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

Debate between Lord Grantchester and Baroness Maddock

Wednesday 25th October 2017 Lords Chamber

[Baroness Maddock (LD)]

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

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

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

[Lord Grantchester (Lab)]

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

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

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

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

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

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

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

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

Electricity Capacity (Amendment) Regulations 2017

Debate between Lord Grantchester and Baroness Maddock

Wednesday 25th October 2017 Lords Chamber

[Baroness Maddock (LD)]

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

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

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

[Lord Grantchester (Lab)]

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

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

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

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

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

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

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

Electricity Supplier Payments (Amendment) Regulations 2017

Debate between Lord Grantchester and Baroness Maddock

Tuesday 21st March 2017 Grand Committee

[Baroness Maddock (LD)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Deben, on these issues. I agree with much of what he has said. I had not intended to speak, but he reminded me, as did the Minister in his opening comments, of how complicated the Bill that put all of this into place was. To this day, some of us still find it quite difficult to get to grips with. I thank the Minister for trying to explain it as well as he did. I miss Lord Jenkin who saw us through that Bill. I was saying to my noble friend Lady Featherstone, who was not here at the time, that Lord Jenkin was the man who really understood what was going on and helped us all through a difficult Bill. I put that on the record.

[Lord Grantchester (Lab)]

I thank the Minister for explaining the amendments to these regulations. They seem eminently sensible, drawn from the experiences of operating the regulations, which are vital to reforming the electricity market and encouraging low-carbon electricity generation to ensure the UK’s security of supply. I also express my gratitude to the noble Lord, Lord Deben, for his helpful remarks as background to the regulations, and for underlining the importance of the progress we have made.

The amendments to the regulations should increase the cost-effectiveness of the two main measures, the CFD scheme and the capacity market, since they reduce the heavy-handedness of the belt-and-braces approach of the CFD counterparty, the Low Carbon Contracts Company, and that of the Electricity Settlements Company for the capacity market. The Minister’s introduction eloquently explained the improvements. These companies exist only to make payments for low- carbon generation or demand-side responses, and to collect these payments from suppliers. The companies must also cover their costs. The regulations set up the system to do this in as transparent, equitable and cost-effective a way as possible, allowing for a sensible amount of reserves as some guarantee. One would hope and expect these payments to balance out through the reconciliation process.

Much of the debate on these regulations in the other place focused on the probability of error. I could join in and tease the Minister by asking him about 20 scenarios, any one of which could be the one occurrence that could not be reconciled. However, that would be facetious. The modelling looks robust, indicating that the companies have the ability to raise the funding necessary in a modern, technologically efficient manner and make the payments required.

The regulations merely deal with the process of funding. The bigger question is the accuracy of the strike price, which is relevant to the setting up of this compulsory regime. Noble Lords will know that that is contained in the contracts agreements and is not part of these regulations. The two most controversial applications relate to nuclear power and the Hinkley Point C plant, and onshore wind.

The Government have shown how quickly they can alter their assessments and mechanisms for adjustment through Part 2 of the Energy Act 2016 in relation to onshore wind and the compensation payments in the FIT regime. On the prevention of double-counting of exemptions in the measure, exemptions from payments are available to suppliers which import renewable electricity from EU member states. This green excluded electricity—GEE—will not count towards electricity suppliers’ market share for calculating their CFD liabilities. This raises questions about security of supply; whether government policy is blind, whether British-based or not; the relative pricing of renewable energy in the UK and in the EU; and whether security-of-supply policy should seek to encourage import substitution. It also begs questions relating to Brexit; I could ask the Minister various hypothetical questions about the internal energy market and any likely scenarios of tariff applications. I imagine he would say that further amendments can be made as circumstances change.

I am grateful for the clarity provided regarding the operational budgets of the two companies and the professional fees increase, brought about by the inquiries of your Lordships’ Secondary Legislation Scrutiny Committee. I very much agree with the Government’s financial policy to expense rather than capitalise software upgrade costs.

I have a few questions about the regulations. First, on the amendment to allow CFD reconciliation determination after the 10th quarter to be classified as non-generation payments, is a longstop provision of time envisaged, or is that included in the general retrospective provisions? Could this be one of those 20 unknown unknowns? Secondly, following the onshore wind provisions in last year’s Energy Act and given that onshore wind is now so much cheaper, are the Government any closer to allowing onshore wind to participate in future CFD auctions now that the threat of UKIP has receded? Can the Minister update the Committee on the position following the consultation on onshore wind in November 2016? Thirdly and lastly, I understand that the net savings to be passed on to electricity consumers are not a cash item and cannot therefore be shown or guaranteed in some way. However, the memorandum states that the operational costs budget of the two companies will increase, resulting in an increase, albeit minimal, in household electricity bills. Will these two features balance out and the net effect on consumers be neutral?

Having said that, I am content to approve the regulations.

Energy Bill [HL]

Debate between Lord Grantchester and Baroness Maddock

Monday 19th October 2015 Lords Chamber

[Baroness Maddock (LD)]

My Lords, this group of amendments highlights something we have already raised today: a lot are technical, they are quite long and we had very little time over the weekend to get round to looking at them in detail. It is not very satisfactory. However, we on these Benches certainly welcome consultation. It is something we have always supported. I am surprised that these amendments dealing with co-operation with other nations with regard to gas and oil were not in the Bill originally as co-operation is rather key. Earlier in the proceedings, I asked whether we are looking at the way Norway operates. I am sure that when it is looking at these matters, it takes them into consideration. I have raised this concern, as have other people, during the passage of the Bill. We find it very difficult to scrutinise properly, in the way this House should, when we get information so late. I shall probably not speak again tonight, but we have another day on Report on Wednesday, and we will be in exactly the same position.

[Lord Grantchester (Lab)]

My Lords, I thank the Minister for explaining these amendments, which reshape disclosure into a separate chapter in the Bill. They all seem reasonable enough, but they give rise to consideration of why they are now being so adjusted. I follow the noble Baroness, Lady Maddock, in her comments about the short notice and the comments made earlier by my noble friend Lady Worthington regarding the future prospects of the OGA and the Government’s intentions regarding it. One wonders whether something has happened. Can the Minister inform the House whether attention has been drawn to them so that they get consolidated? Can the Minister confirm that the Data Protection Act applies to the ODA with regard to information generally and to disclosure? Will he clarify the position and provide some assurances about questions that come to mind in relation to disclosure to third parties? We would support sharing information with other government departments and agencies, including the devolved Administrations, for the purposes of their functions, as the OGA will need to be able to work collaboratively with the different departments and the department itself.

In relation to third parties and foreign Governments, care certainly needs to be exercised and precautions taken with regard to possible unintended consequences. Will anything appear in the public domain regarding the nature and frequency of the sharing of information with foreign Governments? The Minister will be aware that there could be many agencies, especially regarding the environment, where the Government could come under scrutiny in how they handle sensitive information, and where any secrecy between Governments could be misconstrued.

On another point, is the Minister satisfied on the question of the Secretary of State undertaking a review into these matters? Will the Secretary of State have any oversight and details of the information shared by the OGA? Would there be any independent oversight of disclosures regarding legal proceedings and foreign Governments? Could the Minister give an example of the information that might be requested and then shared in relation to these amendments? That would certainly help to settle any disquiet that these powers could give rise to. Meanwhile, the amendments seem well balanced and reasonable.

Energy Bill

Debate between Lord Grantchester and Baroness Maddock

Thursday 18th July 2013 Grand Committee

[Lord Grantchester]

I am grateful to the noble Lord, Lord Teverson, for his introduction to the debate on the demand side of energy. He is quite right to draw attention to this. Although other noble Lords may have been teasing in their remarks, the Second Reading debate highlighted that the Government are coming rather late in their thinking to these subjects, and our later amendments will explore all the different technicalities on the demand-side responses. Therefore, we are happy to support the wider recognition of the importance of demand-side response.

I turn to the proposed new paragraph in his amendment on making the efficiency measures EU-compliant. Again, we note the position that we are in at the moment and that the directive requires member states to set an indicative national energy efficiency target based either on energy consumption or on energy savings, or indeed on energy intensity, as the noble Lord, Lord Teverson, suggests in the amendment. We wonder how that might take account of the decarbonisation challenges that we will be facing. Also, we will be monitoring more than one change at a time to take into account GDP changes. Therefore, we would be very interested in knowing how the Government view this measurement of energy efficiency.

Turning to Amendment 55ZA, which concerns pilots, once again we note that the Government are coming rather late in their thinking to the demand side and that they therefore want to make provision to help their thinking to progress by running a pilot scheme. Clause 37 gives the Government powers to run a pilot scheme for electricity demand reduction. While the clause does not specify that this pilot scheme should take the form of a pilot capacity auction, it is clear from the consultation response that that is what DECC is considering.

However, the capacity market is primarily designed to ensure capacity throughout troughs in supply, and it will therefore reward only demand reduction projects that reduce the amount of generating capacity that is needed at such times and not those that reduce demand at other times. A capacity market therefore rewards energy efficiency only for its security benefits and not its other, much larger benefits in terms of emissions reductions and affordability. Therefore, we are aware that an additional policy is needed to enable small businesses and households, and not just large infrastructure projects, to be rewarded for saving energy.

Such “premium payments” were favoured by the majority of respondents to DECC’s consultation but were then dismissed by the department. A further explanation in this regard would be welcome. Therefore we support the call on Her Majesty’s Government to clarify whether DECC should bring forward multiple pilot schemes to include premium payments, a capacity market and perhaps other forms of incentives. This would demonstrate which scheme or schemes were most effective in delivering permanent demand reduction in practice.

Amendment 55ZA also mentions how these pilots might be financed. Clause 37 states that it will be paid out of government funds rather than through consumer prices. However, following the spending review, a figure of £75 million for investment in innovative energy projects was mentioned. I understand that DECC suggests that only about £25 million of this will be available for the pilot. In any event, those sums are dwarfed by DECC’s own assessment of the cost for full capacity auction. Amendment 55ZA would allow pilot reduction schemes to be funded at least in part from capacity payments either in advance or during a capacity auction period. Will the Minister clarify to the Committee where the Government have got to in their thinking?

[Baroness Maddock]

My Lords, I support my noble friends in trying to highlight the importance of demand reduction and the fact that this Bill came rather late to it, as has been said by others. I was somewhat confused by some of the earlier comments from those who said that they were in favour of energy efficiency but were not sure about demand reduction. If you increase energy efficiency, you reduce demand. That is fairly logical. I find some of the comments a little curious.

I emphasise the fact that if the Government are having only one pilot that will be only around the capacity market, that will not be good enough, which is why we have tabled these amendments. As regards the amendment in the name of my noble friend Lord Roper, if the Government were to take something like that forward, we could have a demonstration about which scheme or schemes are the most effective in delivering permanent demand reduction. In a sense, that ties in with the amendment of my noble friend Lord Teverson. There was a lot of criticism of my noble friend and talk about the difference between demand management and demand reduction. They are two different things. We have had some strange logic in today’s debate.

Unless we have several pilots, there will be no meaningful comparison and we will not be able to decide which are the most cost-effective and the most effective in reducing demand. I support my noble friends in their efforts to make demand reduction more of a priority in this Bill.

Energy Bill

Debate between Lord Grantchester and Baroness Maddock

Tuesday 16th July 2013 Grand Committee

[Baroness Maddock]

My Lords, my name is attached to the amendment. I was not going to speak because of time, but the noble Lord, Lord Jenkin, has reminded me of a presentation that I had some years ago. I may have got the town wrong but I think it was Barnsley. It was in a coalfield area. The local authority there used coal for the district heating in its blocks of flats. I will always remember the description of the terrible mess that the coal dust made everywhere; the women who lived in the flats hated it because they always got coal dust in their curtains. The story is that they changed over to local biomass, which was interesting biomass because it was entirely what they gleaned from trimming and pruning trees and shrubs in the local area. Enough was produced, so it did not have to travel a long way but was enough to replace the coal in these blocks of flats, and the ladies with their curtains were delighted because they did not get soot any more. That has stayed in my mind.

When people first started looking at biomass, that is the sort of thing that they were thinking about. However, when you start to go into some of the ideas about bringing all sorts of things from America—we have just heard that they do not certify their wood either—then it is a completely different issue that we need to look at more carefully. Still, I thought the Barnsley system was pretty good.

[Lord Grantchester]

Like the noble Lord, Lord Teverson, we agree that biomass could make a significant and important contribution to the UK’s renewable energy thorough the use of sustainable feed stocks from waste. Again like the noble Lord, we agree that biomass should be sustainable.

The current plans would result in a rapid expansion of large-scale biomass electricity generation, principally through the full or part-conversion of existing coal-fired power stations. The EPS establishes a maximum level of emissions for electricity generated by a power station over a year. However, the only emissions that it recognises are those from fossil fuels, while biomass emissions are counted as zero.

As other noble Lords have argued, emissions from biomass can be interpreted as being quite substantial, as they should include emissions associated with the planting, growing, harvesting, processing and transport of biomass. This is in addition to the increase in emissions as a result of carbon debt—that is, the time it takes for tree regrowth and recovery of carbon stocks. Indeed, the sources of the stocks are also to be taken into account in sustainability requirements.

Many coal-powered plants are planned to be converted partially or entirely to biomass to extend their operating lifetimes and to benefit from the substantial subsidies available under the renewable obligations. A conversion to biomass under these amendments would trigger the EPS to cover the whole power station, including the life-cycle emissions from biomass. The amendments would complement the Government’s own proposals for sustainability standards for biomass generators, which include a life-cycle greenhouse gas emissions standard for emissions from harvesting and processing. We entirely support the intention that the EPS is triggered should any generation from biomass take place. If that is not to be the case, there is a danger that a plant close to breaching its limit might convert to a small amount of biomass in an attempt to remain under the threshold.