Electricity Capacity (Amendment) Regulations 2017

Debate between Lord Prior of Brampton and Lord Grantchester

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.

[Lord Prior of Brampton]

My Lords, I think that I can thank both the noble Baroness and the noble Lord for supporting the regulations. They are pretty technical and complicated, but they correct perhaps inevitable imperfections in the original legislation passed in 2013.

The noble Lord, Lord Grantchester, raised a number of other more profound issues which I hope he will agree do not pertain directly to the matter in hand, but perhaps I may try to answer some of the questions that he raised. I think that his fundamental question was whether the capacity market is value for money. Using his analogy of the insurance market, the total gross premium that we have paid over the period to 2020-21 is £3.35 billion. That is the premium that we have paid to obviate the possibility of the lights going off over that period. Whether or not that is value for money, the noble Lord will have to draw his own conclusions. I think it is quite hard to assess that, except for the fact that if the lights did go off it would be a catastrophe. In the context of the British economy, that may be a premium worth paying. That is a subjective view, and he will have his own thoughts on that.

The noble Lord raised a number of other issues, to which I do not have a reply—at least, I cannot reply in the way that I would like to be able to. He asked four other questions. He answered one of them himself, fortunately, so that leaves me three other questions to address. One was: has this brought forward new investment in generation? The answer is that it has. I mentioned some in my speech. Whether it has brought forward enough is probably the question that he was asking, and he related that to the nuclear investment. I would like to think about that, if I may, and write to him afterwards. Related to that, he asked: has this brought forward new alternative capacity? I guess by that he meant wind, solar and the like. The answer has to be: yes, it has.

--- Later in debate ---

[Lord Grantchester]

I agree with a lot of what the Minister has said but nevertheless draw his attention to the fact that, as yet, onshore wind is not allowed to compete.

[Lord Prior of Brampton]

The noble Lord is absolutely right: because it is an intermittent source, it is not eligible for the capacity market. I will have to write to him about whether or not the capacity market itself has brought forward alternative capacity beyond that which I mentioned earlier.

Finally, he asked about the statutory review date in the primary legislation. Again, I will have to look and see when that date is and write to him.

I should also respond to the noble Baroness, Lady Maddock, who asked about how we responded to the consultation. I apologise if we did not follow the rules correctly. We will do better next time.

On the basis of that response and the letters I intend to write to the noble Lord, I commend these regulations to the House.

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

Debate between Lord Prior of Brampton and Lord Grantchester

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.

[Lord Prior of Brampton]

I thank the noble Baroness and the noble Lord for supporting these regulations. The noble Baroness referred to the balance in recognising that some industries are not able to compete on a level playing field if they are heavily penalised by their electricity costs and that can come into conflict with our decarbonisation policy. She is of course absolutely right that it is a very difficult balance. The steel industry is an example of a very energy-intensive industry where if we did not address this balance, we would have no industry at all. There is a balance to be had. After all, from the planet’s point of view, if all we succeed in doing is moving the steel industry from here to another country, we have not improved the lot of the planet at all in the process. She is quite right to say there is a balance, and it is a balance that we are constantly trying to get right. I note the noble Baroness’s criticisms—indeed, her strictures—about the way in which we conducted this consultation. I have taken them on board and I am sure the department will do so too.

The noble Lord, Lord Grantchester, raised the relative impact on competitors because the European Commission did not accept our argument. I think we have a serious argument here. It could be that there was a new process for making steel that was less energy-intensive and did not qualify for the exemption. That would put it at a competitive disadvantage in relation to the more energy-intensive process of making steel that did qualify, thereby achieving the reverse of what we intend to do, which is to move towards less energy-intensive methods of making steel, chemicals, glass, ceramics or, for that matter, anything else. So our argument to the Commission was a good one and we should carry on pursuing it.

The noble Lord then raised the issue of what we are going to do about the state aid provision programme post-Brexit. I can say only that that is part of the negotiations that are going on and it would not be for us to decide what to do about that post-Brexit although, depending on the trade agreements negotiated with Europe, there will be some understandings about that issue to avoid unfair competition between us and our European friends.

The noble Lord asked about the analysis behind why household bills changed from £1.80 to £1. The update from £1.80 to £1 was mainly because we reduced our estimate of the volume of electricity consumed by eligible energy-intensive industries. We have also updated our estimates of CfD policy costs and volumes of electricity sales to households and other consumers. I have to say I am just reading out my brief; I do not know whether or not it answers the question. I gather that it does. Excellent.

I believe the independent review by Dieter Helm is out tomorrow. I stress that it is an independent review, not a government one. I do not know what is in it but I think there will be lots that is of interest to the noble Lord when he reads it. If I have missed out any of the questions raised, I will write to noble Lords later. On that basis, I commend the draft regulations to the House.

Nuclear Research and Technology (Science and Technology Committee Report)

Debate between Lord Prior of Brampton and Lord Grantchester

Tuesday 17th October 2017 Lords Chamber

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

My Lords, I begin by thanking my noble friend Lord Selborne and the members of his committee for an exceptionally good report. I would like to read out a paragraph from the summary at the beginning, because in a sense it underlies the big question behind this debate. It says:

“The decision the Government must make is whether the UK should be a designer, manufacturer and operator of nuclear generation technology or alternatively whether it should restrict its interest to being an operator of equipment supplied by others from overseas”.


That is the big question that we are talking about this evening. If I may put it slightly less eloquently than she did, the noble Baroness, Lady Bowles, asked whether we are going to be a maker or a taker.

The noble Lord, Lord Hennessy, asked whether we have lost our nerve. I may be wrong, but I do not think he was directing that question at the Government today but rather was looking at it historically. The truth of the matter is that we did lose our nerve in the 1980s. The incidents at Three Mile Island and Chernobyl did not help, and Fukushima since then has not helped. The noble Lord, Lord Hennessy, described the history of civil nuclear power in this country, and I will talk about that myself. It is true that we were a leader in this technology, but in the 1980s we lost our nerve—it goes without saying. And we lost our nerve for 30 years.

The question this evening is whether we have regained that nerve and to what extent, especially given that this is not a no-risk, zero-sum game. Civil nuclear power is fantastically expensive. As the noble Lord, Lord Broers, mentioned, the technology being used at Hinkley is not yet on stream in China or France; it is running four or six years late and over budget. Let us not pretend that this is an easy decision. When people say, “Make up your mind; make a decision”, let us at least be realistic. The sums of money we are talking about are massive—the budget for Hinkley is more than £20 billion.

Sometimes, especially at this time of night, our glass is half empty. Therefore, I thank the noble Lord, Lord Grantchester, for reminding us that carbon emissions are 42% lower than in 1990 at a time when we have had economic growth of 67%. That is a remarkable achievement. No one can say that our energy policy has been all bad over that time.

To start, I will talk a little about the history. We have long experience of working in the civil nuclear field going back to the 1940s, coming out of the Manhattan Project in 1945. The UK Atomic Energy Authority was set up in 1954 to oversee the development of nuclear power in the UK. The first reactor was Calder Hall in 1956. This led to the construction of the Magnox fleet of reactors in the 1950s and 1960s, followed by the AGRs in the 1960s and finally the PWR at Sizewell B, which began operating in the 1990s. As the noble Lord, Lord Hennessy, reminded us, the Dounreay Nuclear Power Development Establishment developed fast-breeder reactor technology. It is true that until the mid-1980s, we were at the forefront of nuclear research and development and were world leaders in many areas. Throughout that time and subsequently, nuclear power provided reliable, low-cost, base-loaded electricity to the UK, producing about one-fifth of all our electricity.

That brings us to the mid-1980s. Since then, publicly funded research and development, and the people working in the nuclear sector, have contracted as the UK facilities landscape was consolidated and global interest focused on the deployment of evolutions of existing light-water reactors. Since the early 2000s and the renaissance of interest in civil nuclear power, it has become apparent that those with the skills to take forward a nuclear programme in the UK are getting older and the R&D facilities and skills required would be lost unless we embark on a major reinvestment in nuclear. That is where we found ourselves in 2010 and 2011.

The UK’s nuclear research landscape and supply chain are increasing again due to the Government’s £180 million nuclear innovation programme to meet the challenges brought about by the national resurgence in interest in nuclear energy. In the wake of the House of Lords Science and Technology Committee’s reports of 2011 and 2017, and the 2013 nuclear industrial strategy, which set out the Government’s aims for a world-leading nuclear research landscape, the Government have also put in place the necessary advisory and co-operative frameworks to support such aims. The 2015 spending review followed this with an announcement of funding for,

“an ambitious nuclear research and development programme that will revive the UK’s nuclear expertise and position the UK as a global leader in innovative nuclear technologies”.

As some noble Lords have pointed out, last week we announced the clean growth strategy, which reiterated the Government’s commitment to nuclear and outlined our ongoing investment of £460 million in nuclear innovation, covering both fusion and fission. For the avoidance of doubt about where that money is coming from, £180 million is coming from BEIS for nuclear fission, £131 million for fusion, £61 million is coming from Innovate UK, £68.3 million comes from research councils and £20 million has come from the industrial strategy challenge fund. That is where the £460 million comes from.

BEIS launched the initial phase of its £180 million nuclear innovation programme in November 2016 with over £20 million of funding covering five areas of research on future fuels, fuel recycling, reactor design, materials and manufacturing and a strategic toolkit to underpin decisions on which emerging technologies are brought to market. The first £20 million tranche is progressing well and is providing evidence and information that will set the foundations for further funding to be announced in November.

The £180 million nuclear innovation programme was developed based on the recommendations of NIRAB, which ran from 2014 to 2016 as a three-year temporary advisory board comprising 26 experts, chaired by Dame Sue Ion. The Government are working in partnership with the Nuclear Innovation and Research Office to convene a new advisory structure, under the banner of NIRAB, to provide independent expert advice on research and innovation. A process of seeking people to join this board has commenced and we expect that to conclude in November.

In view of the central question posed by the committee’s report—and to ensure that there is no misunderstanding on this—we are not currently in the business of designing and building our own conventional reactors for new build. That is self-evidently the case. It is not a realistic short-term proposition. That said, the UK supply chain has a number of niche capabilities that makes it attractive to international partnerships. In particular, modular and advanced reactor technologies present an opportunity in future for the UK to build its capacity alongside international partners—and in the longer run, of course, there is fusion as well. Government research and innovation support targets a number of these opportunities, and we are investing in the capacity of our regulators to engage with their peers on the co-operation and harmonisation that will be essential to the deployment of any new technology on a global basis. As noble Lords have pointed out, this could never be a national strategy. Even SMRs, which are a cheaper alternative to conventional nuclear, would work efficiently or effectively only if there were an international market and not only a national market.

The Government have made good progress—I accept that it has been slow to date—in assessing the potential of small modular reactors. We will be closing the competition and publishing the detailed techno-economic assessment in the very near future. The techno-economic assessment used evidence gathered from 14 SMR vendors and the subsequent competition received eligible expressions of interest from more than 30 different companies across the nuclear industry, including 18 SMR vendors.

We recognise that the Government have a role to play in helping to establish the right market conditions to allow credible and investable modular reactor propositions to come forward. Only last week we announced £7 million investment to expand the capacity of the UK’s nuclear regulators to prepare them and the sector for the advanced technologies of tomorrow. The Government are now working with industry, through the industrial strategy nuclear sector deal, on a potential policy initiative to support the sector. That includes setting up a national college for nuclear to train 7,000 people by 2020, and Sellafield committing to achieve a workforce where 5% are apprentices, graduates or sponsored students within five years.

The nuclear industry, therefore, is in a position, from the point of view of technology, skills and regulation, to rebuild for the future the kind of leadership we had in the 1960s and 1970s. In response to the committee’s central question, the investments currently being made create the opportunity for the UK to be a,

“designer, manufacturer and operator of nuclear generation in the future”.

Nuclear power is a mature technology capable of providing secure, low-carbon affordable energy. The Government are committed to it playing a significant role in our future energy mix and being a key element in helping to meet our long-term climate change commitments. In terms of new nuclear, as all noble Lords know, the Government have signed a contract for Hinkley Point C, which is scheduled for completion in 2025. It will be the first new nuclear plant in the UK for more than 20 years. As existing plants come to the end of their lives over the coming decades, the Government believe that new nuclear will have a key role to play in meeting the demand.

[Lord Grantchester]

My Lords, perhaps I can press the Minister on one point. He was right to point in his analysis to the very expensive cost of this new technology coming on stream and the nuclear industry in general. A question that I hope he will be able to answer in his winding-up remarks is about the relative cost to the consumer of the new build. We have the example of Hinkley Point C in terms of one technology. If the noble Lord is looking to the future, it may be something which the UK could put an emphasis on. Is he able to say what the cost of the electricity is in his department’s analysis of power produced by small nuclear reactors?

[Lord Prior of Brampton]

As the noble Lord knows, the price for Hinkley is £92.50, which I think is indexed. The latest price in the auction for offshore wind was £57 and I think that the general figure I have heard for SMRs is around £60. Do not quote me on that, but it is a figure I have heard from people in the industry. Clearly, it depends on how much is produced and how economic it is in producing SMRs. The sum may come down below that. The fact is that the price of renewables is coming down. I know that the prices are variable and not baseload, but the industry does not stand still.

I am pleased to announce today that the Government intend to work with the secretariat and other members of the Generation IV International Forum in order to retake our place as an active and participating member of the forum in 2018. The GIF is the main grouping of countries interested in developing advanced nuclear technologies. Government can help to create the environment and frameworks to support nuclear development and deployment. We can also underpin the regulatory framework necessary to assess the safety, security and environmental aspects of new technologies. Ultimately, however, we must remember that the assessments and decisions on which technologies succeed rest not only with government but with the industry—and when I say the markets, I mean the price of the product.

We must remember that other industries are not standing still and waiting for nuclear to play catch-up. Renewables such as offshore wind and energy storage technologies are evolving at a pace. To maintain its place in the competitive low-carbon energy markets of the future, nuclear will need to provide additional value in terms of its flexibility, functionality or reduced costs to supplement its baseload availability. In a low-carbon green world, nuclear should have a big role to play, but it will have to be competitive with other low-carbon technologies.

Energy Price Caps

Debate between Lord Prior of Brampton and Lord Grantchester

Monday 3rd July 2017 Lords Chamber

[Lord Grantchester (Lab)]

I thank the Minister for that Statement. Does he accept that, during the election, his party placed the promise of a cap on energy prices at the centre of its manifesto? Does he recall that the Prime Minister stated:

“So I am making this promise: if I am re-elected on June 8, I will take action to end this injustice by introducing a cap on unfair energy price rises. It will protect around 17 million families on standard variable tariffs from being exploited with sudden and unjustified increases in bills”?


Although these are welcome suggestions on safeguarding tariffs and on capping warrant charges for the installation of pre-pay meters, these measures would affect only 2.5 million customers, leaving more than 14 million standard variable tariff customers completely unprotected from price rises over the next period. Does he accept that the response to the letter to Ofgem of 21 June on energy prices falls far short of implementing that promise? Although welcome, extending the safeguard tariff to more customers will not end the injustice of an excess £1.4 billion a year being paid on standard variable tariffs or bring about a competitive market.

Can the Minister confirm that the letter of 21 June does not ask Ofgem to consider introducing a general price cap? Can he explain why not, even though the CEO of Ofgem confirmed earlier this year that Ofgem would have the discretionary power to implement an energy price cap? Will the Government now be asking Ofgem to consider introducing a price cap? Is legislation coming or is the Minister content to ignore his party’s election promise of an energy price cap? What does the Minister have to say to the millions more people on standard variable tariffs who heard the Prime Minister’s remarks and may now be feeling misled and betrayed by the Conservative Government?

[Lord Prior of Brampton]

My Lords, in my right honourable friend the Secretary of State for BEIS’s letter to Dermot Nolan, the chief executive of Ofgem, he says:

“You will have seen that the Conservative manifesto proposed to ‘extend the price protection currently in place for some vulnerable customers to more customers on the poorest value tariffs’”.


That is what my right honourable friend has asked Ofgem to do. It will now go through a period of consultation and decide how best to do that.