me that if something is paid back to suppliers it will be done in a sensible way, and indeed offsetting might be the most sensible way. How will the regulator ensure that the sums paid back are then handed on to consumers? Will there be regulations to that effect?

[Baroness Verma]

My Lords, as I said earlier, I think there needs to be some flexibility. Where money is returned to suppliers they have a choice between paying it out as dividends and salaries or using it to reduce costs to consumers. We believe that, as we have a competitive market, benefits should be passed on to consumers. It would be in the interests of suppliers to pass the money on to consumers. I suspect that as the market becomes far more competitive it will be in their interest to try to vie for as many consumers as they possibly can. I think we need to be able to allow that flexibility and not constrain it. On that basis, I hope that the noble Baroness will withdraw her amendment.

[Baroness Worthington]

I am grateful to the noble Baroness for bearing with me in answering my subsequent question and for her response. I am not fully reassured that this whole system is going to be very transparent or beneficial for the consumer. I do not want to rehearse the arguments we had earlier about the lack of competition, but we have seen previous examples of this. If there had been a truly competitive market and proper downward pressure on prices, would we have seen the large big six companies using their capital to buy back shares? I do not think so. Also, we have seen it with the introduction of the EU emissions trading scheme in which generators all opted to take a massive windfall by passing on the full costs of the ETS, even though they were not being incurred because all the allocations were free.

I say this only because these are recent examples of the regulatory system failing consumers and not being sufficiently strong and firm with the big six in ensuring that they make the right decisions. In this day and age, with pressures on the cost of living being so acute, these companies have to avoid a form of corporate overconfidence which does not put the consumer first, as the noble Lord, Lord Teverson, said. I am sure that we will come back to this again, but I am happy to beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Worthington]

My Lords, I support Amendment 49 of the noble Lord, Lord Oxburgh. Throughout the evening and the passage of this Bill we have discussed the need for competition and for keeping downward pressure on price a great deal. It is clear, as the noble Lord, Lord Oxburgh, has pointed out, that the majority of the increases in consumer and business bills in recent years have been down to the increase in gas prices.

It is regrettable that we heard recently from British Gas that it had decided to withdraw a project to enhance and expand its gas storage capabilities. This is another sign that there is insufficient downward pressure on prices. It probably suits British Gas quite well to have prices rising, because that leads to higher profits. It is probably the wrong body to make any kind of economic assessment on whether it makes sense for them to invest in gas storage. There has to be some form of intervention from government to ensure that there is timely investment in gas capacity.

Gas prices fluctuate between the summer, when demand is low, and winter, when it is high. If we can smooth that out and provide a more stable price throughout the year, it makes sense to have a tool in the armoury, as the noble Lord, Lord Oxburgh, has said, to facilitate this. I am sure that the Minister will come back with some thoughts on this. It is quite a new element to introduce to the Bill at this late stage and perhaps an amendment of this kind is not the way to deliver it, but I strongly support the sentiment behind it. As the noble Lord, Lord Oxburgh, has pointed out, we are seeing our North Sea gas reserves diminish and we are moving into a more international situation in which we rely on gas from many different parts of the world. Much of it is being delivered by ship. Ships can change course in the middle of the ocean if they see fit, if offered a better price. Our reliance on gas needs to be underpinned and secured through greater capacity and gas storage.

I hope that the Minister can say something about how the Government intend to bring more of this to ensure that we are not facing a situation where it is in everyone’s interest apart from the consumer to have gas prices rising continually, and that there is some way in which they can intervene to bring investment to this important aspect of energy security and affordability.

[Baroness Verma]

My Lords, I am grateful to the noble Lord, Lord Oxburgh, for his amendment, which returns to the matter of gas storage that he raised in Committee. My department published analysis and made a Statement in the other place on 4 September on precisely this issue and I am glad to discuss it today.

The amendment is intended to enable the Secretary of State to make arrangements to provide capacity payments in exchange for the supply of gas more securely, or at lower prices, than would otherwise be possible. I should make it clear from the outset that the capacity market is not intended to support the gas market. Rather, the capacity market is an integral part of our electricity market reform programme.

On the face of it, this amendment aims to facilitate a simple and attractive concept: cheaper and more secure gas for consumers. While the Government recognise that rising energy bills are a worry for many households and businesses, this amendment is not the solution. It is difficult to imagine that any supplier of gas would sign a contract to sell gas at a future date at a discount to the prevailing market price. The capacity payment is required to offset the risk to the supplier of being out of pocket and it would need to top up any shortfall to the point where there would be no net benefit to consumers.

Specifically, it has been argued that capacity payments may facilitate the construction of additional gas storage capacity, which offers the potential to buy cheaply in summer and store the gas until it can be sold when prices are higher in winter, as the noble Baroness, Lady Worthington, pointed out. This is a service that the market currently provides. Storage capacity is currently increasing, with two facilities having been completed in the past 18 months and two more facilities under construction. There are 10 more projects with major planning consents in place, which are awaiting the right commercial signals to invest. Where the market is not already providing this signal, supporting a storage project through subsidy, whether by a capacity payment or other means, would just transfer the risk currently faced by the market to the Government. In other words, it would be passed on to consumers and taxpayers.

DECC considered in detail the case for supporting gas storage. Analysis shows that, although there are interventions that could enhance our gas security, under most scenarios they would not do so cost-effectively. All options risk adding disproportionate costs to energy bills and risk distorting a well functioning GB gas market. We will not be taking these interventions forward and do not envisage needing the powers that these amendments propose.

As I explained earlier, we are introducing a capacity market to provide for capacity payments to ensure security of our electricity supplies. This is because the electricity market faces new challenges. These include the planned closure of a large proportion of our existing generating capacity and an increased amount of low-carbon generation. That means that there is an increased need for additional reliable capacity. The capacity market is specifically designed to address this.

These issues do not translate to the gas market. The security of gas supply outlook is robust. There is spare supply capacity: the available capacity of nearly 700 million cubic metres a day is far in excess of even the highest recorded daily demand of 465 million cubic metres. The gas system also has greater flexibility to rectify demand/supply imbalances within the balancing period and, for gas, unlike electricity, there are readily available means for storage which the market is currently expanding. The Government therefore do not consider this amendment to be necessary. I hope that the noble Lord, Lord Oxburgh, has found my explanation reassuring and on that basis will withdraw his amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Monday 28th October 2013 Lords Chamber

[Baroness Worthington]

My Lords, I am grateful to noble Lords for tabling this amendment. It enables us to have a debate about what I believe is an obvious missing element in the entire Bill, which is the need and the desire to promote competition. It is clear that there has been a quickening of pace in the thinking about energy policy since the conference season. That is largely because the Labour Party has called time on the existing system which is operating in our electricity market. We stated clearly that if we win the next election we would make dramatic reforms to introduce greater competition. It is evident that we have an oligopolistic system and that there is an insufficient downward pressure on prices. Otherwise, why would British Gas and other members of the big six opt to spend half a billion pounds on share buy-backs when they could have used that money to keep prices down for their consumers or to stop the price rises they have recently announced? It is absolutely clear that something needs to be done.

The amendments tabled go some way to trying to crowbar this issue into the Bill but, unfortunately, I do not think they go far enough. We certainly support the desire to put the requirement for further competition into the general considerations. We cannot see an argument against that and it seems very sensible.

The noble Earl, Lord Caithness, said that the Bill was all about competition. That could not be further from the truth. What the Bill actually does is deliver a system that will largely be determined by administrative negotiations between the Government and single parties quite often representing the big six. We have seen the first such announcement to emanate from this Bill, the contract awarded to EDF to build Hinkley Point C. Indeed, the noble Lord, Lord Deighton, was responsible for negotiating it. I have no doubt that he would have found it much easier to negotiate a price and length of contract that was better value for consumers if we had had more competition. What we needed was more competition in our choice of vendors of nuclear reactors. We were choosing one from one, which is never a good situation to be in.

I shall put that aside because I have used it as an illustration that the Bill does not introduce or increase competition, but narrows it. Later this evening we will debate—very briefly, I promise—my Amendment 7, which seeks to state that this contract for difference process must very quickly pass to a competitive process. It cannot continue as this bilateral, negotiated discussion behind closed doors with one or two very large companies that already play a dominant role in the market. In the interests of consumers and of competition, we must open up the whole process to competition so that we can keep prices down.

This group also contains the amendment in the name of the noble Lord, Lord Berkeley, which would split the big six. Again, we are very sympathetic. Rather than crowbar it into the Bill, we have already stated that we would use legislative powers on election to do exactly that. The argument in favour of the big six and vertical integration has always been that they need the balance sheet of the supply industry to be able to raise the finance required to invest upstream in generation, but that is not what they have been doing. They have not ploughed their profits back into investment; there has been a hiatus in investment.

The renewables industry, which has grown the most, has not relied on the big six. More than half of the investment that has gone into renewables has come from independent investors: new, independent companies. We should seek to support those companies and see them prosper. However, they report that it is becoming increasingly difficult to get power purchase agreements from the big six because they control the vast share of access to customers. Why is this? It is another clear signal that there is not enough competition in the market. We now have yet more contortions added to the Bill, such as purchasers of last resort and buyers of last resort, provisions that have been put in precisely because the big six are not offering decent contract terms to the independent investors. If that is not a signal that something is wrong, I do not know what is.

I will briefly touch on the reference made by the noble Lord, Lord Deben, to Germany. I fully support the idea that the big six should become the big 60, and ultimately the big 600. We need to democratise our generation of electricity. The signs are that it is already starting, from the man on the street fitting solar panels to communities coming together to find PV for their schools or building wind farms. Real change is happening and we must endeavour to make it happen more quickly and substantially. Only then will the big six or their equivalents be challenged. This is happening already in Germany, where after a relatively short period RWE, the giant of the German electricity industry, is claiming that its business model is broken. The support for decarbonised, community-owned power has broken that industry, which is a good thing, as it has been responsible for a huge amount of carbon emissions over the decades and has shown itself to be incapable of adapting quickly enough to the new, modern needs of electricity.

I will not go on any more. We have covered the main points: the big six system is broken and we absolutely need more competition in this market. The Bill, by introducing contracts for difference, makes it possible and credible for us to make the decisive move to split vertical integration and halt the market power that is gained from having generation and supply in the same companies. We are in principle supportive of this, and we look forward to the Minister’s response. It is a sticking plaster, but nevertheless a very important one.

[Baroness Verma]

My Lords, I thank my noble friends Lord Jenkin and Lord Roper, and the noble Lords, Lord Cameron and Lord Berkeley, for their amendments. They all relate to competition within EMR and the electricity market. I should like to reassure noble Lords across the Chamber that I fully recognise the importance of effective competition in the market. I also recognise my noble friend’s desire to help independent gas-fired generators in particular. My noble friend tabled Amendment 4 in Committee, and I have considered carefully the points he made. In particular, he said that this amendment would,

“help the Government to achieve their stated desire of having greater market competition”.—[Official Report, 18/7/13; col. GC 339.]

However, I still do not think that it will deliver the competition that he rightly seeks. We will make a difference to competition only if we take action and deliver actual reforms that are designed for that purpose.

The list of matters to which the Secretary of State must have regard in Clause 5(2) is about balancing different objectives: balancing the need to decarbonise against ensuring security of supply, and at the least cost to the customer. However, competition does not fit into such a list. We are not balancing competition against delivering decarbonisation or cost to the consumer. Competition is one of the means of minimising cost to the consumer, and the purpose of EMR is to move us to an electricity market where low-carbon generation can compete fairly on price. Amendment 4 could cause confusion as to the practical effect on the design and implementation of EMR. Noble Lords will recognise that we do not have the luxury of time at the moment, and that to understand the effect of such a change would undermine our efforts to quickly implement EMR and bring forward investment.

--- Later in debate ---

[Baroness Worthington]

I am sorry to interrupt, but I forgot to ask a question in my contribution, particularly on the capacity mechanism, in which I know the noble Lord, Lord Jenkin, is very interested. What representations have the Government had from independent gas generators on the penalty prices? We are being told that because of the way that the capacity market is stretched, they will not be able to raise finance with those punitive penalties within the capacity mechanism.

[Baroness Verma]

My Lords, while I wait for some inspiration to wing its way down to me, I will continue and respond later to the noble Baroness. I recognise what my noble friend Lord Jenkin and others have said about how liquidity reforms benefit consumers. These reforms make it easier for independent suppliers and new entrants to access the wholesale market. They will increase competitive pressure in the retail market, which will benefit consumers in terms of downward pressure on bills, greater choice, and better service, which is what I know all noble Lords want.

My noble friends Lord Deben and Lord Jenkin, and others, mentioned Ofgem’s liquidity proposal. We want to make the energy market as competitive as possible. An increasingly level playing field for independent suppliers and generators is precisely what will help drive competition, which delivers better value for consumers and business. Ofgem’s proposal to increase transparency in the way electricity is traded will give independent generators a foothold in the UK market and encourage new players to invest.

While I am waiting for inspiration, which has not quite arrived yet, I will touch on the proposals the noble Baroness, Lady Worthington, has mentioned on the price freeze. We cannot see the Labour Party’s proposals solving the problems of competition. What we see is that we will get price hikes before and after the freeze. What we need is to get a better understanding of where the Labour Party is coming from when it says that it wants to reset the energy market, because we do not know whether that is just jingoistic terminology or if there are some proposals in place.

The inspiration I was waiting for has arrived. We are engaging with industry. It said that it was pleased with our proposal for a higher cap in the first auction. I suspect that does not quite answer the noble Baroness’s question, so perhaps I will come back to her on that.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Tuesday 30th July 2013 Grand Committee

[Baroness Worthington]

I think that we are all quite relieved to have reached our last day in Committee on the Energy Bill. I would like to thank everyone who has contributed to our debates, and I thank the Minister for her responses and for all her correspondence, which has been very useful.

Amendment 55ALA is designed to provide an opportunity to discuss an element of the Bill which has not had much attention so far, and that is the financial investment enabling investment contracts. Our amendment would provide a sunset clause to this aspect of the Bill such that it would no longer be part of the mix of policy two years following the legislation being given Royal Assent. We have tabled this as a probing amendment because we wanted to give the Minister an opportunity to provide some background information and clarity on the thinking behind the investment contracts element. When the draft Bill emerged, it was clear that quite a high degree of emphasis was being placed on a provision to enable the Secretary of State to enter into contracts for difference with investors ahead of all the detail of the Bill being worked through. The most significant difference is that this would be a contract between the Secretary of State and a party who wished to develop low-carbon electricity, not an enabling counterbody. The rationale was that such a counterbody would not be in existence, so it would be a direct contract with the Secretary of State.

It is fair to say that there has been considerable interest in these FID-enabling contracts. We were grateful to receive information from the department about the number of applications that have been submitted to date in relation to this element of the Bill, which now total 57. I note that that is just the number of applications that have come from renewable energy. The table we have been given does not indicate the level of interest that has been expressed by CCS or nuclear. Obviously the FID-enabling process is there for all technologies and yet the supporting literature and table show that while we have a lot of information about the renewables aspect, very little is supplied in relation to the other two major categories of low-carbon electricity. Can the Minister provide a bit of background information in relation to those nuclear and CCS projects which may have expressed an interest? Have there been any? If so, how many, and at what level of gigawatts? That information would be very useful and it is pertinent to the discussions around investment contracts.

It was my understanding that the FID-enabling contracts were necessary in order to prevent a hiatus in investment, but that is the least of the problems with regard to the renewables. Renewables have an existing support mechanism and we have already discussed in Committee the transitional arrangements that are in place for that. We have some concerns, but in general there is a transfer and crossover period for renewables that is clear. However, CCS and nuclear will be embarking on a completely new policy of support; I would have thought that those are the projects which need early sight of and access to the contracts, yet we are not being given much detail at all. That strikes me as odd. Perhaps the Minister can give the Committee an update on where we are in relation to being able to arrive at strike prices for those two technologies. It is important that the strike prices are subject to parliamentary scrutiny. We have been given an awful lot of information about renewables, but not about the other two technologies.

It will be increasingly important to treat these three diverse groups of technologies as similarly as we can, given that that is how we will be able to argue that our measures are subject to competition and to comparisons that will enable the least cost and the most sensible decisions. I am sure that that will be of great interest to state aid discussions. One of the main rationales for EMR intervention in the first place was that we were seeking to treat low-carbon electricity providers equally, yet still we seem to be proceeding in a fairly unequal way, with renewables being treated separately from CCS and nuclear. There is a great dearth of information on CCS and nuclear.

The state aid question is important, of course, for this section of the Bill. The rationale is that these investment contracts can be signed. I note with interest that the latest investment contract allocation update from the department says that they will not be signed until March 2014. Previous timetables implied that that would happen in autumn this year and that they would be subject still to state aid clearance. I struggle to see how this whole jigsaw will fit together. How will the investment contracts be able to be assessed for state aid if the remainder of the Bill is not yet worked through? Is it realistic to think that by March 2014 the Secretary of State will enter into contracts before the Bill has been approved or signed off in its detail?

As I have said, this is a probing amendment. It is specifically designed to try to elucidate more information in relation to these contracts. I note that it seems to have gone very quiet on the negotiating front with EDF. I saw today that in a 17-page press release, EDF found no space to mention Hinkley Point in the update on its results. I do not want to be overly pessimistic; however, if this is a really serious negotiation that is of material interest to its investors and people interested in its company, it seems odd that there was no mention of Hinkley Point. Perhaps I may end by asking that we have as much of an update as the Minister is allowed to give on that process of negotiation and when we might have more transparency around its terms. I beg to move.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, I thank the noble Baroness, Lady Worthington, for these amendments, which seek to time limit the provisions on investment contracts. Amendment 55ALA would time limit the provisions in Schedule 2 to the Bill, which relate to investment contracts, to two years following enactment.

The investment contract provisions in the Bill are already time-limited. The Secretary of State can only enter into investment contracts on or before 31 December 2015. However, the remaining provisions set out in Schedule 2 cannot be time-limited, as they provide the Secretary of State with the necessary powers to administer and make payments under investment contracts in the unlikely event that the enduring EMR regime is substantially delayed or does not come into force at all. In the main, the powers mirror those in Chapter 2 of the Bill on contracts for difference.

If payments had to be made under an investment contract, it is likely that they would need to be made for considerably longer than two years, potentially for the duration of the contract. The effect of time-limiting the investment contract provisions through this amendment would be that developers would not have the confidence to take final investment decisions on much needed low-carbon generation projects that might otherwise be delayed or cancelled, as there would no longer be a means to make payments under the contracts. The amendment would therefore negate the purpose of these powers and risk creating the investment hiatus that they are intended to address.

Amendment 55ALC seeks to amend the powers relating to varied investment contracts. A varied investment contract will, in the opinion of the Secretary of State, materially increase the likely cost to consumers of electricity. To ensure transparency, the Bill requires that varied investment contracts are laid before Parliament together with a statement explaining why the variation is appropriate, having regard to the likely cost to consumers.

This amendment would require that varied investment contracts could be laid before Parliament only up to 31 December 2015. There would, therefore, be no possibility to make amendments pursuant to this provision after this date. While it is not the Government’s policy intention to reopen investment contracts for further negotiation once they are agreed, this clause provides for useful flexibility should it be necessary—for example to comply, as the noble Baroness rightly points out, with state aid rules.

Before I ask the noble Baroness to withdraw her amendment, I would like to respond to her question on the number of CCS and nuclear final investment decision applications. Apart from the renewable developers, we are in discussions on the potential investment contract for Hinkley Point C which, if agreed, will build a 3.2 gigawatt nuclear power plant. As the noble Baroness is aware, these hugely sensitive negotiations are ongoing and it would be imprudent of me to go further than that. I can say that, while it may have gone quiet out there, we are currently in very close discussions. A number of CCS developers have approached the department for FID arrangements.

The noble Baroness asked about the timetable changing from autumn 2013 to March 2014. That is because we are using the final strike prices and final contract terms instead of draft pricing and draft terms.

[Baroness Worthington]

It is helpful to know that there are a number of CCS projects, but a precise number would be even more so if that could be forthcoming in a letter. If the timing is moving in order to have final strike prices, when will we be able to have any commentary on the strike prices for nuclear and CCS? We have nothing. This has to be bounded within a range: there is not an infinite amount of money that can be spent and there has to be a lower limit. Why can we not at least have a range to understand and consider in relation to those two technologies?

[Baroness Verma]

I accept that the noble Baroness is keen to get the range. I am not in a position to offer that comfort to her at this point but I will take away her question and hope to illuminate the Committee with a fuller, written response. The negotiations on the agreed strike price are very sensitive and I therefore need to go back to the department to see what I can offer to further inform the Committee. Given my reassurances on writing to the noble Baroness on outstanding questions, I hope that she will withdraw her amendment.

[Baroness Worthington]

My Lords, I am grateful for that response and welcome the Minister’s offer to write with further details. I accept that negotiation is sensitive but at what point does the interest of negotiating with one company override the very real interest of the wider public, the entire sector and all the consumers who will be paying for the outcome of that negotiation? It is odd that, in everything else, the department has provided very welcome levels of detail and yet there is such a degree of silence in this area that it makes people unnecessarily suspicious. There should be no one negotiation that is so sensitive and so overridingly important that we are unable to have a discussion about it. That is skewing things unnecessarily. Let us try and get these technologies on an even keel, get through state aid and move forward. One negotiation should not require this degree of special treatment.

I look forward very much to the Minister’s letter and, on that basis, I am happy to withdraw the amendment.

--- Later in debate ---

[Baroness Worthington]

We tabled Amendment 55ALF in order to consider in detail the provisions in Chapter 5 about conflicts of interest and contingency arrangements in relation to the creation of the counterparty and the role that National Grid will be given in the delivery of many of the features of the electricity market reform proposals.

The amendment would slightly change the current wording of the clause that allows for the Secretary of State to determine the kind of appropriate measures needed to ensure that there is no conflict of interest between National Grid’s commercial enterprises and the role that it has been given under the EMR. I am sure that our amendment is not perfectly worded—it is a probing amendment intended to clarify that this should not be a question of discretion. The current wording makes it clear that the Secretary of State has a certain degree of discretion in deciding whether it would be “necessary or desirable”. That seems slightly too broad. We have tried to encapsulate in our amendment the idea that sufficiency is the important aspect, not desirability, and that there should be absolutely no question but that action will be taken to eliminate conflicts of interest between National Grid’s commercial enterprises and activities and its EMR role.

Along with, I am sure, many other noble Lords, we received a briefing from National Grid on this issue. We obviously recognise and take note of the many measures that National Grid has already put in place to manage conflicts of interest in other parts of its business and its very strong undertaking to continue to operate in a way that has no conflicts of interest. We do not mean to question National Grid’s desires or motives and are sure that it does indeed seek to work in such a way that it has no conflicts of interest—our concern is with the legal basis for the interventions that the Secretary of State will undertake to ensure that.

It is worth considering that the Utilities Act 2000 and the Electricity Act 1989 built in certain provisions that prohibit National Grid from undertaking certain activities. For example, it is not allowed to disclose to a third party any information about individuals or businesses that it receives by virtue of their transmission licence activities. That seems to be the kind of quite tightly drawn provision that might need to be updated in the context of the EMR. Clearly, National Grid will receive information from third parties in relation to the functions that it will carry out under the EMR. It is the body that will be tasked by the Government with signing the investment contracts and the CFDs, which will give it access to information that it would not otherwise receive. I just question whether the provision created under the Utilities Act needs updating to ensure that it applies to not just the transition licence but the new role in the EMR.

It is an example of why we need to get this right and make sure that we have thought of every angle. We should not create a framework in which the Secretary of State can determine whether something is necessary or desirable. It is the word “desirable” that gives us slight cause for concern. We think the actual criteria should be that it is “sufficient” and would like to see explicit mention that there should be no conflict of interest between the system operators’ roles and the new roles they are being given under the EMR. I beg to move.

[Baroness Verma]

My Lords, I am grateful to the noble Baroness, Lady Worthington, for the amendment. I understand the concerns she has raised regarding the potential for conflicts of interest to arise between National Grid’s existing businesses and its new EMR role.

The Government want to use the best people for the job of delivering electricity market reform. The national system operator within National Grid is well placed to succeed in the task of delivering contracts for difference and the capacity market. The expertise it will bring to the role is the reason we gave that role to the system operator in the first place. For example, there are strong links between the capacity market and the existing range of balancing services that the system operator currently provides.

In addition, the system operator has the relevant technical expertise and the commercial and financial skills to ensure that the capacity market can be delivered in an efficient way—for example, through the modelling of future supply margins and the delivery of auctions. The system operator is also uniquely placed to understand the implications for the electricity system of different technology mixes brought on by contracts for difference, ensuring that we have the highest quality analysis on which to base our decisions on how we support low-carbon technologies.

The matter of conflicts of interest that arise between National Grid’s existing businesses and this new role was identified at an early stage. That is why we have worked closely with the regulator, Ofgem, over the past 18 months to assess thoroughly the potential conflicts that might arise and to consider how best to manage them. The process has involved extensive engagement with stakeholders, including a call for evidence and a public consultation.

In April we published the findings of that joint work with Ofgem, together with our analysis, which included an impact assessment. The work with Ofgem and independent analysts showed that the risk of conflicts being acted on is small, which is why we will be putting proportionate measures in place, using the powers proposed in this clause. That approach retains the valuable synergies with the system operator’s wider role, and gives confidence to those who need it: industry, investors and, I would hope, this House.

Neither the Government nor Ofgem assumes that this is the end of the process. While I am confident that the proposals we have made are up to the task, we will keep close watch over the situation so that industry can be certain that any conflicts, real or potential, can be managed appropriately. The exercise of these powers potentially has significant implications for National Grid’s business and it is not a decision that the Government would take lightly.

We must always keep in mind the factors that make the system operator the best organisation for the job, otherwise we risk losing the benefits of having the system operator perform the EMR delivery role. That is why the measures must and will be targeted and proportionate. We do not want to put in place a disproportionate response to the problem, which would lead to us sacrificing the synergies and all the benefits to consumers that flow from them.

The noble Baroness asked whether the provisions in the Utilities Act 2000 and the Electricity Act 1989 need to be updated in the light of EMR. We are proposing specific powers in this Bill that would enable us to put in place specific measures to protect sensitive information relating to EMR. We have worked with Ofgem to decide how to use those powers and set out the detail publicly. Therefore we do not consider that the changes that the noble Baroness proposes are in fact necessary. I hope that the detailed analysis that we have carried out with Ofgem and our public commitments on how we will tackle these conflicts of interest will mean that the noble Baroness feels content to withdraw the amendment.

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[Baroness Verma]

My Lords, rather than delay the Committee, it would be more prudent to write with a more detailed response. That might satisfy the noble Lord, Lord O’Neill.

[Baroness Worthington]

I thank the Minister for her response. The amendment was not seeking to add a disproportionate hurdle or to create a lengthy procedure or encumbrance that would prevent us benefiting from the expertise of National Grid. On the contrary, we were trying to give National Grid cover and protection by ensuring that we remove the discretion that is currently in the Bill. It comes down to another example of creating enabling powers that can be broadly interpreted. Obviously, we all trust that future Governments and Ministers will have the best interests of everyone at heart, but it is incumbent on us to make sure we write legislation in such a way that it enshrines that principle.

The purpose of the amendment was simply to question the reason for the degree of discretion and desirability factored into the clause. I would be grateful if the noble Baroness would reflect on that a bit more over the summer. The potential conflicts of interest are wide-ranging. I was grateful that the Minister mentioned the capacity mechanism, a measure which strikes at the heart of what National Grid does. The Committee already knows this, but we currently have two parallel solutions for capacity: the capacity mechanism as proposed in the Bill, which will not come into force until 2018-19, and in the interim period we have National Grid consulting on interim measures, apparently under its own licence initiatives and powers, to address what it considers to be a short-term concern about capacity markets. That already seems to be evidence that this is a highly complex and many-faceted Bill that creates unique circumstances within which the National Grid has to operate.

I am willing to withdraw the amendment, but I would like the Minister to consider the degree of discretion that the Secretary of State has. I beg leave to withdraw the amendment.

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[Baroness Verma]

My Lords, I am grateful to the noble Baroness, Lady Worthington, for the amendment. Over the past few months, a number of questions on voltage optimisation have been raised in this House and the other place. This is the result of having an industry that is passionate about its product and its estimates of potential savings. The Government, however, have to look at this objectively and consider the evidence of performance. I am not sure whether my noble friend Lord Deben was here during our previous debate but it demonstrated that the Government look at smaller projects. Perhaps my noble friend would look at Hansard to see how we are already supporting some smaller projects.

Voltage optimisation is a piece of electrical technology that could potentially reduce the energy consumption of household appliances and industrial machinery by lowering the supply voltage. Manufacturers of voltage optimisation devices have asked for recognition of this potential to save energy through its adoption in government-sponsored schemes, including the Green Deal, which the noble Baroness, Lady Worthington, mentioned. The Green Deal is an example of how a government strategy has been introduced that encourages householders and businesses to invest in technology, as long as it has a measurable and verifiable energy saving and can be recommended for a given building. These criteria are important to ensure that we realise real energy savings and ensure good value for money to consumers.

There is an established process for admitting new technology into the Green Deal, which entails the industry submitting its evidence to the Government’s contractor for entry to the standard assessment procedure, which is the tool for determining the energy efficiency of domestic buildings. In the case of voltage optimisation, this evidence has been reviewed by BRE, and its report has confirmed that there was a saving from the installation of voltage optimisation in some of the properties tested. In all these instances, however, part of this saving was found to result from a reduction in the level of service provided to householders—for example, by making lights dimmer. This cannot be counted as a real energy efficiency saving.

The report also highlighted further reductions in the estimated savings from voltage optimisation arising from the impact that EU directives are having on the energy efficiency of household appliances. The effect is that appliances are becoming more tolerant to, and efficient at, working within a range of supply voltages. A realistic projection of the likely take-up of modern appliances reveals that the potential saving from voltage optimisation will reduce each year, such that by 2020 the saving is likely to reduce to zero in a typical home and then become negative in later years. This is due to the voltage optimisation unit’s own power consumption.

In the commercial sector, it is more difficult to make generalisations about the efficacy of voltage optimisation due to the wide range of electrical plant that could be in use. However, this sector, too, is subject to improvements in the energy efficiency of electrical plant due to EU directives, which will reduce the savings from voltage optimisation. It is against this backdrop of evidence that the Government cannot commit to supporting voltage optimisation. There already exists a strategy within the Green Deal that allows industry to get its technology recognised and adopted, subject to it meeting key criteria. If the evidence for voltage optimisation were to change, then we could reconsider whether the market forces found within the Green Deal were sufficient to encourage its uptake.

I should also like to touch on the scale of savings that the noble Baroness believes will be made with voltage optimisation. We found that the indicative costs and savings were as follows: voltage optimisation units could cost around £300 plus the cost of installation but may save, on average, only £2 per annum. It has been suggested that by 2020 the units will use more energy than they save and will therefore have to be removed at further cost. This is evidence provided by the industry to the BRE, and the organisation Which? agrees with DECC about this. Given that, I hope that the noble Baroness is reassured that we are taking every possible opportunity to look at new entrants, and that on that basis she will withdraw her amendment.

[Baroness Worthington]

My Lords, I am grateful to the noble Baroness for those comments. What they serve to do is illustrate quite how closed the department is to this technology. If it was true that there was a saving of only £2 on an investment of £300, no one in their right mind would develop, manufacture and install it, and yet we have an industry that is doing so. Not only that, it is a British industry which is manufacturing in the UK.

I am grateful to the noble Lord, Lord Deben, for his intervention to say that small things which add up may not generate headlines, but actually they can generate headlines when it is a British-based industry creating British jobs and which can go on to export its technology around the world, leading to a positive balance of trade. Each individual bit of technology may not make the headlines, but the investment in UK skills, infrastructure and jobs should do so. Obviously the technical issues that have been quoted will, I am sure, be contested by the industry. All I am asking is that the department should not start out with a negative predisposition, it should look at the evidence in the round and listen to the industry.

[Baroness Verma]

My Lords, as I have said, if the initial criteria can be met, of course we will reconsider everything. The point is that the industry has to be able to provide benefits in the same way as those who are already involved in the Green Deal.

[Baroness Worthington]

I take the point, but what the industry is feeding back to me is that it is finding the process to be incredibly slow and time-consuming. People are pushing against an attitude of resistance which starts out by considering what they say to be false. However, that does not add up because some quite hard-nosed commercial operators such as Tesco have installed this equipment and are finding that it saves them money. If that is the case, some support should be offered. It is probably true that the quantum of savings and investment is better in larger-scale uses, but it cannot be true that this is an industry based on a fallacy. I refuse to believe that people would put their hard-earned money, hours and initiative into something which is of no benefit. I recognise that there is a procedure that needs to be gone through, but I hope that it can be opened up to scrutiny and perhaps a conclusion can be reached rather more swiftly than is the case at the moment.

The question of loss of service will be barely noticeable. People have said that voltage optimisation does not work because the lights are so dim that you cannot read a book. However, it is not on that scale at all. It is probably true that most households would not notice it. We probably enjoy a surfeit of lighting because we have all installed lots of halogen lighting in recent years. The loss of service is a contestable issue.

Energy efficiency and demand reduction comes with all sorts of potential loopholes and problems. I go back to what I said about fridges. The Government have been perfectly happy to hand out eco-credits, or whatever they were before they were called that, for the installation of appliances, but there is no requirement that those appliances should contribute to a net reduction in demand. They simply have to be efficient. As I have said, a larger and more efficient fridge, which is what the current trend is moving towards, uses more energy than a smaller, less efficient fridge. There is an inconsistency here. I know for a fact that when the light bulbs credits were available, we were handing out support to people who were simply putting those light bulbs into the cupboard under the sink. It is slightly unfair on the part of the Government to apply incredibly tight and overly restrictive criteria to a technology which I do believe is of benefit while not recognising that great leniencies have been shown towards other technologies in the past. I am not saying that we should go back to that but there is an inconsistency here.

I hope that this process will resolve itself and am sure that the industry will be keen to engage with the department to answer the concerns that have been reiterated here today. I am pleased to withdraw the amendment at this time.

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[Baroness Verma]

My Lords, Amendment 55F from the noble Viscount, Lord Hanworth, provides me with an opportunity to outline what the Government are already doing to better co-ordinate and develop research and development in nuclear technology.

The Government welcomed the Science and Technology Committee’s excellent 2011 report on Nuclear Research and Development Capabilities in the UK, and in responding to it we committed to undertake a programme of work designed in the simplest terms to assess where the UK was in terms of nuclear R&D, where we and the industry believe the sector could be by 2050, and how to get there. The work under this programme completed around the beginning of this year and went on to form the basis for the development of the nuclear industrial strategy. The strategy was published alongside the outputs from our R&D work in March.

This package of work highlights how essential research and development will remain in ensuring that nuclear power can play its role in the current and future energy mix while allowing us to continue to deal safely and securely with the legacy of our nuclear past. The strategy was clear that the co-ordination and development of nuclear R&D needs to be taken forward in collaboration between industry, academia and public bodies. In doing so, we aim to maximise the use of public and private resources and provide a level of harmonisation between industry’s commercial aspirations and maintaining energy options for the UK’s future growth. As such, we believe that it is unnecessary and even counterproductive to put a legislative requirement on the Government part of this larger collaboration when we have already committed to moving forward together. We recognise that while R&D on advanced fission technologies and alternative fuel cycles is important, it is just part of the wider whole that includes essential work on decommissioning and long-term waste management.

On the management of the UK’s plutonium stockpile, all the options being considered involve the spending of public money, and a key driver will be ensuring best value for taxpayers. Following a public consultation on long-term plutonium management, the Government have concluded that for nuclear security reasons the preferred policy for managing the vast majority of UK civil separated plutonium is reuse, and that plutonium should be converted to mixed oxide fuel for use in civil nuclear reactors. The Government’s expectation is that at current uranium prices the value of the fuel generated will be significantly less than the cost of its manufacture; in other words, for the foreseeable future, the manufacture of MOX is primarily a route for consuming plutonium stocks rather than a commercial operation in its own right. However, the Government remain open to any alternative proposals that offer better value to the taxpayer, and the Nuclear Decommissioning Authority continues to work on an assessment of both the CANDU and PRISM technologies, the use of either of which would involve the use of advanced reactors and new fuel forms.

I turn now to the reporting requirement to Parliament that is set out in the amendment. The nuclear industrial strategy sets out our intention to create a co-ordination structure across the UK nuclear R&D landscape, including the formation of the Nuclear Innovation and Research Advisory Board with its own expert secretariat. We envisage that this body will be in place by the end of the year. Part of its remit will be to provide publicly available progress reports about the strategy and the pathways in the road map, and comment on any divergence from these. This will provide an independent report that will be available to Ministers, the public and Parliament, which will be wider ranging and more detailed than what is proposed in the amendment.

I shall touch on a couple of points raised by the noble Baroness, Lady Worthington, on the remit of the Nuclear Decommissioning Authority. We believe that it plays an essential role in ensuring that the historic civil nuclear legacy sites are decommissioned safely, securely, cost-effectively and in ways that protect the environment. As we set out in the Government response to the committee’s report, we would have serious concerns about changing the authority’s remit or reallocating essential resources from it because we do not want to dilute its ability to focus on this critical mission. It is also worth noting that over the past five years, the NDA estate has itself contributed more than £544 million to R&D activities, with an annual spend of between 3% and 5% of its overall budget.

The noble Lord, Lord O’Neill, and the noble Viscount, Lord Hanworth, both asked why we are not using fast breeder reactors in the UK, and I think that the noble Viscount said that we had already done so. Dounreay used fast breeder reactors, but we found them to be commercially not viable. It was generating less than 50% at the time and was also a prototype, so there was some reasoning behind that decision.

I hope that I am able to reassure the noble Viscount, Lord Hanworth, that the Government are taking the issue of nuclear research and development very seriously and are working in partnership with experts from a variety of sectors. On that basis, I hope that the noble Viscount will withdraw his amendment.

[Baroness Worthington]

Before the Minister sits down, I have a question about one key phrase that was used. The noble Baroness talked about value for taxpayers. However, I was trying to communicate that the Bill will introduce considerable extra costs for consumers. What I am trying to get at is that taxpayers and consumers are one and the same—we are all taxpayers and all consumers of electricity. If you focus purely on the disposition of plutonium as something completely separate that the public purse has to fund, and argue that we just spend money on what costs the least, you are missing the bigger picture. As a citizen, I am both a consumer and a taxpayer, and will be paying for nuclear projects as a consumer. I would like to see a coherent strategy that says, “Here is a solution that gives two outcomes. We get rid of plutonium and we have low-cost electricity, which saves consumers money”. I just want to test that.

[Baroness Verma]

Absolutely—as I alluded to earlier, we are looking at proposals from both CANDU and PRISM. We have not put them to one side but are looking at them seriously. In the bigger context, it has to be about value for money as well as doing all the things that the noble Baroness and I would want to see.

Energy: Fracking

Debate between Baroness Worthington and Baroness Verma

Tuesday 30th July 2013 Lords Chamber

[Baroness Verma]

My Lords, my noble friend makes some very important points. He will be aware that the Government are doing exactly that through the measures that we have in our EMR package to make generation from low-carbon resources more attractive than generation from coal. All existing coal plants will be required to meet the requirements of the industrial emissions directive, which aims to reduce emissions of harmful oxides of sulphur and nitrogen, and in particular we will make sure that we work towards coming off coal in the long run.

[Baroness Worthington]

My Lords, the RSPB yesterday highlighted the fact that updated planning guidance now recommends that decisions relating to wind farms must take into account protecting local amenity but does not require the same for fracking. Will the Minister explain the reason for this discrepancy? Also, given that the lobbying firm of the Prime Minister’s adviser, Lynton Crosby, has links to the fracking company, is this the latest example of putting the interests of big business ahead of the concerns of the general public?

[Baroness Verma]

My Lords, the noble Baroness will be fully aware that community engagement is the prime source from where we will get opinions for and against fracking and wind farms. On both issues the Government are working very hard and very closely with operators, developers and communities.

Energy: Electricity Supply

Debate between Baroness Worthington and Baroness Verma

Monday 29th July 2013 Lords Chamber

[Baroness Verma]

My Lords, I said that we already have 1,800 megawatts to draw on, but that Ofgem and National Grid are consulting on whether, in the short term, we need to procure more.

[Baroness Worthington]

My Lords, is it not quite clear that the best way to solve any potential capacity crunch would be to focus on demand-side management and response? What has changed in our profile of electricity demand is that demand is now flat and falling. That can be encouraged with smart investment in strategies and policies that bring that forward at an even faster pace.

[Baroness Verma]

As the noble Baroness is aware— we are, of course, having rounded discussions through the Energy Bill—that is among the options we are looking at.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Thursday 25th July 2013 Grand Committee

[Baroness Worthington]

I do not think it will be too late. The reason I say that is independent generators, as we have just discussed, are already quite substantial players; they are receiving revenue as we speak. This is about their forward plans and the investment in the future. They will not go bankrupt because we are not doing anything to affect their current investment base. We can overegg the problem. I have stated myself how important I think they are, but I do not think that they are going to disappear or go bankrupt, because they all own projects today.

I was slightly thrown by that intervention. If we find that there is a problem: that the liquidity is not there and the PPAs are not forthcoming, that signals that we have a further market reform to bring forward, which must look seriously at the pooling of power and the creation of a genuinely competitive market. That would be the real solution for giving everybody a fair market within which to operate.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, the issue of competition and, in particular, the route to market for independent renewable generators has been referred to throughout the Bill’s passage in this House and in the other place, and the debate has been equally eloquent and balanced today. There is good reason for that. I agree with noble Lords: independent renewable generators have a significant pipeline of projects across the UK and bring essential competition, innovation and diversity to the energy market.

The Government recognise that in recent years it has become harder for independent renewable generators to secure power purchase agreements on bankable terms. We judge that several of the factors currently constraining the market will be resolved by the introduction of CFDs, but some issues may continue to limit competition for long-term PPAs after CFDs have been introduced.

My officials have worked very closely with industry to prepare the market for the CFDs. We have already established industry working groups to develop PPA structures that will be fit for purpose for the new market arrangements and a code of practice for those participating in the PPA market. Those will help new entrants and smaller generators to navigate the process of negotiating and securing PPAs. However, the Government have decided that it is necessary to provide further confidence for developers and investors by tabling amendments to the existing powers in the Bill.

I am very pleased to hear a welcome from noble Lords from across the Committee for the amendments. They will enable the establishment of a power purchase agreement scheme which could provide generators with access to an off-taker of last resort. This mechanism would be similar to that outlined in my noble friend’s Amendment 55AB. In the light of the Government’s amendments, I hope to reassure my noble friend and other noble Lords that these issues are being addressed.

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[Baroness Worthington]

It is probably a question of our understanding more clearly how the price setting might be derived. Under government Amendment 55AF, two processes are set out in subsection (6). One is a process involving a determination and the other is by an auction or competitive process. I think that the noble Viscount was simply asking to insert a reference to current market prices. Perhaps a letter clarifying new subsection (6) would be helpful to everyone.

The government amendment removes some of the flexibility currently in the Bill by providing under Clause 44 that the backstop PPA is the only policy, whereas before it was broader. I reiterate the comment that, given that this is a moving piece, it might be sensible to retain a little flexibility.

[Baroness Verma]

I thank the noble Baroness for that. I recognise the concerns that noble Lords have rightly shown. We are keen to see greater competition and choice in the market. As I said, through the summer we will be looking at those issues in much more detail and working with stakeholders.

Further to that, I hope that my explanations have been persuasive enough for noble Lords not to press their amendments and to support the government amendments.

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[Baroness Worthington]

My Lords, today the Committee started with a discussion around transitional arrangements for renewables because of the grouping of the amendments, but the part of the Bill we are still debating includes reference to the contracts for difference and the detailed ways in which they will work. Clause 17 is interesting in that it gives the Secretary of State a power to set by order both a maximum amount of money that can be spent on contracts for difference and also, under subsection (4), a provision to include targets.

I have spoken both at Second Reading and in Committee about my concern that we are potentially entering into a great politicisation of energy policy with this Bill. We are, for good reason, proposing to move towards a much more administratively complex and centrally controlled system for allocating funds to low-carbon projects. There are reasons for that and we support the broad principle. However, the Government have been quite clear that this is a temporary transitional arrangement and supporting documents have referred to the fact that this will ultimately transition to a competitive system where, through technology and blind auctions, CFDs will be allocated in an administrative way with far less central control. Given that that is where we are trying to get to, I am concerned that we should not unnecessarily constrain this transitional period by a system of micromanagement which we are unlikely to get right.

The deletion of subsection (4) would remove the power to make targets for the means by which electricity is to be generated—that means the type of electricity generation—and remove the risk of the scale of generating capacity being unduly split up. The definition of “eligible generators” will be set by order. I think that that is correct. I do not see why you would want to have specific targets by scale.

Thirdly—and this is potentially the most worrying aspect—the Secretary of State may wish to make targets by geographical location. I am not saying that this is what would happen, but it is obvious that that holds the potential for a huge degree of politicisation of energy. If a Government are strong or weak in a particular region and wish to direct generating capacity into that area, for whatever reason, this would enable that to happen. We do not want to go back to the bad old days, whereby, to win a seat, you might want to boost a few jobs and put a power station there. That seems to be retrogressive. You could also lose your seat by doing that, it is true to say. It works both ways. However, I should be interested to hear the rationale from the Minister as to why geographic targets would be necessary. I am also nervous about undue micromanagement in terms of targets, sub-targets and sub-targets of sub-targets. We have had some experience of that already, with both the RHI and the FIT schemes having very targeted small allocations of pots of money to be spent on different types and scales of technology. Everyone with whom I speak in the industry is heartily sick of that, partly because it is almost inevitable that those targets will be wrong. The market finds the solutions according to its internal logic, and it is very difficult for civil servants to guess at that.

I am very nervous about the sub-division of the levy control framework into small, tight pockets of money where, if it is anything like the RHI and the FIT schemes, digressions will be introduced. If a certain type or scale of technology delivers, those digressions will hit and the market can be pulled away quite rapidly. We are seeing that with the solar feed-in tariffs at the moment. There is a great fear that, if the mid-size solar projects took off, they would immediately hit a digression and the market would disappear. Therefore, there is a very good reason to be nervous about micromanagement in this context.

Nor do I think that this measure can work in practice. The levy control framework is a seemingly fixed amount of money, but the levels of spend that will come through the CFD is not fixed, so you cannot estimate how much money will go to different projects until you know the difference between the reference price and the strike price, and that will come only with time. I am nervous about the levy control framework anyway, but I am even more nervous of one that is divided and sub-divided down into ever smaller pockets, because that will create a great deal of uncertainty in the market and has the potential to disadvantage rather than reward winners. Let us be honest—we want the market to uncover the most successful projects—the ones with the best chance of delivery. If, every time a sector or sub-division shows that it is being successful, it has its funding taken away or cut, that is not really a way to build an industry. That is why we have tabled the amendment. I admit that it is a probing amendment but this is a serious issue in relation to how CFDs will operate. I look forward to hearing the Minister’s comments.

[Baroness Verma]

My Lords, I thank the noble Baroness for her amendment. It seeks to remove Clause 17(4), which sets out a list of those things for which the Secretary of State might wish to set targets and which National Grid should take into account when allocating CFDs.

The Government intend to use CFD strike prices as the principal mechanism for bringing forward sufficient quantities of low-carbon generation under their electricity market reforms. Draft strike prices have now been published in the draft EMR delivery plan. The Government have also taken powers within Clause 17 to help to give effect to our wider objectives in meeting our 2020 renewables target, delivering a diversified generation mix and bringing forward new and innovative technologies.

The intention of including this subsection was to reassure industry and others about the aims of this clause and to provide some examples of how they might be used through the provision of a non-exhaustive list. Any such targets would be outlined in the final EMR delivery plan later this year, or in subsequent annual updates. As part of that, the Government might wish to set the targets in relation to the means by which electricity is generated to facilitate the development of marine and tidal or carbon capture and storage technologies—technologies with the potential to play a significant part in the UK’s generation mix in the longer term but which might otherwise be unable to compete on price with more mature technologies.

The Government have no current plans to set targets relating to the generating capacity of electricity generating stations. However, we might wish to do so in future if we believe that that is necessary to send a clear message to the supply chain to encourage investment in infrastructure supporting the delivery of a particular technology. The Government may wish to set geographic targets for a number of reasons. For example, we are considering whether renewables trading may be used to help to achieve our renewable and decarbonisation objectives, and setting geographical targets may support that.

It is important to make it clear that the Government do not intend to use that power to interfere with local planning decisions, and we have no current intention to use the power to restrict or require the allocation of CFDs in particular locations within or outside of the UK. We believe that the inclusion of the list within the clause promotes clarity and transparency, providing market participants and investors with additional information which helps them to make their investment decisions. Removal of the subsection may increase industry’s perception of risk, as it would appear to widen the scope of the clause. Industry feedback has been positive about the fact that we have sought to give strong indications of how we might use the power in the Bill, although it recognises that this is a non-exhaustive list. The users we have described are understood by industry.

I recognise the concerns of the noble Baroness, Lady Worthington, but I hope that the reassurances that I have given her will persuade her to withdraw her amendment.

[Baroness Worthington]

My Lords, I thank the noble Baroness for her response, which gives a degree of reassurance, certainly on the geographical location. I wonder whether a tighter wording might have allayed fears. If it is indeed to do with whether locations are outside or inside the UK, that is very different from a broad definition of geographical location.

I still have concerns about the need for the targets. Will they be legally enshrined in secondary legislation? If so, that seems slightly too restrictive. Perhaps people in the industry at the moment are reassured, but in a year or two, when parts of the levy control framework have already been used up and certain subsectors are feeling that their targets are too low, that sentiment could quickly change. I am just thinking of the bids that we have already had for the investment contracts. We already have a number of biomass conversions and a large number of offshore and onshore wind projects. What happens if more projects come later down the track when those bits of the targets have been used up?

I am just trying to think through how this will work in practice. I know that it is only a power that is being taken and that the Government may not necessarily use it, but I urge against too much micromanagement and too much setting of targets in secondary legislation. We may come to regret that; it may well push up the cost to consumers. The noble Baroness has spoken eloquently in favour of keeping costs low. The market will seek out the least-cost solution. I would be wary of too much intervention or of trying, as the noble Baroness mentioned, to support a particular supply chain or a particular technology. The more this comes naturally from the market, the more sustainable it will be. On that basis, I am happy to withdraw the amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Tuesday 23rd July 2013 Grand Committee

[Baroness Verma]

My Lords, as I said in my speaking notes, I and my officials will be happy to meet noble Lords. The invitation, of course, goes out to all noble Lords who are here today. I will make sure that that is extended to the Lords informal scrutiny committee.

[Baroness Worthington]

My Lords, I am very disappointed. If the noble Baroness cares to read Hansard, she will find that far from being an insane debate it is the Government’s position that risks looking insane. As you read over your own notes you will see the inconsistencies. You are saying that it is the least-cost way to get to our targets, which is what we all want to achieve. Yet, you are rigging the market in favour of new-build CCGTs, which by your own admission are not as effective as keeping on existing plant. That is the inconsistency and where the confusion comes from. There is lack of clarity from the Government and that is why the rest of the market has no idea what to do. Everyone who owns a coal plant is sitting, waiting to see whether this mess will ever be cleared up. You continue to operate in this way by refusing to acknowledge genuine concerns. This is not my personal agenda; I am merely reflecting back what I am being told by industry.

[Baroness Verma]

I am very aware that the noble Baroness is very passionate about this. I am also very aware that industry—I speak to industry regularly, like the noble Baroness—says that the means by which we are travelling through this Bill is absolutely right.

[Baroness Worthington]

Clearly, we speak to different people. Can you please answer me on whether we can see the Redpoint analysis on the impact of the IED on capacity? What I have found very frustrating throughout this process is that we have perfectly rational, interesting and varied debates in which people put forward their point, but they are then completely ignored by the Minister in response because she simply reads her notes. She is not even listening to me now. That is a reflection of the fact—

[Baroness Verma]

My Lords, I am listening very carefully. I am able to listen and also try to get some responses to the points the noble Baroness is raising.

[Baroness Worthington]

It would be helpful if they could come from you, would it not? But there we are. I am sorry this has become so annoying because you started this by making party-political points and by starting off by calling the previous debate, which was a perfectly rational debate, “insane”. I am afraid you have created a very poor feeling in an otherwise good debate.

[Baroness Verma]

My Lords, I think the noble Baroness has completely misunderstood the point I was trying to make. If she reads Hansard tomorrow, she will understand that the points I was trying to make were that we are all on the same sheet on this. What we are trying to deliver in the Bill is decarbonisation through a means that we think is right, and that must be at the least cost to the consumer. I am sure the noble Baroness would agree with that.

[Baroness Worthington]

I apologise for my lack of respect in referring to the noble Baroness, but, as you can see, this has got off to a very bad start. I hoped this would not happen because there is a very serious issue here to do with the degree of scenario planning that the Government have undertaken and the degree of rigour that they have applied to their analysis. I am very sorry that now we have lost sight of that very important point by what has just happened. I regret that deeply. I reiterate that this is a huge intervention into the market, and if you get it wrong, all sorts of unintended consequences will happen. It is simply not good enough to say that our models tell us that it will all be fine. We need to go out and talk to people in the real world, as I have done, and see what they are projecting for coal under the scenarios that we have in today’s market, the flexibilities that enable them going forward and building in the significant amount of money that is being redistributed to them through this mechanism. That is what I am seeking to explore. I have been very disappointed that there is not even an acknowledgement that this is an issue. I heard the noble Baroness’s offer of working on the detail of this over the summer; I will take it in good faith and hope that we can work through the detail.

In conclusion, it is quite wrong of the Government to pray in aid least cost to consumers. This Government introduced the carbon floor price, which has disadvantaged the UK relative to the rest of Europe for virtually no perceived outcome at the moment. We are already paying the carbon floor price. It is already impacting on our businesses and consumers. This is a Treasury money-raising exercise. If you are the party interested in keeping costs low for consumers, that is the policy you should be looking at, not the very sensible suggestion of trying to ensure that the capacity mechanism does not have unintended consequences in terms of carbon. It is absolutely clear that the quickest and cheapest way to decarbonise the economy is to switch out of coal and into gas. You can shake your head if you want to, but you need to go back to history and look at what has happened. You can build as many renewables as you like, but if you get coal and gas wrong, you will not get to those low-carbon intensities. That is the issue I am trying to get to, and for you to use least cost and cost to consumers as excuses for doing that is really deplorable when you think of the carbon floor price. I think you need to go back and think about that. I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Worthington]

My Lords, I am grateful to my noble friend Lord Berkeley for tabling this amendment for no other reason than that we found out that very interesting fact. We cannot support this amendment. I have great sympathy with the concerns that have been raised that 25 years may be too long, but the way this amendment is phrased means that it would capture all renewable technologies. There is a great range of technologies that the strike prices are seeking to bring forward, and at the moment it seems that the majority of them might be conversion to biomass. I do not think you would want to lock that in to 25 years. I support the spirit behind the amendment of questioning and trying to understand the different lengths of contracts. That is something that we could discuss, but I do not think this amendment should make its way into the Bill.

We now have the draft delivery plan and the strike prices for renewables. The plan contains some suggested lengths for contracts, but I do not think we yet have anything similar for CCS and nuclear. We are expecting some more information on that in early August, when we will all be having a much deserved and well earned rest. It would be helpful if the Minister were to say something about that in her response.

[Baroness Verma]

The amendment moved by the noble Lord, Lord Berkeley, seeks to ensure that renewable technologies in receipt of a CFD have a contract life of at least 25 years. As the noble Lord is no doubt aware, we have recently published more detail on the contract terms, building on the operational framework of November 2012. This reconfirms our position that the appropriate contract length for payments to renewable technologies receiving a generic CFD remains 15 years.

In determining the length of the CFD, we considered a number of factors. The 15-year length is based on a trade-off between value for money for consumers, affordability within the levy control framework and bankability for investors. For the purpose of setting the contract lifetime, we have assumed that investors will require debt to be repaid within the CFD life. Therefore, having too short a contract length could impact on the cost of debt finance, given the increased exposure to wholesale price risk. Our analysis also indicates that investors discount very heavily the last few years of revenue from a project, particularly when compared to the social discount rate. Taking all these factors into account, extending the length beyond 15 years would not necessarily be significantly valued by the investor but would come at a cost to consumers.

In addition, the noble Lord may be aware that guidance from the European Commission states that support must be less than the accounting life of the asset. Extending the lifetime duration as the noble Lord proposes would extend a CFD beyond the asset life of a number of renewables technologies, which are generally less than 25 years. All these factors suggest to us that a contract life of 15 years is still appropriate.

I should also make clear that just because there is a generic contract, that does not prevent the Secretary of State directing the counterparty to issue a contract which differs on certain terms where that is considered appropriate. We have retained the ability to do this and would look to treat such occurrences on a case-by- case basis.

The noble Baroness, Lady Liddell, asked about the uncertainties of risk, mitigating them and ensuring appropriate rates of return. The strike price provides certainty on levels of support for the length of the contract. There will also be some change in legal protections. More details on the CFD terms will be published in early August, as the noble Baroness, Lady Worthington, said.

The noble Baroness, Lady Worthington, asked about nuclear and CCS. As she knows, we are currently in negotiations on a nuclear project, so I am not able to comment further on that point. On CCS, it may be better if I write to her. I hope that the noble Lord, Lord Berkeley, will withdraw his amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Thursday 18th July 2013 Grand Committee

[Baroness Verma]

My Lords, I thank my noble friend Lord Jenkin and the noble Baroness, Lady Worthington, for their amendments and for the opportunity to debate some of the important issues that they have raised. In relation to Amendment 52, Clause 5 sets out the matters to which the Secretary of State will have regard when carrying out specific EMR functions to meet the objectives of EMR. Effective competition is fundamental to delivering the Government’s energy policy objectives of having energy security, keeping consumers’ bills affordable and decarbonising our energy sector. EMR will deliver the greener energy and reliable supplies that the country needs at the lowest possible cost, which is good news for the consumer, by reducing exposure to volatile and rising fossil fuel prices and securing electricity supply.

Increasing competition in the electricity market drives down prices and promotes innovation—hence competition will be considered in the context of the requirement at Clause 5(2)(d) to consider the likely cost to the consumer. For example, we are designing the capacity market in a way that promotes competition —in particular, between incumbents and the new entrants that my noble friend Lord Jenkin is anxious to see. By providing a steady revenue stream in place of dependence on volatile scarcity prices, the capacity market will help to ensure that we can enable broad participation. Furthermore, we are incentivising new investment in plants by offering longer-term contracts to new plants, which will enable the costs of capital to be spread over longer periods. This will be important in ensuring that new independent entrants can compete with incumbents, as they would be likely to find it difficult to access finance with a short-term contract.

However, it is important to note that independent generators are a broad mix. They are not just medium or small-scale firms. Some are large European or international utilities, such as GDF Suez, which do not currently have a major presence in the UK wholesale or retail market. To ensure that we capture the interests of this broad group, we have been working, and will continue to work, with the independent generators’ group on the design of the capacity market.

The Government are also addressing problems affecting competition within the market. This includes poor liquidity in the wholesale electricity market and tariff complexity in the retail energy market. We are working with Ofgem to tackle these now, and have taken back-stop powers in relation to both areas in this Bill to ensure that reforms can still be driven forward if Ofgem’s proposals are either frustrated or delayed.

We recognise that it is important to help independent generators to secure access to the market. We are aware of their concerns that it is becoming more difficult to secure a power purchase agreement and that terms have declined. We have been working to gain a better understanding of the complex PPA market and the investment issues for independents. Since last year’s call for evidence on access to markets, we have undertaken analysis of the issues and the potential options for addressing them. I hope to provide further information to the Committee on this very shortly.

The ultimate aim of electricity market reform is to allow all forms of electricity generation to compete fairly, and therefore to enable the least-cost mix of generation and demand-side measures necessary to meet our decarbonisation targets, ensure security of electricity supply and keep costs to consumers as low as possible. I hope that noble Lords will be reassured that competition is therefore at the heart of the design of all EMR functions. Consequently, it is the Government’s view that my noble friend’s amendment to Clause 5 is unnecessary.

Turning to Amendment 52A, throughout the development of EMR we have been clear on the objectives of these reforms. They have been set out in our published documents, from the EMR White Paper of July 2011 onwards, and the objectives set out in Clause 5 reflect these. The amendment would add the duties set out in Sections 3A to 3D of the Electricity Act 1989 to these objectives in Clause 5. However, the Electricity Act 1989 relates to the operation and regulation of the market, which is a different purpose from the new mechanisms that we are introducing through EMR. Contracts for difference and the capacity market are designed to complement the existing market structure and have been developed with the specific objective of moving to a secure, low-carbon energy mix at least cost to the consumer.

Furthermore, the amendment would risk causing duplication. For example, Section 3A(2)(a) of the Electricity Act 1989 relates to ensuring that electricity demands are met, and this would duplicate Clause 5(2)(c) of the Bill. We have made clear the importance of considering the cost to consumers at Clause 5(2)(d).

I turn now to Amendments 54 and 55, linking the principal objectives and duties in Clause 33 to the Secretary of State in relation to the capacity market. The purpose of this clause is to align the principal objective and general duties of the authority, in carrying out functions in the capacity market, with its principal objective and duties in the current electricity market. The reason this clause does not apply to the Secretary of State is that Clause 5(2) in Chapter 1 sets out what the Secretary of State must have regard to in relation to making capacity market regulations, as well as other EMR functions.

As I have already indicated, encouraging competition will be central to the way that the Secretary of State makes capacity market regulations. Promoting competition will be an effective way of achieving the aims of having regard to ensuring security of supply to electricity consumers and having regard to the likely cost to electricity consumers. We feel that it is impractical to require the Secretary of State to have regard to two separate lists of matters: those in Clause 5 as well as the principal objective and general duties in the Electricity Act 1989.

I hope that I have been able to reassure my noble friend and the noble Baroness, Lady Worthington, with my explanations and that my noble friend will feel content to withdraw his amendment.

[Baroness Worthington]

My Lords, perhaps I may ask for clarification before the noble Baroness sits down. I accept her comments about the potential duplication involved in having two lists. However, subsection (2)(d), on the likely cost to consumers of electricity, does not include future consumers of electricity. People involved in the discussion about Ofgem’s duties will know that that innocuous-sounding difference is actually a big difference. Perhaps she will reassure us that she might consider changes to subsection (2)(d) to better reflect the duties in the Electricity Act.

[Baroness Verma]

I have been informed that it does take into consideration the points that the noble Baroness has just raised.

--- Later in debate ---

[Baroness Verma]

My Lords, I am grateful to the noble Lord, Lord Berkeley, for his amendment. Amendment 53 is aimed at the abolition of the vertically integrated business model in the energy industry. I have listened carefully to noble Lords and I have some comments to make after I have gone through my speaking notes, which I hope will address some of the issues the noble Lord has raised. I reassure him that the coalition is committed to driving competition and choice in the energy market.

In considering the merits of this amendment, we must be guided by what will most benefit consumers, deliver competition, affordable energy and better customer service, and secure the investment we need for the future. We must acknowledge that the vertically integrated business model delivers a range of benefits for consumers through lower capital costs, efficient risk management and economies of scale. Simple prohibition of certain business models could lead to higher prices for consumers and trigger lower investment in the market.

The Government believe that consumers will get the best deals when suppliers face much tougher competition. Wider competition and more diversity are key to a competitive market and securing investment. We must ensure that the market is open to all business models to provide them with the ability to compete on a fair basis. That is what the Government and the regulator are working to achieve. It is why we have made concessions on the threshold for the small-scale feed-in tariffs and the route to market for independent renewables generators. These will help to open the market to community energy projects and smaller independent renewables developers.

Liquidity in the wholesale market remains a key barrier to entry for independent players and Ofgem has recently announced a package of reforms to address the low levels of liquidity in the wholesale electricity markets. This is a positive step forward and the Government welcome Ofgem’s announcement. We want to see swift and effective implementation of its reform package. However, we are seeking back-stop powers in Clause 43 to address low liquidity should Ofgem’s reforms be delayed or frustrated.

The Government are also looking at other barriers, including independent generators’ ability to secure bankable long-term contracts that will allow them to finance their projects. The Government are taking back-stop powers in Clause 44 to enable them to act quickly to address this issue if necessary. I know that this will be of particular interest to the noble Lord, Lord Berkeley.

Finally, Clauses 127 to 131 will give statutory backing to Ofgem’s retail market review proposals. This will ensure that energy companies place consumers on the cheapest tariff that meets their preferences, thus simplifying the market and enabling consumers to shop around for the best deals. Bringing greater transparency to the retail market will also make it easier for innovative small suppliers to compete with larger established players in the market.

We share the desire of the noble Lord, Lord Berkeley, to ensure that consumers get the best deal in a fair, affordable and competitive energy market. However, requiring the energy companies to divest and reorganise is not the most effective way of delivering the outcomes that I know we both desire. It is likely to create unnecessary disruption at a time when we need significant investment in our energy infrastructure, and we are making real progress in introducing greater competition in the energy markets.

I query also whether this would improve liquidity in wholesale markets, at least to the degree suggested. Poor liquidity relates to a lack of availability of products or buyers for products, and poor transparency of prices. Removing vertical integration will not necessarily address these issues fully, whereas Ofgem’s reforms to the wholesale electricity market are focused on making more power available to buyers while ensuring that generators can sell their electricity, and on increasing price transparency. We therefore believe that reforms by government and Ofgem offer the quickest, most effective and most reliable way to increase competition and boost consumer confidence in the energy markets.

We have a real opportunity through the reforms we are making in the Bill to see the way opened for greater competition, greater transparency and harsher penalties if generators and suppliers do not provide the choice and value for money we all want to see for customers. Decades of missed opportunities cannot be allowed to continue.

Perhaps I may pick up on a couple of the points that the noble Lord, Lord O’Neill, made about the flaws in the amendment of the noble Lord, Lord Berkeley. I refer back to what the noble Lord and the noble Baroness, Lady Worthington, said about Ofgem. When he was Energy Secretary, Ed Miliband said that Ofgem was a regulator fit for purpose. Through supporting Ofgem and strengthening its powers, we are trying to deal with the fears that the noble Lord, Lord Berkeley, and the noble Baroness, Lady Worthington, have. It is not about creating another new body but about ensuring that the body we have has the powers to be able to deliver what a regulator is supposed to be delivering; that is, to be quite tough on energy suppliers. We have seen examples of that. Between April 2011 and March 2012, Ofgem set fines of more than £19 million for licence breaches and anti-competitive behaviour. It imposed fines of more than £500,000 and £4.5 million in redress.

It is not about change but about ensuring that we empower a body. It would be really interesting to know what sort of body the noble Baroness, Lady Worthington, would put into place and what it would do that Ofgem is not doing. It is not clear to me that banning vertical integration would in fact improve liquidity in the wholesale markets, at least not to the degree suggested. A lack of available products and poor transparency is what needs to be addressed and on that basis, I hope that the noble Lord will see that what the Government are doing in the Bill is right, and withdraw his amendment.

[Baroness Worthington]

In response to the Minister’s direct question, we would have a regulator which, when it is asked, “Why can’t you split vertical integration?” answers, “That is a good idea and we will look at it in more detail”, instead of “Because the industry doesn’t like it”. Quite frankly, as I said earlier, when it did a review into liquidity and competition in the market, eight recommendations were made but I think six of them were dropped and the two that were moved forward were watered down. As soon as Ofgem goes and consults its friends in the industry, it gets told, “That’s too difficult—we couldn’t do that”, so things get watered down. That is what we have to break.

For example, the noble Baroness quoted the suggestions that Ofgem has come up with for solving this problem. The market-maker proposals are frankly ludicrous. They are so complex and so against a normal, natural market that I really cannot believe that that is our solution to this issue—actually, I can believe it since it is Ofgem—when the real solution is staring us in the face: no more vertical integration. However, I will sit down.

--- Later in debate ---

[Baroness Worthington]

My Lords, I shall speak briefly to the amendment moved by the noble Lord, Lord Jenkin, on the future capacity question, because it is the first to address that. This may be a good opportunity for the Minister to provide us with some detail about the capacity mechanism and how it will operate, and to address the important issue raised by the noble Lord of the need to have a long-term view.

Perhaps this is the time to say that this part of the Bill seems to be lacking an awful lot of detail. We have tabled some amendments later which respond to the Delegated Powers and Regulatory Reform Committee’s comments, which were quite damning on this aspect of the Bill. It is lacking a huge amount of detail; a lot of questions still need to be answered.

I will not ask all of them here, but this discussion may be an opportunity for the noble Baroness to talk about how long the review of the capacity market is. The implementation plan is pretty useless when it comes to providing detail on this part, but if anyone is interested, I have discovered that it is all in the June document, Electricity Market Reform: Capacity Market—Design and Implementation Update. If noble Lords want even more detail, I suggest that they read the memorandum submitted to the Delegated Powers and Regulatory Reform Committee, because that has even more detail. Why that is not in the implementation plan I do not know, but we are where we are, we have to gather all this information and try to make the best of it.

It would be helpful if the Minister described the length of time for which the Government consider that the capacity market needs to operate and precisely how it will enable new investment. One of the key challenges is that the capacity market means everything to everyone. If you are an owner of an existing power station, you see it as your opportunity to keep that station open. If you own a mothballed gas plant, it will be the opportunity to get that back on the system. If you want to build new CCGTs, it is your opportunity to get those built. If you are a demand-side response producer, it is your opportunity to get that done. It is not clear how this broad set of measures will manage that conflict between existing owners, owners of mothballed plant, new owners and demand reducers. We as a Committee, representing the wider two Houses, deserve more information. I look forward to the Minister’s response.

[Baroness Verma]

My Lords, I thank my noble friend Lord Jenkin for his amendment. Amendment 53ZA proposes that providing capacity should take account of projected growth over a 10-year period. I understand that he has proposed it because of concerns about the long-term capacity of electricity networks and the ability of distributive network operators to make strategic, long-term investment decisions. I should make it clear from the outset that the capacity market is not intended to drive investment in network capacity. Rather, it is designed to ensure that there is sufficient longer-term investment in electricity capacity, including generation and other forms of capacity, such as demand-side response.

In March, Ofgem published its strategy decision for electricity distribution network price control. That explained that price control had been designed to encourage distribution network operators to provide a high level of service for connections while maintaining a reliable network and delivering value for money for existing and future customers. The decision also explained that flexibility has been provided for DNOs to submit a case for strategic investment in their business plans on a project-by-project basis. Similarly, the Electricity Act 1989 already provides some flexibility for early investment—for example, the distribution network operator and its customer can make an agreement that allows an upfront user commitment agreement between the DNO and a customer who wants strategic investment. I understand that, in the case of UK Power Networks and its customers in the City of London, this is already happening.

It is vital that investment in our networks continues at a pace that supports our future energy needs. None the less, we must be mindful that there will be a balance to be struck to ensure that consumers do not pick up the costs of unused or underused assets. For this reason, it is right that Ofgem and the network companies continue to consider carefully where investment ahead of need is proposed.

My noble friend also makes an important point about ensuring that decisions on capacity of electricity supply are made with due regard to the long-term outlook. As such, for the capacity market, the Government have committed to publishing a delivery plan every five years and producing annual updates to that plan. These plans will include long-term forecasts of electricity demand and supply, and will inform the amount of capacity contracted through the capacity market.

I hope that my noble friend finds my explanation reassuring. Before I ask him to withdraw his amendment, I shall respond to the noble Baroness, Lady Worthington, on her questions about how the capacity market works and how it is envisaged. A forecast of future peak demand will be made for four and a half years ahead of the delivery year in which it must be available. The amount of capacity needed to ensure security of electricity supply will be acquired through a competitive central auction four years ahead of the delivery year. Generation and non-generation approaches such as demand-side response will be able to participate in the capacity auction. All generation plant, including existing plant, will be eligible to participate in this auction, with some exceptions such as low-carbon plant receiving CFDs.

Providers of capacity successful in the auction will enter into capacity agreements committing to providing electricity when given notice in the delivery year in return for steady capacity payments or will face financial penalties. The costs of the capacity payments will be shared between electricity suppliers in the delivery year. That is a brief outlook of how it will work but I hope that the noble Baroness is reassured that there is plenty of detail. She also referred to the Delegated Powers Committee. As she is aware, we have submitted extra information to the committee and it is now looking at that. We will then look at its recommendations but until that point it would not be right for me to comment on them. With that, I hope that my noble friend will withdraw his amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Tuesday 16th July 2013 Grand Committee

[Baroness Worthington]

My Lords, I am grateful to the noble Lord, Lord Oxburgh, for tabling this amendment and to the other noble Lords who have lent their name to it. It has been a springboard for a good and necessary debate this afternoon. In response to the question asked by the noble Lord, Lord Jenkin, on how we got here, I point out that under the previous Government, between 1997 and 2010, we saw 26 gigawatts of new capacity added to the grid. In the previous three years—2008 to 2010—we saw 7.8 gigawatts added. There was clearly a healthy investment system under the previous Government. What happened next is old news. We had a decision to reform the electricity market and in that process, which, let us face it, has been going on almost since 2010, there have been a lot of conflicting messages coming out of government. This has created an investment hiatus and an uncertainty that have led us to where we are today.

Let us not be overly dramatic. In 2010, we had historically high capacity levels. That has partly contributed to the hiatus and it needs to be cleared out for there to be a signal to the market to reinvest. Against the 26 gigawatts or 7.8 gigawatts that were added in the last few years of the previous Government, we have lost since then only 8 gigawatts of old coal. Much mention is made of this, but the LCPD—the large combustion plant directive—took out 8 gigawatts. That 8 gigawatts has already shut and the lights are still on. We must put this in perspective. I am convinced that there is an issue of long-term planning, but right now let us keep it in perspective. We are at the tail end of this Bill process, which has been going on an inordinately long time. Things, I am sure, should get better soon, but for that to happen we have to get this Bill right. I think that all noble Lords who have spoken today would agree that the key to get out of this now is to have a clear regulatory framework that will do the job of restarting investment in our energy infrastructure.

The other factors that have contributed to the hiatus, which I think it is fair to say no Government could have been fully aware of or on top of, were issues outside our control. One example is high gas prices. We have gigawatts of consented gas capacity in this country. Why is no one building it? They simply cannot afford to take that decision. Boards in energy companies all around the country are asking: “Will this pay back?”. They cannot give a definitive answer, because the price of gas is uncertain. They will also say: “We’re in the middle of an Energy Bill process. We’d be mad to commission something now. Wait until the dust has settled”. The Bill is partly in the Government’s control, but the price of gas is an unexpected issue that has arisen quite recently.

The second thing that has gone wrong, for which my party has some responsibility, is that we have dropped the CCS ball. We have been utterly hopeless at getting CCS away and demonstrated. That is partly because—and this where I have some sympathy with the noble Lord, Lord Oxburgh—we have been relying on civil servants to devise a strategy for picking winners to develop CCS in this country. Quite frankly, we have failed. A succession of wrong calls has been made. Our first call was that it should be post-combustion coal, because somehow we were going to help China. Well, it turns out that that is not what we need, so, understandably, those projects have not gone forward. There is a great need to address the future of CCS and to have more market-based commentary on that and less control from the Civil Service.

The third thing to have happened, which, again, has been outside any Government’s control, is that the economics of nuclear have changed. Fukushima was a disaster that happened on the other side of the planet and public attitudes towards nuclear remained remarkably resilient, but in Germany it was a completely different story, with the phasing-out of nuclear. That obviously has an impact here because we have two large German utility companies in this county. Having pulled out of nuclear in Germany, quite quickly, they pulled out of nuclear in the UK. That could not have been predicted, but it definitely contributes to the situation that we are in today, where we are reliant on only one nuclear project, certain aspects of which have proven difficult.

It is fine just to look back and to try to explain why we are where we are today, so I go back to my statement that the way out of this is to get this Bill right. The way to do that is to think about the regulatory framework that it creates. I have some sympathy with the proposal of the noble Lord, Lord Oxburgh, because there are echoes of it in the way in which we govern other aspects of our society. Perhaps the most obvious one is the Monetary Policy Committee. As the noble Lord, Lord Deben, pointed out, we also have the Committee on Climate Change. The creation of that independent body of experts, able to advise the Government publicly and to publish reports, was a major aspect of the Climate Change Act and one of its most successful components. It has depoliticised an issue that I am sure would otherwise have been more debated and undermined than perhaps would be appropriate.

There are, therefore, examples of how the creation of an independent advisory body can work, but I would argue that, if you are going to create such a body, you would want to give it clear parameters within which to advise. Advising on the totality of energy investment is a large task and I defy any group of experts, no matter how many are on the board, to get their heads around every aspect. Setting clear parameters within which you would require independent advice would help to give the body a purpose in providing the right level of scrutiny and advice for the Government.

The levers that the Bill creates are clear. We will have a capacity market, in which the Government will have to make decisions about the levels of capacity that they will try to secure through auctions. That could certainly benefit from advice. We have the decarbonisation obligation, which, I think it is fair to say, has not to date been handled in a suitable or effective way. The hard part has been put off, which is not what we want. I have great sympathy with noble Lords who have said that the tendency in government is to put things off; it is much easier simply to shrug your shoulders and wait for the next person to come and take the hard decisions. Unfortunately, that is what has happened with the decarbonisation obligation.

Another key parameter within which the Bill operates is the levy control framework and the amount of money that the Treasury has put aside. Again, that could do with some external scrutiny. It might be necessary for a body of experts to advise both the Treasury and DECC to depoliticise the issue and to create unity. The last parameter in the Bill, which we will discuss in more detail shortly, is the energy performance standard, which could also benefit from external advice to depoliticise it and underpin it with independent scrutiny and analysis.

Many noble Lords have commented on what such a body might look like and how it might operate. The key themes were that it should be independent, it should have a long-term view, it should issue its advice in public to both Parliament and Ministers and it should address energy efficiency—the noble Lord, Lord Teverson, spotted that that was missing from the list. I am sure that, as the noble Lord, Lord Oxburgh, would say, the amendment will stimulate debate and cause the Government to come forward with something more complete.

I think that the Government recognise that they need advice. They would not have created three specialist advisory groups commenting on aspects of the EMR and a technical advisory group to see them through this process if they thought that they had all the answers themselves or if they could go to Ofgem, the National Grid or any of the other agencies for advice. Clearly a deficit was recognised.

I hope that the Government will come forward with positive words about considering this proposal in greater detail, as we have heard eloquent arguments about why something such as this might be necessary. I hope that they will at least concede that they have created bodies to advise them. Those bodies have been doing a short-term task, but we are asking for the creation of a body that takes a slightly longer-term view, working within parameters. Perhaps they could also consider whether the bodies that they have created already need to be converted into something more permanent. If a clear process is established for what they will do, how they will advise us and the parameters within which they will operate, that would go a long way towards answering many of the concerns that have been raised today. I thank all noble Lords who have spoken and I look forward to the Minister’s response.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, I, too, thank the noble Lord, Lord Oxburgh, and all noble Lords who have spoken to the amendment, which proposes the establishment of an energy investment advisory board within DECC. We already have a number of advisory boards and I would like to go through my speaking notes and lay out why we think that, at this moment in time, this could add another layer, as my noble friend Lord Teverson said. I will also respond to some of the questions and points raised.

First and foremost, we attach great importance to ensuring that we consider the long-term views of the UK’s energy needs. DECC therefore has many forums for industry and energy experts to contribute and scrutinise policy on energy and climate change. I will highlight some of these to noble Lords. The main forum that DECC has with industry is the energy leaders forum. This is a quarterly event that brings the DECC Secretary of State, Ministers and senior officials, including the Permanent Secretary, together with the CEOs of vertically integrated and independent generators and suppliers. It is jointly organised by DECC and Energy UK, whose members make up the industry attendance. The high-level and wide-ranging discussions help government and industry to anticipate and respond to existing and future issues in energy policy. Importantly, the forum also discusses how industry and government can attract investment to the UK to ensure that we have secure low-carbon and affordable sources of energy now and tomorrow.

We have a flexible structure of academic and industry experts who are also able to advise the department on a much wider range of topics, including our major programmes from the Green Deal to the electricity market reform. For example, there are EMR expert groups for each policy area and we have set up an independent panel of technical experts to provide the Secretary of State with specific technical advice on the national system operator’s analysis. The Infrastructure UK unit within the Treasury exists to develop the UK’s long-term infrastructure priorities and secure private sector investment. Other important forums include the Science Advisory Group, which is a group of external academic and industry experts who challenge and support the Chief Scientific Adviser and DECC. It also helps to guide the department’s scientific priorities and strategy.

I welcome the noble Lord’s point about skills in the department. We are actively strengthening our systems for prioritisation of resources. We are developing key specialist skills, including ensuring that the department has sufficient corporate memory and leveraging the capability of our delivery partners. As set out in DECC’s annual report, we consider delivery skills essential as the department moves to implementation and delivery as well as policy development.

In addition, we have an internal governance structure. We have a departmental board whose role is to monitor performance and delivery of DECC’s work and to provide strategic and operational leadership for the department. The board has non-executive members who provide advice, support and challenge to the department. The board is supported by sub-committees, most notably the executive committee that closely monitors departmental strategy and delivery of objectives. In light of the existing structures that have proven successful, I do not believe that it is necessary or desirable to set up a new advisory panel.

I am also concerned that the introduction of a board with explicit responsibility for long-term energy strategy could reduce ministerial accountability. The department regularly reports to Parliament on the progress that it is making on energy and climate change. As we have discussed previously, the coalition agreement states that we will give an annual energy statement to Parliament to set strategic energy policy and guide investment. This must be laid before Parliament by 31 December each year. The statement provides a clear, succinct description of the Government’s energy policy within the context of DECC’s overall strategy. We also report to Parliament specifically on security with the statutory security of supply report and, on Report in the other place, we introduced a statutory annual update on EMR.

We report on climate change via the government response to the Committee on Climate Change’s annual report. The Committee on Climate Change consists of independent experts and is a statutory body established under the Climate Change Act 2008. Its purpose is to advise the Government on emissions targets and to report to Parliament on progress made in reducing greenhouse gas emissions and preparing for climate change. I therefore reassure noble Lords that we already have in place forums and structures to deliver the significant changes that we need in the energy system.

A couple of points were raised during the debate. My noble friend Lord Jenkin asked whether we had enough capacity to keep the lights on over the next few years. My noble friend also asked about investment. I can reassure him and other noble Lords that through this Bill we are seeing the biggest reform of the electricity market in recent years and greater confidence from investors than ever before. Even with Ofgem’s new estimates, the risk of the lights going out is low and steps are being taken to ensure that sufficient reserves are in place in the short and medium term. Essentially the short-term measures are an extension of tools that National Grid and Ofgem have already used to contract additional short-term capacity in order to balance supply and demand.

My noble friend Lord Crickhowell said that these days Ministers take advice from officials rather than making up their own minds about policy issues and are not often able to say no to officials.

--- Later in debate ---

[Baroness Verma]

My Lords, if I choose to slightly disagree with my noble friend, that is perhaps a position that I will stand corrected on. However, given that we have so many forums and advisory groups in place, I do not believe that we need a further one. If I am allowed to get to the end of my speaking notes, noble Lords may be relieved to know that, having noted the significance attributed to this advisory group by noble Lords, I may go back and reflect on what has been said in Hansard. I see that the noble Baroness wishes to intervene at this point.

[Baroness Worthington]

It is just a small point, which is that part of the problem is the plethora of advisory boards. People are asking for a sense of cohesion to be created and a hierarchy, so that you pull one expert body together. Also, you try to create something with independence, because many of the advisory boards that you rely on today are, by necessity, made up of people with vested interests. Something more transparent, more publicly accountable and at a higher level would be beneficial.

[Baroness Verma]

The important thing is that noble Lords know how the governance of existing structures works as a whole. Rather than trying to explain the role of each forum now, I will, if the Committee allows, write to noble Lords on how each forum, advisory group and committee works to support one another in advising government. We have these forums under review all the time. We work to ensure that all views are taken into account. As I said, I have taken on board the seriousness of what the Committee has said and would like to go away and reflect on today’s debate, perhaps responding to noble Lords in writing. With those remarks, I hope that the noble Lord, Lord Oxburgh, will withdraw his amendment.

--- Later in debate ---

[Baroness Worthington]

My Lords, I am grateful to the noble Lords, Lord Oxburgh and Lord Jenkin, for tabling this amendment. I confess that this is not an area where I have a great deal of expertise, so really I just have some questions to add to the debate. I am sympathetic to the desire for government oversight to ensure that gas prices can be levelled out. Demand seems to be very seasonal and storage is an obvious way of helping to smooth out prices. I suppose my question is: to what extent has the department done any analysis of why the private sector is not doing this? It should be in its interests to secure cheaper prices, so you would expect there to be an incentive to invest in more storage.

My second question, which is related to that, is: to what degree do the powers of the regulator—our party’s views on the regulator are well known, but this is a genuine question—extend upstream? Does Ofgem have a power to look at fairness of pricing in the supply of gas, meaning before it reaches the distribution network? There is a high degree of vertical integration in the energy sector, and there are some companies that control the extractive processes, the distribution and then the use of the product. When you have that degree of vertical integration, there is the potential for unfair pricing, or self-serving that could lead to less transparent pricing. That is a genuine question. Does the regulator consider the potential for those vertically integrated companies, right the way up to extractive? Does it cover that? If it does not, it should. I look forward to the answer on that.

I am increasingly being exposed to ideas around renewable gas, by which I mean syngas, which is generated from other carbon sources than the hydrocarbons found in natural gas. This area seems to have been overlooked by successive Governments. It would be helpful to hear the latest thinking on renewable gas, particularly its role in helping to hedge against high natural gas prices. My understanding is that gasification technology and pyrolysis in particular are now maturing as technologies and helping to deliver alternative sources of heating gases for the variety of uses that you can use gas for. Those are my questions.

[Baroness Verma]

My Lords, I am grateful to the noble Lord, Lord Oxburgh, and my noble friend Lord Jenkin for prompting the debate on gas storage. The noble Lords’ proposal is timely, coming precisely as the Government are thinking about these issues. The GB gas market is one of the best functioning and most liquid in the world, and has brought forward significant investment in the past decade. This has expended our infrastructure to the point where our input capacity alone can meet 189% of our annual needs, and it has spare capacity to respond flexibly to price signals to deliver gas to our market from a diverse range of sources and routes. It has also increased storage in terms of overall capacity, where we have seen a 25% increase in the past decade, and even more so in terms of deliverability—the amount of gas that can be delivered to the grid each day to cope with volatile demand. Once two recently completed fast-cycling storage projects are counted, along with a further two projects under construction, storage deliverability has doubled in the past 10 years. The growth in input, capacity and flexible storage delivered by the market provides the additional flexibility we will need to help meet variable demand for heating requirements on peak winter days in severe weather conditions, or for the power sector, where gas is likely to be called on to respond flexibly to intermittent generation sources such as wind.

The Government are not complacent or averse to making appropriate legislative changes to improve our gas security. Indeed, it was part of our coalition agreement to do so. In relation to gas security, the Energy Act 2011 conferred on Ofgem new powers to sharpen the incentives on gas market participants to secure gas supplies. Ofgem has been consulting on potential reforms and is due to announce its final proposals very shortly. We are also working within the EU to ensure adoption and implementation of a variety of measures to enhance gas security through a well functioning, integrated and transparent European gas market. For example, the implementation of the third energy package has already improved market integration across the EU, so that storage in other countries such as Germany can respond to price signals sent by our own market. In addition, the development of common gas codes provided for by the third package will facilitate further gas trading across borders according to pricing signals. The EU regulation on security of gas supply requires member states to undertake regular assessments of their gas security and prepare plans to mitigate the risks they face, as well as meeting supply and infrastructure standards.

New investments in physical infrastructure are being made available to enable gas to flow more freely around the EU. In addition, DECC is working to maximise sustainable gas production from our North Sea and unconventional gas resources. Furthermore, the Government have been conducting a detailed review of whether further reforms—in addition to those being considered by Ofgem—might be appropriate and we intend to announce our decision in the coming weeks. In reaching a decision, the Government will consider the physical and price security arguments for intervening in the markets and whether any of the potential interventions provide a cost-effective means of improving the security of our supply. Therefore, the Government may conclude that the interests of consumers are best served by not intervening in the market.

However, our assessment is that all measures being considered—these include the measures to promote gas storage envisaged by this amendment—can already be implemented using existing powers. In particular, Ofgem has powers under Section 7B(4)(a) of the Gas Act 1986 to introduce such licence conditions as it considers necessary or expedient, having regard to Ofgem’s duties, which include the promotion of the security of supply. It would also be possible for the Secretary of State to make a direction under Section 7B(5)(a) of the Gas Act 1986 setting out licenceholder obligations. Additionally, Ofgem can apply for an order to be made by the Secretary of State under Section 41C of the Gas Act 1986 to make a new activity such as gas storage a licence activity. Such an order made by the Secretary of State may also provide any consequential changes to primary and secondary legislation.

The noble Baroness, Lady Worthington, asked about the role of renewable gas. The Government have plans to maximise the production of gas from all sources: conventional, shale and renewable. She also asked whether the regulator considers vertical integration and impacts on pricing. Yes, Ofgem considers the impact on pricing in all its regulatory functions. Therefore, the Government do not consider these amendments necessary and I hope that, having found my explanation reassuring, the noble Lord, Lord Oxburgh, will withdraw his amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Thursday 11th July 2013 Grand Committee

[Baroness Verma]

My Lords, I thank my noble friend Lord Teverson and the noble Lord, Lord Hunt, for their amendments concerning consumer access to information. I start by saying to my noble friend and to the noble Lord, Lord O’Neill, that I take the issues around data protection and data security very seriously. I hope that in responding to both noble Lords I will be able to reassure them of the measures we have in place. However, I will address that at the end.

Amendment 51ZDA relates to the ownership of, and access to, the energy consumption data that will be stored by smart meters. I am grateful to my noble friend for the opportunity to explain the important regulatory changes on smart metering data access and privacy that have came into effect since last month. The smart meter data access framework is based on the principle that consumers should have a choice about how their data are used and by whom. The first step is that energy consumption data will be stored by smart meters themselves, in people’s homes. The meters will be capable of storing at least 24 months-worth of historic data. The second step is that consumers will have control and choice over who can access the data held on those smart meters.

Consumers will be able to access their data directly from the meter in their home. Energy suppliers are required to ensure that consumers are able to do this. As part of their smart meter installation, all domestic consumers will be offered an in-home display. This will connect them directly to their smart meter and show them how much energy they are using, in real time and historically, and what it is costing them. We expect other innovative products to be developed that will connect directly to the smart meter, which consumers will be able to purchase on the high street.

Consumers can also choose to give their energy supplier, or anyone else offering them an attractive product or service, remote access to their data. This enables companies to offer services to consumers such as regular home energy reports. The only exception, where consumers do not have a choice, is that the meters will provide energy suppliers with the data required for billing or other regulated duties. One of the key benefits of smart metering for consumers is the end of estimated billing. This data access framework, embedding the principles of consumer choice and control, has been implemented through changes to energy suppliers’ licences and will be enforced by Ofgem.

Before I turn to the amendment of the noble Lord, Lord Hunt, I will respond to two points. Both noble Lords asked about data control and engagement. While I have given noble Lords a broad overview, we also have in place a central consumer delivery body that would be able to reach out and reassure consumers with an independent voice on how their data are being kept. We have come to create the mechanism through which the data are stored with advice from the National Technical Authority for Information Assurance, which is linked to the Government’s GCHQ; I hate acronyms. We therefore know that we have worked with a huge amount of expertise on national data security. The noble Lord, Lord O’Neill, will welcome the appointment of his colleague the noble Baroness, Lady McDonagh, as the chairman of the central delivery body.

The other mechanism, which I have just mentioned, is the data and communications company. This will effectively be the mechanism through which all information will go. It has security on the front and back ends. The information that will be utilised from consumers’ homes cannot be accessed unless it has been accredited to the suppliers who have signed up through their licence conditions to the utilisation of smart meters. There is a huge amount of information out there that I urge noble Lords to access. If noble Lords would like me to, I am more than happy to ensure that they receive the updated frameworks and codes of practice that we are putting out there to ensure that there is absolute privacy for and security on data for consumers. We have worked hard to ensure that we satisfy the sort of concerns and fears that noble Lords are raising.

I now turn to Amendment 51AA of the noble Lord, Lord Hunt. I, like the noble Baroness, Lady Worthington, support the sentiment behind the amendment concerning the provision of energy information to consumers. The first step to saving energy is to receive reliable, quality advice about energy efficiency. Generic advice from a high street shop will only get you to a certain stage of information availability. The best approach is to get personalised advice that is tailored to your own home. This is the only way to ensure that recommendations and savings estimates are truly meaningful for the consumer. The Green Deal assessment does exactly that.

The Green Deal assessment provides detailed advice about the range of options which might be suitable for a particular property, including insulation and other efficiency measures, renewable heating systems and options for generating low-carbon electricity, like solar panels. Householders also receive advice on how they use energy through an occupancy assessment. It is still early days, but awareness of the scheme has grown rapidly. I am pleased to say that nearly 40,000 Green Deal assessments had been completed by mid-June, with thousands happening every month. Physical demonstrations are always a highly effective way to raise consumer awareness of the measures available. That is why we are supporting the development of a national “open homes” network to make it easy for people to see how homes can be improved by energy-saving retrofits.

[Baroness Worthington]

We have seen the statistics on the Green Deal. If I am right, you have to pay for those assessments. That seems very different to somebody being able to walk in off the high street to receive advice. Would the noble Baroness care to comment on that?

If, in a year’s time, the numbers of actual, completed, signed-up Green Deal participants are still very low—and they have been quite low, in terms of completing the whole process—would the Government consider that perhaps a new approach is needed where a lower level of advice is available without any cost?

[Baroness Verma]

My Lords, first, we have to recognise that the Green Deal is still in its early stages. Given that, the numbers of assessments received and accepted are quite high. The noble Baroness does not get the point that the Green Deal assesses the individual’s needs and tailors advice to that individual’s home, whereas getting generic advice would be exactly that: generic. Everybody’s homes and requirements are different. The way the assessments are carried out is tailored to those individual needs and engages on a one-to-one basis—if the noble Baroness would allow me to finish—the needs of those consumers and their households. You cannot get that from going to a one-stop shop for that advice. This is tailored advice and it is too early to say whether the Green Deal measures are reaching out and people are engaging with them. Given the number of assessments that we have delivered, people are engaging with them. We must not be pessimistic about the numbers. I welcome the fact that there has been quite a surge in people wanting to access them.

[Baroness Worthington]

Unfortunately, the noble Baroness missed my point. Obviously, everybody’s body and lifestyle are different but we go to a doctor’s surgery without cost to receive advice from an expert. Does she not accept that if you place the barrier of an up-front payment fewer people will receive advice? Is there not a role for very low-level but expert advice that can be tailored? Of course, people can communicate their circumstances. They are not incapable of speech. That is exactly what you do when you visit a doctor.

[Baroness Verma]

It is up to suppliers whether they charge: they may or may not. Government cannot dictate that to suppliers. It is in the interest of suppliers to offer the best possible deal out there, knowing that they compete for that work. We need to leave it to the people offering the Green Deals as to whether they charge, do not charge or give the costs back if they have a Green Deal accepted.

The energy-saving advice service will ensure that both consumers and businesses have access to impartial advice on the range of measures and services available to them. The Government are also currently operating a cashback scheme to consumers as further encouragement to install energy efficiency measures. The steps we are taking in the area of energy efficiency form part of a whole coherent strategy. As noble Lords mentioned, alongside the Green Deal we are also rolling out smart meters. The introduction of smart meters will provide consumers with real-time information on their energy consumption to help them control their energy use. As part of the smart meter installation visit, suppliers must also provide energy efficiency advice.

I will also say a few words on energy labelling and product standards. Already, measures like the ECO design and the energy labelling directive have played a key role in enhancing energy efficiency, securing above-average savings from electrical appliances. The UK continues to work with partners in Europe and is currently pushing the European Commission to increase the level of ambition on this issue. We are not just doing it nationally here but trying to encourage our partners in Europe to do the same. I hope my noble friend Lord Teverson and the noble Lord, Lord Hunt, see that the Government are taking every step possible to reassure and inform consumers. On that basis, I hope my noble friend will withdraw his amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Tuesday 9th July 2013 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, I am extremely grateful to the noble Baroness, Lady Worthington, and to all noble Lords who have contributed to this debate. Before I turn to the amendment, I should say to my noble friend Lord Cathcart that while his comments were not related directly to the amendment, I take note of his concerns and hope to respond at relevant junctures in the Bill. I am sure that the noble Earl will be satisfied that I have not sidetracked his concerns but will respond to them as the Bill progresses.

The Government agree that it is of great importance that Parliament is provided with updates on energy and climate change. This is particularly important, given the significant changes that we are making to replace closing infrastructure and to decarbonise the economy affordably. That is why we committed in the coalition agreement to giving an annual energy statement to Parliament to set strategic energy policy and guide investment. We have met this commitment every year since 2010 and we will be making this year’s statement to Parliament in the autumn.

I am not totally convinced that there is currently a great need to create more legislation for such an issue when we are already delivering on our commitment to update Parliament. In addition to this, DECC also reports to Parliament specifically on security with the Statutory Security of Supply Report. Furthermore, on Report in the other place, we introduced a statutory annual update on EMR. Finally, we also report on climate change via the government response to the Committee on Climate Change’s annual report, and on fuel poverty via the annual fuel poverty statistics. It is the annual energy statement that brings all these strands together.

I understand that the commitment made by this coalition Government is not guaranteed to be upheld by any future Government, and I therefore see some merit in ensuring that future Governments make a regular statement for Parliament and investors alike. It will therefore be wise for me to undertake to consider this further, ahead of Report. As part of this year’s annual energy statement we will of course be updating Parliament on the progress that we have made across the entire energy spectrum, including on the Green Deal, smart meters and climate change, as well as on the matters in the Bill. It will therefore include EMR and the strategy and policy statement, to which the noble Baroness has referred.

Ofgem will be required to report to Parliament annually on the extent to which it has contributed towards meeting the policy outcomes set out in the strategy and policy statement. The Bill requires this information to be included in the annual report and it is already a requirement that the report is laid before Parliament. This requirement already provides sufficient accountability and transparency in respect of the strategy and policy statement. I hope that the noble Baroness has found my reassurances and explanation useful and will withdraw her amendment.

[Baroness Worthington]

I thank the noble Baroness for her response. I am encouraged that that there are reporting requirements of which I was perhaps unaware, particularly the statutory requirement to update on the EMR. I should be grateful for further details on that. The statutory requirement on Ofgem to report does not do what the annual policy statement on energy strategy does because, as we have just discussed, Ofgem merely looks after a subset of the entire energy policy and it is just the department that is across all the issues. In the Annual Energy Statement, you will notice paragraphs on transport fuels, transport infrastructure, electrification, biofuels and the like, over which Ofgem has no oversight. I am encouraged that Ofgem will be reporting—that is great—but it does not do what the amendment does. However, I am happy to withdraw the amendment and look forward to hearing a little more about the EMR report. I am encouraged to hear that the noble Baroness is prepared to consider this amendment, or something like it. I beg leave to withdraw the amendment.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Thursday 4th July 2013 Grand Committee

[Baroness Worthington]

My Lords, first, I should like to thank the Minister for her very timely and quick turn-around of the letter that we have just received. It was incredibly helpful and I hope we can carry on in that spirit; it was very much appreciated.

Amendment 27 creates an additional duty in respect of the statement on the carbon intensity of electricity generation that is required under Clause 3(3). Currently, the Bill requires that an annual statement must be made once an order has been made and that that should include a summary of the means by which the carbon intensity was calculated for that year and a declaration of whether the carbon intensity has decreased or increased since the previous statement. Amendment 27 adds an additional requirement to the statement, requiring that it contains details of the actions the Secretary of State will take if intensity has increased since the previous statement.

As I have previously mentioned, carbon intensity of electricity fell dramatically in the 1990s but has since levelled off and in 2012 sharply increased. This was due to a change in the merit order thanks to high gas prices and low coal prices. On Tuesday in Committee, I stated that coal was a common enemy. What I meant to say was that inefficient, unabated coal stations are the common enemy. I apologise for not being clearer about that. Of course, coal can play a significant role in a low-carbon electricity system if it is coupled with carbon capture and storage, which is a very important technology. However, the longer these old unabated stations stay on the system, the longer we will have to wait for investment in low-carbon alternatives, since they are very profitable and can crowd out new entrants to the market.

The Bill must seek to create a legal framework for electricity market reform that provides clarity of purpose and accountability. The Bill contains significant and wide-ranging powers, but there is currently insufficient accountability. Given the implications of the measures in the Bill, it is only right that the Government should be held to account over its performance against its stated objectives. One objective is clearly to increase investment in low-carbon infrastructure and a clear measurement of success is the carbon intensity of our electricity. The requirement to deliver an annual report under Clause 3 is therefore extremely welcome. However, it does not go far enough. If progress is not being made, a statement ought to be made about what will be done to address the reasons for lack of progress.

Of course, increases in carbon intensity in any one year can come about for a number of reasons—the relative price of fuels and the carbon price are important elements that the Government are seeking to correct using the carbon floor price policy. However, there are other reasons why intensity may rise in a given year, such as weather fluctuations, which may lead to an increased demand for electricity, or low hydropower output. They may also be unplanned outages in our nuclear fleet. There are therefore circumstances outside the control of policy and government, which can affect intensity. In these circumstances, any requirement to report on actions to be taken should not commit the Secretary of State to having to act, but there should remain the option to state the reasons for the increase and then to make a case for not taking action. I want to be clear that we do not wish to ask for the impossible, but we do seek slightly more accountability.

If intensity is increasing because of policy failure—for example, if the carbon price is failing to dissuade coal burn or the number of CFDs being signed is too low to deliver sufficient investments in the infrastructure—it is right that the Secretary of State should be required to report this and to detail actions he or she intends to take to correct these failings. Another potential issue is that the UK could seek to delay the closure of coal plants planned as a result of the introduction of tighter clean air regulations. I hope that the Government will not seek a derogation of this kind, because it would have serious implications for the carbon intensity of electricity, and corrective action would then need to be taken to compensate.

The intent behind this amendment is similar to that behind Amendment 22, which was not moved, which sought to require that the duty to a lay a report before Parliament setting out policies and proposals for how the decarbonisation target would be met included a requirement that that report should be modified if it appeared that policies were not going to achieve the target. Amendment 27 has a similar sentiment but offers a much simpler way of achieving that goal. In the event that carbon intensity is not heading in the right direction, there is simply a requirement on the Government to tell Parliament what they intend to do to correct it.

This is a simpler way of achieving the aim that was set out in Amendment 22 and I hope that the Minister will give it serious consideration. The wording may not be perfect, but I think that the sentiment is correct and I wonder if the Minister might propose a workable suggestion of her own.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, as the noble Baroness, Lady Worthington, has said, Amendment 27 proposes that if carbon intensity has increased from the previous year, the Secretary of State will report additional actions he or she will take to reduce carbon intensity. I agree with the noble Baroness that it is sensible that, in addition to setting up plans for meeting the target range and the progress made towards it, the Secretary of State should also explain the action he or she will take to stay on track towards the target over time. However, I do not feel that the amendment as it currently stands achieves that.

My main concern is that the amendment would require the Secretary of State to set out additional action in response to an increase in a single year and this may not reflect, as the noble Baroness has rightly said, a number of variants under which the power sector operates in practice. There are many factors that can affect year-on-year measurements of carbon intensity and she has rightly said that cold years often require higher carbon intensities. Another factor could be power stations being offline for maintenance. This has been the case in recent years with some nuclear power stations, the emissions effect of which was reported in our annual statement of emissions. While bearing these points in mind, I support the aim of transparent reporting but it must be meaningful for the power sector to do that in the context of long-term trends rather than year-to-year variations. Therefore, while I support the aim of the amendment, I need to consider further how to address it, perhaps with a view to responding to it at a later stage. With that, I hope that the noble Baroness will withdraw her amendment.

[Baroness Worthington]

I thank the Minister for her comments. I am very pleased that she understood that the sentiment was what we were trying to press; the exact wording needs to be worked out. On that basis, I am very happy to withdraw the amendment.

--- Later in debate ---

[Baroness Worthington]

I am sorry to prolong the debate but I think this is really important. I stress that, in addition to providing a solution for how vertically integrated companies can meet their carbon intensity targets, by requiring them steadily to divest and move into low carbon, you solve one of the other problems that the Bill does not currently adequately address. I am getting e-mails daily from independent generators saying, “Fine, we can get CFD but who is going to buy our power?”. We are removing the obligation from the suppliers to buy low-carbon power. One of the features of the RO until recently was that there was an obligation on suppliers to increase their renewable percentage and that gave them access to the market. There is nothing to replace that in the CFDs. So, if you are an independent generator of renewable energy, you know that you have a good product but if no one wants to buy it you are really stuck.

On that basis, this issue deserves more attention, not merely because it helps us meet the carbon intensity targets but because it helps to solve the problem that the Bill currently faces of what we are going to do about access for independent generators.

[Baroness Verma]

My Lords, perhaps I may quickly respond to that. It was made very clear on Report in the Commons that we would consider the concern raised by the noble Baroness on access to markets of independent generators. I am sure we will debate that when we get to that part of the Bill.

Energy Bill

Debate between Baroness Worthington and Baroness Verma

Tuesday 2nd July 2013 Grand Committee

[Baroness Verma]

My Lords, I echo the noble Baroness in saying that this has been an excellent debate and, given the strength of arguments on both sides, I really believe that with our reasonable and measured approach to the decarbonisation target range, the Government have got it right. I agree that a decarbonisation target range, set at the right time, could provide further certainty for developing low-carbon energy. That is why, having heard many strong views on the matter, the Government brought these new clauses forward in the other place, which now form Part 1 of the Bill. This will enable us to be the first country in the world to set a clean energy target.

Having said that—and as a number of noble Lords have highlighted and illustrated with great skill—changing the Bill as proposed by these amendments would not be the best way of achieving what I believe are shared goals. I shall expand on this and hope to respond to some of the issues that have been raised today. The issue of when we set a target comes down to what will provide the greatest certainty for investors. The noble Lord, Lord Browne of Madingley, made the point at Second Reading that in his experience as a businessman and an investor:

“The incentive structures contained in the Bill are far more important than targets or aspirations, because they are the mechanism for action”.—[Official Report, 18/6/13; col. 192.]

My noble friend Lord Howell raised that point clearly.

We have recognised that investors need more details. That is why last week we set out additional details about our reforms. We have published some information about contract terms, which go to costs and thus value. We also published strike prices for renewable technologies to encourage investment in wind, tidal wave, biomass and large solar projects. We also confirmed the trajectory of funding for tripling support for low-carbon electricity up to 2020.

Those recent announcements have been welcomed by industry. For example, the CBI’s chief policy director said:

“The energy plans are a big step forward and should unlock the private investment we need to keep the lights on and costs down. The renewables strike price and capacity mechanism will enable investors to take their plans off the drawing board and on to building sites.”

Some of the arguments I have heard about not giving investors certainty are covered by this point: industry itself says that it recognises that it is now being given certainty. Looking beyond 2020, there are already legal targets in place that clarify the future of electricity in this country. There is the 2050 target, which is likely to require electricity to be virtually decarbonised, and there is the fourth carbon budget, which runs up to 2027 and requires the UK to halve emissions in the whole economy.

[Baroness Worthington]

My Lords—

[Baroness Verma]

In order to make progress, if the noble Baroness has a question, perhaps I could take it after I finish. To provide further clarity out to 2030, the Government have committed to issuing guidance to National Grid on an indicative range of decarbonisation scenarios for the power sector to 2030, consistent with the least-cost pathway to 2050. Just last month the Government set out an ambitious position for 2030 at a European level, to urge Europe to set a binding emissions reductions target of 50% by 2030 as part of the ambitious global deal—and 40% even if we move unilaterally. Finally on this point, Amendment 4 has an unintended consequence, in that it would prevent targets being set for years beyond 2030.

This brings me to my second point: whether the Bill should provide a power or a duty to set a decarbonisation target range. Of course there is an attraction in saying in the Bill that the Secretary of State must set a target by a certain date, as both the noble Lord, Lord Oxburgh, and my noble friend Lord Stephen propose. However, my honourable friend, the Member for Wealden, Charles Hendry, pointed out in an article on this issue that it does nothing for any Government’s credibility to set out a target before they are in a position to say how they will achieve it. He stated:

“The challenge with a decarbonisation target set now for 2030 is that we cannot yet know how it can be met—or indeed, if it can be met”.

That is the argument that a number of noble Lords have raised today.

--- Later in debate ---

[Baroness Worthington]

My Lords, I would like to ask the Minister about her assertion that there are targets post-2020, citing the fourth carbon budget as one of them. I will just reiterate the point that those budgets are about emissions and take into account flows of emissions using trading. It is not true that they give any certainty at all about what will happen in the UK. What happens in the UK is governed by UK policies, which include the RO and other support mechanisms. After 2020, there is no visibility as to what will happen next. In moving towards the CFDs, we are creating a whole host of uncertainties, whereas under the RO there is a great deal of certainty. I would hope that she could concede that budgets are a completely different issue to the domestic policies that we are talking about today.

[Baroness Verma]

Of course, the point is that we have to make sure that this happens against the backdrop of what else is going on in the economy. We cannot set targets solely on one part of the economy. That is why we have been very clear that the investment in climate that we have made to 2020 through the levy control framework has already given certainty. We are putting £7.6 billion into low-carbon renewable energies to introduce that certainty to investors. We have already said that National Grid will be given an indicative range of decarbonisation scenarios for the power sector for 2030 consistent with the least-cost approach to the UK’s 2050 carbon budget. The fourth carbon budget will run up to 2027 and requires the UK to halve total emissions in the whole economy. We have set out in the carbon plan the likely implications for the electricity sector.

--- Later in debate ---

[Baroness Worthington]

My Lords, I do not wish to prolong this debate greatly although I am grateful to have this opportunity to speak to this amendment, which raises a different issue from the one we have just debated.

Almost in anticipation that the Government would use the setting of the carbon budgets as a reason not to agree to setting a decarbonisation target, I tabled this amendment to probe the logic of that. I have tried to explain, possibly in vain sadly, that carbon budgets and carbon intensity are not one and the same and should not be linked. However, I feared that I might not succeed in making that point, so tabled this amendment simply to show that the carbon intensity of electricity is a very clear indicator of progress in the implementation of the Bill. Carbon intensity is a value that is currently recorded and reported but, sadly, over the past decade has not fallen. It fell dramatically between 1990 and 2000 when we invested in CCGT gas plants which were more efficient and cleaner. The carbon intensity of power fell from around 950 to around 450 to 500. That was achieved in a decade.

Since then, I am sad to say that both the previous Government and this Government have utterly failed to deliver anything comparable and carbon intensities have been bouncing around pretty much at will, reflecting the global prices of the commodities involved—gas and coal. Last year, we saw almost a record high of 530 grams per kilowatt hour in the UK in 2012. This is just wasteful carbon emissions, I am afraid to say. Had we got a grip and introduced a proper energy policy that took into account the carbon intensity and managed it down, we would not have seen the high carbon burn that we saw last year, which is displacing gas.

Members of the Committee who are fans of gas ought to note that we have a common enemy in coal, particularly coal treated in old stations built 30 or 40 years ago, some of which are now fitted with filtration equipment that knocks their efficiency down even further. There is probably no worse way of generating electricity in terms of carbon emissions, yet there they were base loading all the way through last year, pushing up the carbon intensity to record levels. As I have mentioned previously, that can be addressed. The merit order of existing plants, if it operates optimally, could take 200 grams off overnight without the need to sign any long, expensive and hard to negotiate contracts—if we simply introduce the right policy framework.

The amendment would require budgets to start to be set in 2020, when it would be possible to get emissions to around 200 grams per kilowatt hour with very little in the way of any extra investment. Simply using the investment that is already in the supply chain to meet our 2020 renewables targets, coupled with a change in the merit order, would take us there. Beyond that, we can look at a target in 2025 of around 150 grams per kilowatt hour. Again, there is no great need to invest in lots of new capacity to achieve that. It simply means continuing to invest in renewables on roughly the same scale as we are doing now, seeing the CCS demonstration projects get under way on gas and coal and seeing the biomass conversions. Essentially, this is not a hard trajectory. The point of putting down this amendment is to explain that the pathway from where we are today, with ridiculously high carbon intensity, to where we need to get to in 2030 to reach our legally binding targets cost-efficiently is not difficult. If you want to see the road map or the plan of how to get there, you need only refer to the CCC’s reports on the subject, which contain a huge amount of detail outlining this and explaining how existing kit and existing plant can be used to reach very much lower levels than we have today.

I also mentioned in my previous speech that we already have a carbon floor price. The Government should accept that targets need to be set that justify that policy. It is an incredibly distorting policy, with no environmental benefits. As I have said before, reductions that occur underneath the cap set in Europe are simply traded away. So it is not about carbon. It is meant to be about securing investment in UK plc. If that investment is not forthcoming—if, for whatever reason, the policies in this Energy Bill do not deliver—the public and Parliament have a right to be able to measure that. This is a significant piece of legislation, taking wide-ranging powers. It is matched in its size and significance by the existing carbon floor price. It is only right that we take it upon ourselves to deliver an outcome for these policies. That outcome must be a steady decline in carbon intensity.

Obviously, I would not recommend the setting of a series of targets starting in 2020 and going five years beyond that if I was not confident that we had the policies to deliver on that. If they work, CFDs are the mechanism which the Government hope will be used to achieve this. If the Government have confidence in their Bill and the measures contained in it, they ought to have the confidence to set these targets. Many people have made the point that flexibility is necessary, as we cannot predict the future and should not be technologically specific in our aspirations. I completely agree. I have said before, and will say again, that the market should decide how best to meet these targets. It will do it with much more efficiency than even the best minds in the Treasury can achieve.

I will stop there because I do not want to prolong this debate too much and I am grateful for being able to raise this separate issue. When we go through the Bill, I will speak to amendments concerning the energy performance standard because that is the mechanism within this Bill that could certainly deliver on these decarbonisation targets. Taken as a whole, these targets are actually very sensible: carbon budgets already exist and, knowing that, the Government can set them happily. There is nothing to stop the Government and it is something that should accompany this Bill. Consumers and wider society deserve some accountability for all these powers that we are giving to the Secretary of State.

[Baroness Verma]

My Lords, Amendment 8 raises questions about when a decarbonisation target range should be set. The noble Baroness has already said that the merit order in which generation is dispatched is a commercial decision, so the Government really should not interfere with that.

However, we are supporting decarbonisation, as the noble Baroness is aware, by making low carbon more attractive with the EMR provisions. When we come to the EMR part of the Bill, this issue will have a much fuller airing. Rather than fettering any future Government, this Government have taken the most important step of putting in place the legislative framework to allow a binding target range to be set in 2016. As I said earlier, it has to be set against a backdrop of a number of things and not taken in isolation. There are two issues that we must address: first, whether the Secretary of State should set future targets after the first target range is set; and, secondly, whether he should set a target range for a date earlier than 2030.

On the first of these issues, I agree with the noble Baroness that there is merit in the Secretary of State having the ability to set targets for years beyond the setting of the first target. After all, we are guided in this debate by the framework provided by the Climate Change Act, which looks out to 2050 and not 2030. I am pleased to say that the Bill already permits future target ranges to be set beyond 2030. On the second issue, I do not think that we should set a target as early as 2020 because we already have a suite of targets and measures that give very clear signals about the pace and trajectory of the power sector up to 2020. A further target at this stage would probably be very unhelpful and not very useful.

In addition, neither the Committee on Climate Change nor industry leaders have been calling for a decarbonisation target earlier than 2030. Their support is for a target that clarifies the long-term trajectory of the electricity sector. I think the noble Baroness accepts that that is a far better forward-looking view than shortening the timescale and adding uncertainty to industry by adding further targets to which it would have to adjust. Industry already has certainty until 2020. The issue about what more is needed, and when, beyond that date was aired fully in the previous debate.

This view was echoed at Second Reading by a number of noble Lords who argued that a decarbonisation target would be a way to provide certainty to investors. I think that I made the point clearly in the previous debate that we need to be able to set it with the fifth carbon budget and while looking at a whole range of other scenarios and mechanisms rather than setting it in isolation. We also need to look at what other countries are doing so that we do not put ourselves at a disadvantage competitively, ensuring that we are among the world leaders in the competitive race. I think it would start hampering industry if we keep adding targets to those it is already meeting. The noble Baroness’s colleague, the noble Lord, Lord Whitty, said:

“Most of the investment decisions that will be contemplated in the next two or three years will relate to a period beyond the current target of 2020”.—[Official Report, 18/6/13; col. 232.]

That provides a brief explanation of the Government’s view that the framework in the Bill is the right one and that it would be inappropriate either to set a target range for as early as 2020 or to set the range for 2030 before the setting of the fifth carbon budget in 2016. On that basis, I hope that the noble Baroness will withdraw her amendment.

[Baroness Worthington]

My Lords, I thank the noble Baroness for her response. I have to point out that at the moment we have a policy introduced by a Treasury, which is trying to achieve exactly what she said that the Government should not do; namely, to affect the merit order. She said that the merit order is subject to the market and that therefore we cannot do anything about it. Why then have the Government introduced a carbon floor price, if not to influence that merit order? That is exactly what it is designed to do and trying to encourage. Generators will internalise the price of carbon and therefore run their cleanest plant first. Let us be honest, the cheapest way in which we can hit our carbon targets is simply by supply companies switching to a cleaner station rather than a dirtier one. That is the lowest hanging fruit possible, which is why the carbon floor price has been introduced.

I do not think that the carbon floor price is a very good policy. It is not bankable. I know no one who is able to invest on the back of it. In fact, I have heard from suppliers that they are now no longer able to get PPAs for their thermal plant more than two years in advance because of the uncertainty of the carbon floor price. It is a suboptimal policy and it does make me wonder whether the Treasury is happy to throw its fine logic about not going further than Europe and always keeping with the pack out of the window the minute that the revenue starts to flow in. That is clearly what that mechanism is designed for.

It is scandalous that the Chancellor thought that it was insufficiently interesting even to mention it in his Budget, yet it will be raising billions—I repeat, billions—in revenue in the coming years. It has started already. There is a total illogicality here in the Government’s position. On the one hand, we are happy to introduce carbon floor prices and are trying to interfere with the merit order but, on the other hand, we are not prepared to give the consumer—the citizen—the reassurance that this is being done with the purpose of reducing the carbon intensity. That is the simplest, cheapest and most cost-effective way of reducing our carbon and meeting our targets.

I take the point about the 2020 target being quite soon. I put it at 2020 simply to point out that there is this 200 grams of carbon intensity that can be got at overnight. The Government should be spending every effort to try to make sure that that is achieved. I am afraid that the carbon floor price does not achieve that. It simply is not bankable and people do not feel confident to invest on the back of it.

I think that the 2025 target is necessary, partly because the fourth carbon budget which parallels it is subject to a complete lack of clarity. The Secretary of State’s report on setting the fourth carbon budget states quite clearly that the Government intend to make full use of flexibility and that if Europe does not change its targets in the ETS, we will revise that budget upwards. Where is the certainty there? There is none. A decarbonisation target would absolutely provide that certainty for 2025. We would then be in a much stronger position to meet our 2030 targets.

I will, of course, withdraw the amendment but I wonder whether the Minister would indulge me and perhaps ask her officials to consider a 2025 target and the advantages that might deliver. On that basis, I am happy to withdraw the amendment.

Atmospheric Carbon

Debate between Baroness Worthington and Baroness Verma

Tuesday 11th June 2013 Lords Chamber

[Baroness Verma]

I agree with my noble friend. We continue to support the Commission’s proposal to backload and we hope for a more positive outcome in the forthcoming votes in the European Parliament at the next voting session. The Government are pushing for the adoption of a unilateral EU target for 2030 of a 40% reduction on 1990 levels, and, in the context of a more ambitious climate agreement for the period beyond 2020, the EU’s target should increase up to a 50% reduction on 1990 levels.

[Baroness Worthington]

My Lords, I return to the original Question from my noble friend. The Government are hosting the G8 meeting in Northern Ireland next week. Despite receiving requests from both the German and French Prime Ministers, our Prime Minister has been reticent about putting climate change on the agenda. Has he had cause to rethink this decision and will climate change be discussed next week in Northern Ireland?

[Baroness Verma]

My Lords, I can reassure the noble Baroness that it remains very much a commitment for all G8 leaders. This year, under our G8 presidency, the Foreign Ministers will consider the wider security risk presented by changing climate. It has not gone off the agenda. It will be discussed, but in a different forum.

Climate Change

Debate between Baroness Worthington and Baroness Verma

Thursday 25th April 2013 Lords Chamber

[Baroness Worthington]

To ask Her Majesty’s Government what efforts they are making to ensure that the European Union adopts more ambitious climate change targets.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, the Government are committed to taking decisive action on climate change. Our electricity market reform is the biggest change to the UK electricity market since privatisation and is needed to ensure that we have a diverse range of energy supplies and achieve our emissions reduction targets. At EU level, the Government support current proposals to strengthen the EU emissions trading system and support the 2050 low-carbon road map, which sets out the cost-effective pathway to the EU’s objective of cutting emissions by 80% to 95% from 1990 levels by 2050.

[Baroness Worthington]

My Lords, Her Majesty’s Opposition strongly support the Government in seeking to increase the European Union’s ambition in tackling climate change. It is at that level that we need to make progress. We therefore note with regret that on 16 April, 20 UK Conservative MEPs rebelled against the government line and voted against a crucial proposal to lift the EU carbon price off the floor. Can the Minister comment on what measures are being taken to ensure that all of the Government act in support of a unified, EU-wide approach to tackling climate change and to prevent such rebellions taking place in the future?

[Baroness Verma]

My Lords, I join the noble Baroness in her great disappointment that this occurred. However, we are a democracy and are allowed to think for ourselves.

Renewable Heat Incentive Scheme (Amendment) Regulations 2013

Debate between Baroness Worthington and Baroness Verma

Monday 25th March 2013 Grand Committee

[Baroness Worthington]

I do not dispute that. Having some clarity is important for investors, but these are incredibly complicated proposals. Investors are simple folk. They want a clear plan and to know how much money they will get in return. In this system quite a lot of risks are involved. They have to carry the costs of all the preparatory work before they receive their money from Ofgem and if a policy cannot be explained in a few minutes, investors will get bored and go elsewhere. That is my concern.

[Baroness Verma]

I very much take that point on board. Much of where we have reached has come from talking to industry and stakeholders, so they are part of the journey towards making these recommendations. So, point taken, but some of these things are incredibly complicated. However one tries to simplify them, they will still have a degree of complexity about them.

The noble Baroness asked why budget management was necessary. There is a degree of uncertainty about how the market will respond over time, so it is right to be prepared for unexpected changes in the uptake that may arise. The noble Baroness also raised the point that budgets are not flexible, and spending less than the allocated budget in one year does not permit that underspend to be transferred to future years. It is about balancing what we need to do—which is in line with what the Treasury expects us to do—with ensuring that, as we hope, the uptake will not lead to as big an underspend as in the past, given that we are putting in place these mechanisms to encourage better uptake.

The noble Baroness asked what will happen after 2015. The Government’s policy on this was published in February in response to the July consultation and was cleared across all government departments. It will remain open to new applicants until 2020. The spending review commencing in June will provide a chance to set the scheme’s budget beyond 2014-15. The noble Baroness asked about booking tariffs and guarantees and referred to the EPA. We do not propose to bring forward the EPA at this time, but recognise that there are arguments for introducing measures to improve certainty, even though these can be difficult to evidence. We intend to monitor the introduction of degression and other planned improvements to the scheme. We will continue to work with industry and stakeholders to improve our evidence base, then see what other options may be available to us.

The noble Baroness asked about biomass. It is true that biomass accounts for the majority of the applications and accreditations on this scheme. However, we want to see more deployment across a fuller range of technologies supported by the scheme. This is why we continually review the scope, so that—as I said before—we do not exclude some of the technologies that have longer lead-in times or are still at early development stages.

I must respond to two more questions. The noble Baroness asked why the mechanism was necessary. It has been supported by 77% of the respondents we spoke to as being the most appropriate mechanism. As I said, they are on side with us. I completely understand the complexity of it, but we need to be able to provide them with clarity and they are supportive, so I think we are in the right space. Needless to say, that does not mean there is no room for improvement.

The noble Baroness also asked why it is necessary to separate the tariffs. I touched on that. There are different technologies and different tariffs. That is important and it is to ensure that one technology does not have an undue advantage over other technologies.

The noble Baroness rightly asked questions about the complexity of the scheme; we do not underestimate that. However, I hope that the regulations debated today will ensure that RHI continues to drive forward renewable heat deployment, which is what we all want, and is the most cost-effective way of doing so for the taxpayer. I have taken on board many of the points made by the noble Baroness; I shall read Hansard carefully to see whether there are any that I have missed. None the less, I hope that I have her support in commending the regulations to the Committee.

[Baroness Worthington]

My Lords, I thank the Minister for her responses. I am very impressed. I asked a lot of questions and I think she covered most of them, although there are a few outstanding, particularly on liquid biofuels and associated things. However, she acknowledged the complexity of the main matter before us and argued the need to provide certainty around the technologies. That is fine in the early stages but at some point we have to start backing winners. The targets that have been set for us are challenging. There is only so long that you can flog a dead horse. There are some technologies which, for whatever reason it may be—be it non-market barriers or there being no appetite for them—you just cannot get deployed, whereas there are others which seem to hit a sweet spot, where there are lots of reasons why people like them and, suddenly, off they go. Those are the things that you can build a business around. They can give you great potential for investment and, one hopes, lead to exports. It is great that we are trying to nurture as many technologies as possible, but that cannot be the case for ever. These reviews are important but, please, let us not have too many of them. A good, solid review after a certain time is the right way forward. Let us try to get back on track.

Perhaps the Minister could write to me on how we are doing in terms of our trajectory. I worry that, while we have this very slow start, we will have to go into a very steep curve to reach that 12% target and that discussions with the Treasury will become ever more difficult. If the Minister could let us know how we are doing, that would be great.

Energy: Electricity Generation

Debate between Baroness Worthington and Baroness Verma

Tuesday 26th February 2013 Lords Chamber

[Baroness Verma]

My Lords, my noble friend raises a number of important and key points. Of course we are looking at ensuring that we do not have a dip in our secure energy supply. We are also making sure that our new energies will take over when the old gas and coal-powered stations come off stream. We cannot meet our carbon emission reduction targets if we have unabated coal continuing to come out of our power stations. However, we are looking at increasing our gas supplies as well as all our other alternative energy supplies.

[Baroness Worthington]

My Lords, as the Minister mentioned, the most effective way to combat potential insecurity of supply is to invest in demand management and reduction. I was very pleased to hear mention of the capacity mechanism that we expect to be part of the Energy Bill. I understand that officials have been working on proposals for this. Will the Minister confirm what state of readiness the proposals are in, and when we might expect to see them, since they are the best way of combating security of supply problems?

[Baroness Verma]

The noble Baroness is absolutely right. We need to ensure that we reduce our usage of electricity and of other energies. We have had a consultation. We are now looking at the responses to it. I hope to come back to the Dispatch Box with our response later in the year.

Energy: Prices

Debate between Baroness Worthington and Baroness Verma

Monday 25th February 2013 Lords Chamber

[Baroness Verma]

My Lords, I did not read the article. I am afraid that I was curled up in bed with the flu. However, I will take the noble Lord’s word for it that it was an interesting article. As I have said persistently and consistently at the Dispatch Box, we need a good energy mix, and wind will be part of that mix.

[Baroness Worthington]

My Lords, during this cold weather, many people are being forced to make very difficult decisions in their budgeting, especially because of the high energy prices. Does the Minister agree that the best way to bring prices down is to ensure that we have a genuinely competitive market in energy? Will she comment on whether the Energy Bill that will come to this House later in the year will be amended to introduce genuine competition in the generation of electricity, splitting it from the retail and therefore enabling us to get real competition to bring prices down?

Energy: Green Deal and Energy Company Obligation

Debate between Baroness Worthington and Baroness Verma

Wednesday 30th January 2013 Lords Chamber

[Baroness Verma]

I begin by thanking my noble friend for his very warm welcome. The Green Deal targets energy efficiency schemes and is one of the most effective ways in which to tackle fuel poverty. That is why the minimum of 40% of eco will help to support low-income households. The eco-affordable warmth and carbon saving community obligations will support around 230,000 low-income households each year. The insulation sector as a whole has a real opportunity to grow from the success of the Green Deal, and we estimate that overall jobs in the sector will increase from the 26,000 recorded in 2011 to about 60,000 in 2015.

[Baroness Worthington]

My Lords, interest rates for loans for home improvement under the Green Deal appear far higher than can be obtained on the high street. Both Homebase and the RBS, for example, offer loans at below 5% interest, whereas the Green Deal base rate starts at 6.9%. Can the Minister please explain why the Government have failed to negotiate a more attractive offer? Could she also inform the House how many people have signed up since the launch on Monday?

[Baroness Verma]

My Lords, this is a market-based deal. To be quite frank, it is really important that we allow consumers the choice of finding where they want to go for their finance, but this offer from the Green Deal Finance Company is available to 80% of the population. So it is a competitive rate, but if people want to source elsewhere it does not stop them from doing so. We also think that the energy company obligation with the extra £540 million attached to it will help those families who are not always able to access and source competitive rates. As for commenting on how many people have signed up, it was launched only on Monday, so it would be very predictive of me to be able to predict a figure for the noble Baroness at this stage.

Energy: Oil Price Projections

Debate between Baroness Worthington and Baroness Verma

Monday 28th January 2013 Lords Chamber

[Baroness Verma]

My Lords, I thank my noble friend for that very helpful question. Of course, we do not always dictate the global scenarios that often change in front of us. While we try to make our predictions as accurate as we possibly can, scenarios will be played out on the international scene over which we have no control. Therefore, our scenarios are based on price structures that take into account the low, the central and the high. The price forecasts that we have come to were made on that basis.

[Baroness Worthington]

My Lords, whichever way you make projections, it looks likely that oil prices will remain high. The only way of keeping transport affordable in the long term is to maximise vehicle efficiency and to develop alternatives as quickly as possible. UK motorists have benefited greatly from the introduction of Europe-wide vehicle efficiency standards. What steps are the Government taking to ensure that tougher, Europe-wide standards are set to the benefit of the UK motorist?

[Baroness Verma]

My Lords, as always, we are working with our European partners and manufacturers in this country. I say again that it is one of those issues on which we have to make sure that the rest of the world is working with us. We work hard at all conferences and in all fora to ensure that the UK motorist gets a good deal, not just at the petrol pump but on the vehicles that they purchase.

Arctic Report Card

Debate between Baroness Worthington and Baroness Verma

Monday 28th January 2013 Lords Chamber

[Baroness Verma]

My Lords, the noble Lord is right to raise that issue. Although we are not a member of the Arctic Council or an Arctic state, we have been invited in as observers and we are able to have a very constructive dialogue with those Arctic states and with other observer states as well.

[Baroness Worthington]

My Lords, the Arctic is experiencing rapid change due to the impact of man-made global warming. In recognition of the unique and fragile nature of this region, Greenpeace is calling for the establishment of a global Arctic sanctuary. The Environmental Audit Committee also recommended that a sanctuary be established in its report, Protecting the Arctic. Can the Minister please inform the House what actions the Government are taking to secure a marine protected area in the Arctic and what assessment they have made of the risks, both economic and environmental, of allowing oil extraction in the area?

[Baroness Verma]

My Lords, as I think I have said in answer to a number of the questions put to me today, we have to work very closely with the Arctic states and the Arctic Council. However, I recognise the noble Baroness’s point about the depletion of marine life. If she will allow me, I will make sure that she receives a much fuller answer, given that this is quite a serious issue that needs to be tackled.

Energy: Tariffs

Debate between Baroness Worthington and Baroness Verma

Thursday 13th December 2012 Lords Chamber

[Baroness Verma]

My Lords, my noble friend raises a very important part of the work that the Department of Energy and Climate Change is undertaking. Rolling out smart meters in a mass rollout from 2014 will enable consumers to see how much energy they are using and to make choices about whether they need to reduce their own energy consumption. My noble friend raises the question of industry and suppliers. This is very much led by industry and energy suppliers—they are very involved in the rollout of smart meters. We are working collectively.

[Baroness Worthington]

My Lords, does the Minister agree that until there is proper reform of the energy market to introduce genuine competition in generation consumers cannot be guaranteed fair prices, no matter how many tariffs are on offer, and that the Government’s Energy Bill represents a missed opportunity to usher in genuine market reform?

[Baroness Verma]

My Lords, I do not quite know how the noble Baroness can predict what the Energy Bill will do until it arrives. When it arrives, I am sure that we will have long discussions over it. She misses out the point that the Energy Bill has brought certainty for investment. It will create a lot of jobs and ensure that consumers are at the heart of energy policy.

Energy: Draft Energy Bill

Debate between Baroness Worthington and Baroness Verma

Wednesday 14th November 2012 Lords Chamber

[Baroness Worthington]

To ask Her Majesty’s Government how the provisions set out in the draft Energy Bill will deliver reductions in greenhouse gas emissions.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, as the Prime Minister said, we are committed to being the greenest Government ever. We acted quickly to put our own house in order by reducing central government carbon emissions by almost 14% in our first year in office. At Durban last year, we secured a roadmap to negotiate a new, global and legally binding agreement on climate change to be in place no later than 2015. Across the EU, we have led calls to increase the EU emissions reduction target to 30% by 2020. The noble Baroness asked about the forthcoming energy Bill. I could not think of a better example of what this Government are doing to reduce carbon emissions.

[Baroness Worthington]

My Lords, when I tabled this Question I hoped that we would have an energy Bill. Sadly, that is not the case. We have the Corby shambles and a Government at war with themselves over wind farms. Who is responsible for Government policy on wind farms? Should we take it from the comments made by Minister John Hayes last night that the Government consider that it will soon be “game over” for the British onshore wind industry?

[Baroness Verma]

My Lords, I expected the noble Baroness to come back with a serious question and I am disappointed that she did not take this opportunity to further reach out to the work that we are doing. I will not comment on remarks made that I cannot attribute, so I will resist the noble Baroness’s call to comment on my honourable friend.

Electricity Generation

Debate between Baroness Worthington and Baroness Verma

Wednesday 7th November 2012 Lords Chamber

[Baroness Verma]

My noble friend is absolutely right. Of course the Government recognise that we need to make sure that we are reducing demand. We are also making sure, through our energy Bill, that our capacity mechanism will be able to bring down prices, which is something that we all want to see.

[Baroness Worthington]

My Lords, a careful reading of the Ofgem report will show that, although we will reach low levels in 2015-16, capacity will pick up again in 2016-17. That is partly because of an increased contribution from renewables, chiefly biomass and wind. Given that, will the Minister reconsider the fact that the renewables obligation is set to close in 2017, because there might be a hiatus as a result?

[Baroness Verma]

My Lords, the noble Baroness raises an important point. She is absolutely right that the report is not all doom and gloom. Our work towards ensuring that renewables account for 30% of the electricity that we generate is part of a big mix. I am sure that, when we come to consider the energy Bill, the noble Baroness and I will have further discussions on how to improve our security of supply.

Energy: Shale Gas

Debate between Baroness Worthington and Baroness Verma

Wednesday 17th October 2012 Lords Chamber

[Baroness Verma]

My Lords, my noble friend is right to raise her concern, and I hope that I can reassure her that any abstraction of water for industrial purposes is subject to control by the Environment Agency or by corresponding bodies in Scotland and Northern Ireland. The agencies will not permit additional abstraction in any area if they consider that it is not sustainable.

[Baroness Worthington]

My Lords, whether gas comes from fracking or more conventional sources, it is still a source of carbon dioxide and greenhouse gases. Therefore, will the Minister reassure us that in the horse trading that we believe is going on around the Energy Bill at the moment, there will be no concession to reduce our investment in carbon capture and storage in favour of decarbonisation? We must do both, and we must have carbon capture and storage on gas if it is to play a role in the future.

[Baroness Verma]

I absolutely agree with the noble Baroness. It is an exciting technology that can decarbonise coal and gas-fired power stations and large industrial emitters. The Government are absolutely committed to CCS. We have one of the best offers anywhere in the world, including £1 billion in capital funding for our new competition, contracts for difference for low-carbon generation through our electricity market reforms, and £125 million to support research and development.

Energy: Self-sufficiency

Debate between Baroness Worthington and Baroness Verma

Monday 15th October 2012 Lords Chamber

[Baroness Verma]

My Lords, the noble Lord’s question is a very technical one, which will require a very technical answer. I think it would be more helpful to the House if I were to write to him with an in-depth response to his very in-depth question.

[Baroness Worthington]

My Lords, does the Minister agree that renewables are the way to reduce our dependence on foreign imports of fossil fuels, and would she care to comment on the Crown Estate’s recent report into our tidal energy capacity, which is estimated to be the best in Europe?

[Baroness Verma]

My Lords, I welcome the Crown Estate report, which helps to refine our understanding of the wave and tidal energy resource in the UK. We have always known that we have an outstanding marine energy resource around our coastline and that is why the Government are fully committed to the development of wave and tidal energy. We have put in place the world’s most comprehensive support of the sector’s development, including innovation funding.

Energy: Hydropower

Debate between Baroness Worthington and Baroness Verma

Wednesday 10th October 2012 Lords Chamber

[Baroness Verma]

My Lords, all the different technologies have different subsidy levels. I should like to write to the noble Countess on the different subsidy levels, if she will allow that.

[Baroness Worthington]

My Lords, I extend a warm welcome to the noble Baroness, Lady Verma, in her new position as Minister. She has some very large and fine Wellington boots to fill but I am sure that she will do so very ably. My question relates to pumped-storage hydro, which, as I am sure the noble Baroness will know, is a very effective way of balancing demand and supply on our electricity grid. Will the forthcoming energy Bill contain something to support this very important technology, particularly in relation to the capacity mechanism therein?

[Baroness Verma]

I thank the noble Baroness and your Lordships’ House for their very warm welcome. The energy Bill will seek powers to implement a capacity market as part of the reforms to the electricity market to deliver secure, affordable, low-carbon electricity. We expect that pumped-storage hydro projects would be eligible to receive capacity payments under the capacity market. Further detail will be set out alongside the introduction of the energy Bill in autumn.