Contingent Liability: Energy Supply Company Special Administration Regime
Greg Hands Excerpts(2 years, 6 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
Today I will lay before Parliament a departmental minute describing a contingent liability arising from the issuance of a letter of credit for the energy administrators acting in the special administration regime for Bulb Energy Ltd (“Bulb”). This letter of credit replaces a previous one originally provided in December, which was extended in February and March, and which has now expired.
It is normal practice when a Government Department proposes to undertake a contingent liability of £300,000 and above, for which there is no specific statutory authority, for the Department concerned to present Parliament with a minute giving particulars of the liability created and explaining the circumstances.
I regret that, as a result of continued negotiations with the counterparty and the reduced parliamentary sitting period, I have not followed the usual notification timelines to allow the full 14-day consideration period of these issues in advance of issuing the letter of credit.
Bulb entered the energy supply company special administration regime on 24 November 2021. Energy administrators were appointed by court to achieve the statutory objective of continuing energy supplies at the lowest reasonable practicable cost until such time as it becomes unnecessary for the special administration to remain in force for that purpose.
My Department has agreed to provide a facility to the energy administrators, with a letter of credit issued, with my approval, to guarantee such contract, code, licence, or other document obligations of the company consistent with the special administration’s statutory objective. I will update the House if any letters of credit are drawn against.
The legal basis for a letter of credit is section 165 of the Energy Act 2004, as applied and modified by section 96 of the Energy Act 2011.
HM Treasury has approved the arrangements in principle.
[HCWS33]
Warm Home Discount
Greg Hands Excerpts(2 years, 6 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
My noble Friend the Parliamentary Under Secretary of State for Business, Energy and Corporate Responsibility (Lord Callanan) has today made the following statement:
Upgrading our homes to be more energy efficient is the best long-term solution for reducing our energy costs and keeping ourselves warm in winter. However, this takes time, which is why the warm home discount remains a key policy for tackling fuel poverty now. For 11 years, the warm home discount has provided vital help with energy bills to households on the lowest incomes. Last summer, the Government consulted on the future of the warm home discount scheme in England and Wales, and today, the Government have laid the regulations for extending, expanding, and reforming the scheme to 2026.
From this winter, the Government are expanding the warm home discount scheme. The annual spending envelopes will increase from around £350 million to £475 million (in 2020 prices), and the value of the household rebates will rise from £140 to £150. As a result, around 2.8 million households in England and Wales will receive a rebate every year, 750,000 more compared to the previous scheme. We are also lowering the energy supplier participation thresholds from 150,000 domestic customer accounts to 50,000 in 2022-23 and 1,000 in 2023-24, meaning that almost all customers will be with a participating supplier and thereby reducing the barriers for people switching energy suppliers.
Under the scheme, around 1 million low-income pensioners will continue to receive their rebates automatically through the core group 1 element of the scheme. It is right that we protect this low-income vulnerable group susceptible to the effects of living in a cold home.
From this winter, the Government are replacing the former application-based broader group element, under which low-income and vulnerable households had to apply to their energy supplier every year. Broader group rebates have often been awarded on a first-come, first-served basis or by lottery, as there have been more eligible households than there were rebates available.
Instead, around 1.9 million households will receive rebates under a new core group 2. These households will be those on the lowest incomes and with high-energy costs, determined by using data on property characteristics. Through data-matching between Government Departments and energy suppliers, the vast majority of these households will be identified automatically and receive their rebate without having to take any action. These reforms will improve the fuel poverty targeting of the scheme, ensuring more of the rebates go to households in, or at risk of, fuel poverty.
Lastly, the Government recognise the value of industry initiatives, taking the form of additional financial and energy-related support measures, that energy suppliers and industry partners provide to fuel poor households. It will therefore become mandatory for all energy suppliers participating in the scheme to provide or fund industry initiatives.
The Government are consulting on a warm home discount scheme in Scotland for the period until 2026 and shall lay separate regulations, subject to the outcome of that consultation.
This expansion of the warm home discount scheme forms part of the wider support to help households with rising energy bills. The Government have announced £9.1 billion of support through the energy bills rebate in 2022-23. This includes: a £200 discount on energy bills this autumn for domestic electricity customers in Great Britain; a £150 non-repayable council tax rebate for households in England in council tax bands A to D; and a £144 million discretionary fund to support households not eligible for the council tax rebate. Meanwhile, the devolved Administrations will receive around £565 million corresponding funding through the Barnett formula.
More information on the warm home discount scheme will be made available over the summer on gov.uk/the-warm-home-discount-scheme.
[HCWS18]
Energy Update
Greg Hands Excerpts(2 years, 7 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
Today I will lay before Parliament a departmental minute describing a contingent liability arising from the issuance of letters of credit for the energy administrators acting in the special administration regime for Bulb Energy Limited (Bulb)—These letters of credit replace previous ones provided in January, announced within a written ministerial statement on 6 January, which has now expired.
It is normal practice when a Government Department proposes to undertake a contingent liability of £300,000 and above, for which there is no specific statutory authority, for the Department concerned to present Parliament with a minute giving particulars of the liability created and explaining the circumstances.
I regret that, due to negotiations with the counterparties only concluding late and parliamentary recess, I have not been able to follow the usual notification timelines to allow consideration of these issues in advance of issuing the letter of credit.
Bulb entered the energy supply company special administration regime on 24 November 2021. Energy administrators were appointed by court to achieve the statutory objective of continuing energy supplies at the lowest reasonable practicable cost until such time as it becomes unnecessary for the special administration to remain in force for that purpose.
My Department has agreed to provide a facility to the energy administrators, with letters of credit issued, with my approval, to guarantee such contract, code, licence, or other document obligations of the company consistent with the special administration’s statutory objective. I will update the House if any letters of credit are drawn against.
The legal basis for a letter of credit is section 165 of the Energy Act 2004, as applied and modified by section 96 of the Energy Act 2011.
HM Treasury has approved the arrangements in principle.
[HCWS789]
Energy Price Cap: Residential Buildings with Communal Heating Systems
Greg Hands Excerpts(2 years, 7 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
I begin by congratulating the hon. Member for Hackney South and Shoreditch (Dame Meg Hillier) on securing this important debate. I apologise, Mr Hollobone, for having been late for the debate, which now seems some time ago. I think it is the first time, in the 17 years I have been in the House, that I have been late for a debate. It may seem a bit academic, at 8.43 pm, to apologise for being here at 5.25 pm instead of 5.24 pm, but I apologise none the less. I was a guest speaker in the Boothroyd Room for the Net Zero all-party parliamentary group, with the hon. Member for Leeds North West (Alex Sobel), but I of course apologise—as you know better than anybody, Mr Hollobone, Westminster Hall always takes precedence over APPGs.
I congratulate the hon. Member for Hackney South and Shoreditch on securing this debate. I noted that there were, I think, seven London MPs here, and all of the Back-Bench contributions were from London MPs. My own constituency, of course, is also very affected by this issue, as are other inner-city constituencies. They tend to be the places where district heating networks occur, so it is very much an issue for my constituents as well.
This Government recognise and understand the pressures people are facing with the cost of living. This is of course a deeply worrying time for many of our constituents, and for many their fuel bill is perhaps their biggest concern. We know that the war in Ukraine and the recovery from covid-19 have driven up wholesale energy prices, and no Government can control the global price of gas. UK consumers, like many others, are now feeling the effects of that in their energy bills.
Turning to some of the points raised, the hon. Member for Hackney South and Shoreditch asked if we would consider a targeted fund to help those in heat networks. She will know that the Chancellor announced an additional £500 million for the household support fund at the spring statement, which will go towards those in hardship, including heat network customers. There are other measures in place to support vulnerable bill payers.
My hon. Friend the Member for Cities of London and Westminster (Nickie Aiken) asked if we could improve the installation of meters. We introduced revisions to the Heat Network (Metering and Billing) Regulations in autumn 2020, which required a significant expansion in the heat networks required to install heat meters, with an additional 84,000 customers receiving heat meters over the following four years.
The hon. Lady also asked whether we could install a price cap on wholesale prices being used by heat networks. When we introduce new legislation, we will consider all options on price regulation. I will come back to other points raised by hon. Members.
Our energy price cap insulates millions of customers from volatile global gas prices, but I recognise that, with heat networks not being covered by the price cap, they are more exposed to those increases. That means that a significant minority of customers on networks are seeing price increases that are far in excess of price cap rises. As commercial purchasers of gas, heat networks can ordinarily purchase gas at cheaper prices than individuals, which I think one or two hon. Members drew out. I do not think it is fair to characterise heat networks as being exploitative practices. In fact, they generally render cheaper bills on average. However, without the price cap in place, when the price rises come in, if customers are used to paying a lower tariff, they are likely to be more affected. That ability, which is beneficial when prices are low, is leaving many more exposed to the current price increases, because the prices that customers were used to paying were lower.
To provide immediate support to consumers, including those served by heat networks, the Government have provided, as we know, a £9.1 billion energy bill support package. That is in addition to increases in universal credit, the warm home discount and a £200 discount on energy bills. All households in bands A to D in England will also receive a £150 rebate on their council tax, which will not have to be paid back.
Dame Meg Hillier
I would just point out to the Minister that, while any support on energy bills is welcome, and band A to D households are the focus, many people caught by this issue in my constituency, and I am sure in his, are living in properties in significantly higher council tax bands, but that does not mean necessarily that they are wealthy households by any means.
Greg Hands
Yes, the hon. Lady is absolutely right. Her constituency, and mine probably even more so, will have people in exactly that category. That is why the Government also provided £144 million in funds to local authorities to help those vulnerable customers who do not live in band A to D properties—either they live in a larger property or they do not pay council tax at all. That £144 million fund is available for local authorities to help those who do not fall into the £150 council tax rebate.
We provided a total of £1 billion funding through the household support fund, enabling local authorities to support—on top of that—the neediest households with the cost of living, and all that support will help people in the short term. Clearly, in the long term, we need to see a more sustainable regulatory system for heat networks. That is why the Government have committed to introducing legislation within this Parliament, which will see Ofgem regulate the heat network industry. With Ofgem having regulatory powers over the heat network industry, legislation will secure fair pricing for all heat network customers, as well as ensuring that heat network operators secure the best possible purchasing deals for their customers. Ofgem will also have powers to investigate and intervene when networks appear to be charging customers disproportionate prices.
Heat networks are part of the pathway to decarbonising heat. By operating at scale and, in some cases, by making use of waste heat sources, heat networks can supply heating more cheaply than individual gas boilers. The study commissioned by my Department in 2017 found that heat networks supply heating at a discount of £100 per annum on average compared with individual gas boilers—it is literally a case of economy of scale.
Matthew Pennycook
The Minister will be aware of the serious problem of standing and capital replacement charges on many privately owned networks, and that problem continues while consumers on those networks are seeing increases in their unit energy price. I hope that he agrees that that must be tackled, because although tariffs can be well out of kilter and not provide the fair deal he is talking about, which I concede is the case in many schemes, standing and capital charges rise significantly year on year, placing an additional burden on consumers.
Greg Hands
I thank the hon. Gentleman for his intervention, and I am very happy to look into that. I will speak with my ministerial colleague Lord Callanan, and perhaps he or I will write to the hon. Gentleman about what has been going on with standing charges on heat networks. It is a fair question and I will get back to him on it.
To conclude, I reiterate the Government’s commitment, first, to providing short-term support to those struggling with energy prices and, secondly, to making the necessary long-term changes to improve the heat networks market and make the UK energy-independent at the same time. The heat networks market is a key sector for our green ambitions, but it must also deliver for consumers daily, so we will continue to ensure that prices are as fair as possible.
Mr Philip Hollobone (in the Chair)
I call Dame Meg Hillier to sum up the debate.
UK Green Infrastructure Platform
Greg Hands Excerpts(2 years, 7 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
I can today inform the House that UK Green Infrastructure Platform Ltd (UKGIP) is being wound up, via a members’ voluntary liquidation, having fulfilled its objectives to own and manage the five assets retained following the sale of the UK Green Investment Bank and to enhance and realise value through their sale.
UKGIP, a private limited company, was established in 2017 to manage the Government’s interests in the unsold assets from the Green Investment Bank. It was 90% owned by the Department for Business, Energy and Industrial Strategy. UK Green Investment Bank Ltd (UKGIB), which is wholly owned by Macquarie, held the remaining 10% shareholding in UKGIP.
[HCWS768]
Bulb Energy Limited: Letter of Credit for Energy Administrators
Greg Hands Excerpts(2 years, 8 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
Today I will lay before Parliament a departmental minute describing a contingent liability arising from the issuance of a letter of credit for the energy administrators acting in the special administration regime for Bulb Energy Limited (Bulb). This letter of credit replaces a previous one originally provided in December, with an extension announced within a written ministerial statement on 2 March, which has now expired.
It is normal practice when a Government Department proposes to undertake a contingent liability of £300,000 and above, for which there is no specific statutory authority, for the Department concerned to present Parliament with a minute giving particulars of the liability created and explaining the circumstances.
I regret that, due to negotiations with the counterparty only just concluding, I have not been able to follow the usual notification timelines to allow consideration of these issues in advance of issuing the letter of credit.
Bulb entered the energy supply company special administration regime on 24 November 2021. Energy administrators were appointed by court to achieve the statutory objective of continuing energy supplies at the lowest reasonable practicable cost until such time as it becomes unnecessary for the special administration to remain in force for that purpose.
My Department has agreed to provide a facility to the energy administrators, with a letter of credit issued, with my approval, to guarantee such contract, code, licence, or other document obligations of the company consistent with the special administration’s statutory objective. I will update the House if any letters of credit are drawn against.
The legal basis for a letter of credit is section 165 of the Energy Act 2004, as applied and modified by section 96 of the Energy Act 2011.
HM Treasury has approved the arrangements in principle.
[HCWS746]
North Sea Transition Authority
Greg Hands Excerpts(2 years, 8 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
As the House is aware, the North sea transition deal was agreed with the oil and gas industry a year ago. This is a central part of the energy transition and a global exemplar of how an oil and gas producer can plan for a smooth transition away from our reliance on fossil fuels. The urgency of this transition along with the ongoing need for oil and gas has been highlighted by Putin’s war against Ukraine.
The role of the oil and gas authority has developed over the past few years, and its name reflected only one part of the work that it does. It has now changed its name to the North Sea Transition Authority. The Government were consulted and supports this change.
The new name better represents the breadth of work it now undertakes and its pivotal role in supporting the UK upstream oil and gas industry to achieve net zero emissions.
Oil and gas currently meet around 75% of the UK’s energy demand and they will continue to play a vital part in the energy mix for decades to come as we head to net zero. Oil and gas will have a key role to play in our transition to net zero, and sourcing gas domestically can have significant environmental benefits compared to importing it from abroad. The North Sea Transition Authority is helping the industry reduce its own emissions and is now considerably more active in supporting the broader energy transition.
Recent geopolitical events have also made it clearer than ever that security of supply remains of vital importance as the transition is achieved, and the North Sea Transition Authority will remain resolutely focused on its role in ensuring energy security as the body which stewards the oil and gas industry, both on and offshore.
The new name of the North Sea Transition Authority reflects the changing world and its changing role, but also the importance of our North sea to the UK’s energy future. The sector is also an important part of our economy, supporting around 118,000 jobs across the UK, and paying over £30 billion in tax since 2010.
I plan to return to update the House on progress in implementing the North sea transition deal in due course.
[HCWS766]
Energy Companies: Special Administration Regime
Greg Hands Excerpts(2 years, 8 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
Today I will lay before Parliament a departmental minute describing a contingent liability arising from the issuance of a letter of credit for the energy administrators acting in the special administration regime for Bulb Energy Limited (‘Bulb’).
It is normal practice when a Government Department proposes to undertake a contingent liability of £300,000 and above, for which there is no specific statutory authority, for the Department concerned to present Parliament with a minute giving particulars of the liability created and explaining the circumstances.
I regret that, due to negotiations with the counterparty having only just concluded, I have not been able to follow the usual notification timelines to allow consideration of these issues in advance of issuing the letter of credit.
Bulb entered the energy supply company special administration regime on 24 November 2021. Energy administrators were appointed by court to achieve the statutory objective of continuing energy supplies at the lowest reasonable practicable cost until such time as it becomes unnecessary for the special administration to remain in force for that purpose.
My Department has agreed to provide a facility to the energy administrators, with a letter of credit issued, with my approval, to guarantee such contract, code, licence, or other document obligations of the company consistent with the special administration’s statutory objective. I will update the House if any letters of credit are drawn against.
The legal basis for a letter of credit is section 165 of the Energy Act 2004, as applied and modified by section 96 of the Energy Act 2011.
HM Treasury has approved the arrangements in principle.
[HCWS711]
Energy
Greg Hands Excerpts(2 years, 8 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
I beg to move,
That the draft Boiler Upgrade Scheme (England and Wales) Regulations 2022, which were laid before this House on 22 February, be approved.
The UK is the first major economy in the world to set a legally binding target to achieve net zero greenhouse gas emissions by 2050. We are continuing to advance sustainability through the Prime Minister’s “Ten Point Plan”, the net zero strategy, and the heat and buildings strategy. Currently, heating buildings and industry is responsible for 21% of the UK’s greenhouse gas emissions. Decarbonisation of heat is recognised as one of the biggest challenges in meeting our climate targets. The Government’s ambition is to phase out the installation of new natural gas boilers beyond 2035. Heat pumps are a proven scalable option for decarbonising heat and will play a substantial role in any net zero scenario. A UK market with the capacity and capability to deploy 600,000 heat pumps per year by 2028 can keep us on track to net zero. However, the current UK market for low-carbon heat is relatively small and, due to that, these technologies are largely unable to compete on a capital cost basis with conventional heating options. Subsidy is required to mobilise and grow the market, and to bridge the cost gap between fossil fuel and low-carbon systems. The low-carbon heat market has been supported by the domestic renewable heat incentive, which will close to new applications next week, on 31 March 2022.
The boiler upgrade scheme will succeed that scheme, providing capital grants to support the installation of heat pumps and biomass boilers in homes and small non-domestic buildings in England and Wales. The scheme has a budget of £450 million over three years, as confirmed at the 2021 spending review. Grants of £5,000 will be provided for air source heat pumps and biomass boilers, and of £6,000 for ground source heat pumps. Biomass boilers will be eligible only in rural properties that are not connected to the gas grid, to minimise air quality impacts.
The application process will be installer-led and comprise two stages: applying for and redeeming a voucher. This will allow for a simple consumer journey, while maintaining certainty for installers about the availability of budget. To ensure consumer protection through the scheme, consumer consent will be sought as part of the application process. All participating installers must be certified by the microgeneration certification scheme or equivalent, and must confirm membership of a consumer code. That ensures that consumers are covered by schemes governing the products and their performance, as well as the quality of the installation and service they receive from the installer.
The scheme will support up to 30,000 installations in year 1, contributing 2.6 megatonnes of CO2 equivalent of carbon savings, and supporting 2,100 direct full-time equivalent and 1,800 indirect full-time equivalent jobs per annum over its lifetime. This supports the Government’s ambitions for levelling up, as we expect supply chains to be built and jobs to be supported across the regions. With the growth in demand encouraged under the scheme and wider market developments, we expect to see cost reductions in the technologies over the three years. This instrument therefore sets out a provision to allow the Secretary of State to review and adjust grant levels in response to market changes.
Eligible low-carbon heating systems commissioned on or after 1 May 2022 will be entitled to support under the scheme. From 11 April 2022, installers will be able to open an account for the scheme with Ofgem. We expect the draft regulations to come into force and for grant applications to open by 23 May 2022.
The scheme established by this statutory instrument will increase deployment of low-carbon heating technologies, making crucial progress towards our climate targets. Investing in this scheme will reduce our exposure to volatile prices and protect British consumers. It will also grow the retrofit market, put downward pressure on costs and expand the supply chain ahead of the introduction of regulations and market-based approaches later in the decade.
Greg Hands
I thank the hon. Member for Southampton, Test (Dr Whitehead) for his constructive approach and his overall support for the scheme, which is most welcome.
I will deal with some of the points the hon. Gentleman raised. He is right on his first point: the ambition is to have 600,000 installations per annum from 2028. He is also right that there is £450 million allocated to the scheme over three years. It is a £5,000 grant, so he is right that that is a projected 30,000 grants per annum. I think his question, if I may repeat it, is how we get from 30,000 to 600,000 in the intervening three years between the end of the scheme and the start of the target. I think he asserted that that would not happen, so let me try to reassure him. The idea of the 600,000 figure, as I think he knows, is not that the Government will come along in 2028 and provide 600,000 heat pumps per annum; the idea of the scheme for the next three years is to pump-prime the private sector to be able to provide the alternative that we need.
So far, the private sector has responded well. Some companies have said that they welcome the Government grant scheme that is coming in and believe it is enough to allow them to bring down the cost of heat pumps to greater equivalence with conventional heating systems over that time. We believe, therefore, that we are putting in the right amount of funding, while being prudent with public finances, to provide enough support to help us to get to that 600,000 per annum target in 2028.
The hon. Gentleman asked whether biomass boilers were also within the costings. They are, but we expect the number of biomass boilers to be relatively low. We expect the vast majority of the funding to go on heat pumps. He asked about the regulation of the scheme, and he is correct to assert that it will be up to Ofgem to oversee the scheme and the market. I would add that installers also need to be certified under the microgeneration certification scheme.
On the domestic renewable heat incentive, the hon. Gentleman is right that the scheme is closing to new applications next week, on 31 March, as I laid out earlier. It has been a successful scheme: up to January, 100,398 low-carbon installations had been successfully installed due to the DRHI.
The scheme has helped both to raise consumer awareness and understanding of low-carbon technologies, and to raise the quality of low-carbon heating installations, protecting consumers and improving their experiences. It has also supported the development of both product and installer supply chains. We believe that the boiler upgrade scheme will provide a simpler offer than the previous DRHI, and the grant model will directly address the up-front capital cost of low-carbon heat technologies, which is cited as a key barrier to deployment.
The hon. Gentleman asked whether heat pumps were effective in cases where properties are less well insulated. I can tell him that current evidence suggests that heat pumps are technically suitable for most buildings; around 90% have sufficient energy efficiency and internal electrical connection capacity to accommodate a heat pump system, which is encouraging.
I think the hon. Gentleman asked about the gap between the end of the previous scheme at the end of this month and this scheme coming into place in May. We consider that a staggered approach, with installer accounts created in April and applications starting in May, will offer the best overall level of service to installers and ensure that applications can be processed promptly. Installations commissioned from 1 April will be eligible for funding, subject to the other eligibility requirements being met. I hope I have answered all his questions; if there is anything I have missed, he can contact me afterwards and I am happy to write to him.
Heat pumps will play a substantial role in any net zero scenario, so we need to build the market for them now. This targeted support will help to grow the low-carbon heat supply chain to enable the proposed introduction of regulatory and market-based measures in the mid-2020s. Not only will investment in the scheme contribute to carbon reduction targets and increase consumer awareness of low-carbon heating solutions, but the creation of high-quality jobs will help with boosting the economic recovery, levelling up across the country and ensuring that we build back better. I urge the House to support this measure.
Question put and agreed to.
Draft Electricity Supplier Payments (Amendment) Regulations 2022
Greg Hands Excerpts(2 years, 8 months ago)
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The Minister for Energy, Clean Growth and Climate Change (Greg Hands)
I beg to move,
That the Committee has considered the draft Electricity Supplier Payments (Amendment) Regulations 2022.
The draft statutory instrument, which was laid before the House on 7 February 2022, amends regulations concerning the levies used to fund the operational costs budgets of the Low Carbon Contracts Company, the LCCC, and the Electricity Settlements Company, the ESC— two separate companies, all within this one SI.
The LCCC administers the contracts for difference scheme on behalf of the Government, under the Energy Act 2013. Under the same Act, it is anticipated that the LCCC will also administer the dispatchable power agreement and support the development of a new scheme for bioenergy with carbon capture and storage within the next three years. The ESC, the other company covered by the draft SI, administers the capacity market scheme. The schemes will incentivise the significant investment required in our electricity infrastructure, keep costs affordable for consumers and help to deliver our net zero strategy, while keeping our energy supply secure.
Contracts for difference, or CfDs, provide long-term price stabilisation to low-carbon generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers. The current CfD auction, the fourth to date, opened in December, and we are seeking to secure more than in all previous auctions. It will allow a broad range of renewable technologies to come forward, while delivering the best for bill payers. I remind the Committee that, for the first time, we also introduced a £20 million dedicated pot for tidal.
Only projects located in Great Britain have been awarded CfDs to date. However, the Department for Business, Energy and Industrial Strategy and the Northern Ireland Department for the Economy are considering whether to extend the current GB-only CfD scheme to Northern Ireland. Funds have therefore been included in the budgets to enable LCCC to undertake some preparatory work in case a final decision is made to enable Northern Ireland to join the scheme.
Turning to the ESC, the capacity market is tried and tested. It is the most cost-effective way of ensuring that we have the electricity capacity that we need now and in the future. The capacity market provides incentives in the form of guaranteed payments to eligible capacity providers to be on the system and to deliver capacity when needed by increasing generation or by turning down their electricity demand in return for the guaranteed payments. The capacity auctions held to date have secured the capacity that we need to meet the forecast peak demand out to 2025-26. The next auction, scheduled for early 2023, will secure most of the capacity we need out to 2026-27.
In both the CfD and the capacity market schemes, participants bid for support via a competitive auction, which ensures that costs to consumers are minimised. The LCCC and ESC’s effective administration of the CfD and capacity market schemes to date has demonstrated their ability to deliver such schemes at least cost to consumers. In part for that reason, LCCC has been working with BEIS to develop new schemes to incentivise deployment of more low-carbon technologies.
For example, LCCC has supported BEIS in the development of dispatchable power agreements, or DPAs, under the Energy Act 2013. Those agreements, which are based on CfDs, have been designed to instil confidence among investors for power carbon capture and storage projects and to incentivise the availability of low-carbon, non-weather-dependent dispatchable generation capacity. The DPA will drive the private sector investment required to bring forward at least one power CCUS—carbon capture, utilisation and storage—project by the mid-2020s. LCCC is expected to be the counterparty for DPAs, and funds have been included within the budgets to support that role.
It is anticipated that LCCC will also work with BEIS to develop incentives for bioenergy with carbon capture and storage. Although that has not been confirmed, contracts for such projects could potentially be entered into following a process established under the Energy Act 2013. Were BEIS to move forward with that option, LCCC would need to undertake activity to prepare for acting as the counterparty in the next three years. Consequently, funds have also been included in the budget for that purpose.
It is important that LCCC and ESC are sufficiently funded to perform their roles effectively given their critical role in administering the schemes I have outlined. However, the Government are clear that both companies must deliver value for money. With that in mind, we have scrutinised the operational costs budgets closely to ensure that they reflect the operational requirements and objectives for the companies. LCCC and ESC are very mindful of the need to deliver value for money, as their guiding principle is to maintain investor confidence in the CfD and capacity market schemes while minimising costs to consumers. They have taken a number of actions to date to reduce costs, such as bringing expertise in house rather than relying on more expensive outside consultants. It is because of such actions that CfD operational costs per contract are falling despite the growing size of the CfD portfolio.
There is a similar narrative for ESC. The company currently manages 200.8 GW of capacity agreements, with 1,335 capacity providers under the capacity market. For the delivery year 2022-23, that equates to 52.9 GW of capacity and 350 capacity providers, an increase of 78 capacity providers compared with the 2021-22 delivery year. Despite this increase, operational costs are expected to be lower in 2022-23 compared with the year before.
The operational costs budgets for both companies were subject to consultation, which gave stakeholders the opportunity to scrutinise and test the key assumptions in the budgets and ensure that they represent value for money. The response received to the consultation noted the significant increase of budget for LCCC, but was generally supportive of the Government’s rationale for the increase. BEIS is satisfied that the operational costs budgets for LCCC and ESC should remain as consulted on; the budgets remain unchanged as a result of the consultation.
The proposed operational costs budget for LCCC is £24,210,000 in 2022-23, £26,978,000 in 2023-24, and £29,051,000 in 2024-25. For ESC, the proposed operational costs budget is £6,954,000 in 2022-23, £7,382,000 in 2023-24, and £7,734,000 in 2024-25. The regulations revise the levies currently in place to enable the companies to collect enough revenue to fund those budgets. Any levy collected that is not spent will be returned to suppliers at the end of the relevant financial year, in accordance with the regulations. Subject to the will of Parliament, the settlement costs levy for ESC is due to come into force on the day after the regulations are made, and the operational costs levy for LCCC by 1 April in each of the relevant financial years.
I assure hon. Members that the Government are also mindful of the uncertainties involved in setting a budget for the next three years, such as world events impacting energy demand and supply decisions on new schemes that have not yet been taken. Consequently, BEIS will keep the companies’ budgets under careful review throughout the budget period to ensure that costs to consumers are minimised. I commend the draft regulations to the Committee.
Greg Hands
I thank the hon. Member for Southampton, Test for living up to the name of his constituency—he set some testing questions for us. Let me deal with the five questions that he asked.
First, why are there two companies? It is worth stating that the two functions are very different: the capacity market and running the contracts for difference auctions. I am sure the hon. Gentleman is fully aware of that. The idea is also to separate out the liabilities of the two companies. During the consultation on electricity market reform, investors and other stakeholders believed that it would be better to have two legally separate companies to keep the liabilities separate. We rolled them together because, in essence, they are funded in a similar way, but they have two different functions. However, I appreciate the hon. Gentleman’s testing question about that.
The hon. Gentleman is right that the report due under the Energy Act 2013 has been delayed. That is, essentially, because of the pandemic and to ensure that it did not get in the way of the recent contracts for difference auction by taking people off that. The recent CfD auction that started in December is the largest ever—in fact, larger than the previous three auctions put together. We will publish the report in due course. I expect to see advice on it shortly.
The hon. Gentleman asked why the Secretary of State and/or I recommended increasing the amount that was bought at the recent capacity market auction. It was a prudent decision, in these times of high and volatile energy prices, to ensure that we were as covered as we could be going into next year. The Secretary of State and I very much took the same view—we always take the same view in the Government; there is never such a thing as different views—that it was a very prudent decision to be able to maximise that. The hon. Gentleman asked whether that resulted in a higher price. The answer is no. There was obviously a very high price going in to that auction, reflecting high energy prices at the moment.
Dr Whitehead
Is the Minister saying that the exact comparability of the pre-qualifying amount of capacity for the T-1 auction and the amount of capacity that the Ministers decided was the right thing, which was an increase in the recommendation, was a coincidence? Or is he saying that that was carefully designed to ensure that the capacity available and the capacity bid for was the same?
Greg Hands
I thank the hon. Gentleman for that further question. I would not say that it was a coincidence, but what we wanted to do was make sure that the British consumer had the maximum positive protection looking forward, particularly at a time of high and volatile gas and electricity prices combined with the previous parts of the auctions and the previous years rolled into that one period. For example, the previous T-4 auction meant that, overall, the ’22-23 capacity market year, which we are about to go into, is the second cheapest yet because of the cheaper prices in previous auction years. Although there was a high price paid in the T-1 auction this year, when we look at the whole period, we took advantage of lower prices to have the second cheapest delivery overall in terms of the capacity market for ’22-23.
The hon. Gentleman asked some fair questions about the budget increases. The budgets overall put less than 50p on the average electricity bill in the previous year, 2020-21. He is right that there is a significant increase; I have laid out why and shall do so again, but this is not a big part of consumers’ electricity bills.
The hon. Gentleman made the perfectly reasonable point that surely we should do everything we can to make bills cheaper, and that is exactly why the Chancellor announced on 3 February the package of measures to help households and bill payers through council tax payments and the different support funds for those who do not qualify for the council tax rebate but none the less have high energy prices.
The budget increase reflects the increase in the number of CfDs. Over this budget period, there has been a 400% increase as a result of the success of the Government’s renewables policy and of more renewable energy providers wanting to take part. That will mean a necessary increase in the number of people needed to go through all the bids in the CfD process. There are also more capacity market providers and the development of new technologies such as power CCUS. I also remind the hon. Gentleman that during the consultation, no one was against this proposal. I do not think that we received a response from him—
Dr Whitehead
I wonder whether the Minister would like to reflect on the numbers taking part in the consultation. Does he have an answer as to how many people responded to that? What conclusions does he think can be drawn from the total number of responses?
Greg Hands
I am happy to answer that. We had one response during the consultation, which was not from the hon. Gentleman but was from one of the power companies. The one response was not principally against the increase in the cost of the scheme. The increase in the cost, particularly in the LCCC, reflects a hugely increased workload with the 400% increase in the number of CfDs during the course of the budget period.
Finally, on the LCCC paying back the money, to put it more in the vernacular, when it comes to the strike price referencing the reference price, I do not think that it is practical to take that into the LCCC’s budget or in some way to pay for the LCCC that way. This is the right way to pay for the LCCC. The scheme is working in the way that it is designed to.
Dr Whitehead
If the Minister does not think that that is the case, does he think that some method of making sure that those repayments go back directly to customers rather than indirectly, as is the case at the moment, might be a better way of doing things?
Greg Hands
The hon. Gentleman raises a really interesting and important question. We have seen no evidence so far that repayments because of high energy prices are not being made to consumers. We will monitor that situation very closely and the scheme is designed to ensure that it happens. If he has evidence to suggest that that money is not reaching consumers in the way that it should, I am happy for him to write to me and lay out the evidence as he sees it. I have yet to see any evidence that that has happened.
I hope that my speech has given some answers to the hon. Gentleman’s five questions and that the responses I have provided give the Committee the necessary assurances to approve the statutory instrument before us. As I said at the start of the debate, the regulations that the Government are seeking to amend through the instrument will revise the operational costs levies of the LCCC and the ESC. Those companies play a crucial role in delivering the CfD scheme and the capacity market. The Government anticipate that the LCCC will play a similar role in administering new schemes in the future, including the DPA and potentially a scheme supporting bioenergy with carbon capture and storage. It must be sufficiently funded to perform these roles effectively, but the costs of doing that must be kept to a minimum.
It is my view that the operational budget for 2022-23 to 2024-25—so, for the next three years—strikes an appropriate balance between ensuring the companies are adequately funded and ensuring consumers’ bills are minimised. I therefore urge the Committee to back the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Electricity Supplier Payments (Amendment) Regulations 2022.