Electricity Supplier Payments (Amendment) Regulations 2021

Lord Oates Excerpts

Tuesday 23rd February 2021 Lords Chamber

[Lord Oates (LD) [V]]

My Lords, I declare my interest, as set out in the register, as chairman of the advisory board of Weber Shandwick UK. I thank the Minister for his helpful introduction, and it is always a pleasure to follow the noble Baroness, Lady McIntosh of Pickering, as we entered the House on the same day.

As the Explanatory Memorandum highlights, the electricity market is complex and opaque, perhaps necessarily so because of the various mechanisms that have been put in place to ensure that sufficient capacity is available as we restructure and decarbonise the electricity supply. The complexity has been compounded by the uncertainty in predicting demand as a result of the pandemic. It is regrettable that the Government cannot go forward with their previous three-year levy settlement but, of course, given these uncertainties, I understand the need to revert to the one-year basis.

Given the complexities of the market, I would be grateful if the Minister could assist me with the answer to a number of questions arising from the Explanatory Memorandum. First, paragraph 7.7 states that the increase in the CfD counterparty’s budget is

“due to a number of factors, including ... the inclusion of Pot 1 Technologies (onshore wind and solar)”

in allocation round 3. My understanding had been that onshore wind was driving down costs and that the cost pressure on CfDs was to keep offshore wind competitive with it. Can the Minister clarify this matter for me?

Secondly, as the noble Baroness, Lady McIntosh, said, the EM notes that the Secretary of State is required under the Energy Act 2013 to review a number of aspects of the operation of the electricity market reform programme, including CfDs, the capacity market and the transitional arrangements from the renewable obligations, as soon as practicable five years after the passage of that Act. That means by the end of 2018. Can the Minister explain why the Secretary of State is in breach of this duty because, unlike the noble Baroness, I am a little less accepting of the excuses—I will not call them explanations—provided in the EM? It says that this is due to a range of factors, including the Covid-19 pandemic and Brexit, but the pandemic did not begin until more than a year after the trigger date for the report and Brexit had been known about for two years prior to that date. The EM tells us we will get the review “shortly”. Please can the Minister be a little more precise, as it is obviously important that we see it as soon as possible?

As the market is currently structured, these levy increases are obviously necessary so that the CfD counterparty and the settlement body can continue to discharge their duties, drive technological innovation and secure capacity as we decarbonise our energy supply. Nevertheless, we are in an unsatisfactory situation. The EM tells us that an impact assessment has not been prepared for the regulations because of the low-level impact on electricity consumer bills. They are estimated at just 0.1% of those bills, just 40p, the EM tells us, on the average annual domestic bill, rising to an extra £1,200 in the case of medium-sized businesses. These figures may be small as a proportion of overall bills, but we have all heard of the straw that broke the camel’s back. Many businesses and consumers could not be in a worse position to absorb added costs as a result of the effects of the pandemic. We all know that these latest increases come on top of a steady accumulation of costs on consumers. Is it not time that we had a proper look at this whole area, as the noble Baroness, Lady Ritchie, suggested?

The fundamental problem is that we are trying to pay for the decarbonisation of our energy supply through consumer electricity bills. This is a profoundly regressive approach to securing a public good, namely, combating climate change. As my noble friend Lady Bowles highlighted in her comments, this also makes decarbonising our heating systems even more difficult than it would be anyway because it continues to load costs onto a cleaner energy source, so further disincentivising people to move off gas towards heat pumps and other technologies, something we must achieve if we are to have any hope of meeting net zero. How will that objective be achieved unless we rebalance the costs of decarbonisation more equitably and reverse the perverse incentives that have been created towards gas?

In conclusion, I fully support the Government in their ambitious net zero targets and in their ambition for expanding renewables, but does the Minister not recognise that we will not maintain public support for the radical transformation that net zero requires unless we ensure that it is delivered justly and equitably? That is just not happening now.