Climate Change

Lord Redesdale Excerpts

Thursday 24th January 2019 Lords Chamber

[Lord Redesdale (LD)]

My Lords, it is quite a rare event for me to speak from the Front Bench. I thank the noble Lord, Lord Teverson, for giving me this opportunity. I must look back in time to when we did many of these debates on the Climate Change Act 2008—we looked at increasing the amount of reduction needed in carbon dioxide—which was one of the cornerstones of the climate change committee.

I have been working on this area for many years and was one of the founding members of the All-Party Parliamentary Climate Change Group. The words of the noble Earl, Lord Caithness, brought back happy memories of the debates we had where it was thought by many in this House that sunspots caused climate change. I find it interesting that the debate has moved on so considerably that that sort of viewpoint is very much in the minority and the real effects of climate change through manmade action are very rarely questioned.

It has been a very wide-ranging debate. The discussion started by the noble Earl, Lord Selborne, on land management—echoed by the noble Baroness, Lady Miller, about how we should use soil, echoed in turn by the noble Baroness, Lady Walmsley—is one of the areas that we will have to think about very carefully indeed.

As an aside, I was talking to the gravedigger at my local church, who had found that the soil was incredibly dry at the base, which is almost unheard of in Northumberland. We should look at that, because one of the times when people start talking much more readily about climate change is during a drought. We are looking at a drought situation coming up—I declare an interest as the CEO of the Water Retail Company and we have been looking at selling water in summers when there is a drought. This could be a problem with Brexit. Four types of chemical are used and they are volatile and short-lived. If we have a hard Brexit, it might cause even more problems if we cannot get those chemicals.

The noble Baroness, Lady Brown, talked about the engineering issues around flooding. Most of the country’s drains are designed for 1950s rainfall. Now that we have flash floods, we are seeing situations such as happened in Hull, where flooding took place on top of a hill, because we do not have the drainage to deal with present rainfall—which is a slight worry.

A couple of days ago, the Minister called me a Jeremiah over my view of the death of the nuclear industry. I take issue with him, given that we are down to perhaps one new build from four. What I said may be true of a Jeremiah, but I am much more taken with chapter 29, verse 11, which talks about hope in the future and moving forward. In that spirit, one of the most hopeful things to come out in the past couple of years which could affect how we deal with climate change in this country has been led by the Minister’s own department, BEIS. It was brought about by David Cameron and George Osborne. The Minister might remember the fantastic expression, “Get rid of all the green crap”, which led to the Government reassessing how they subsidised renewable energy—they were going to sweep away all the renewable energy. That led to the decision to get rid—from April—of the carbon reduction commitment and greenhouse gas reporting. That will be replaced by a new regime, the nattily named streamlined energy and carbon reporting, or SECR—which does not really flow off the tongue. However, when it comes into effect, it will apply to 10,000 companies—in fact, any company listed under the Companies Act 2006 will have to undertake the assessment once a year. This is quite incredible. The final guidance, which the Minister’s department will probably issue at the end of January, and the SI that went through in July last year state that, each year, companies will have to record all their energy consumption, all their carbon emissions and all principal energy efficiency measures. That will be quite an interesting list. I declare a further interest as the chief executive of the Energy Managers Association and many of my members will be dealing with this. We will be looking at creating tools to help companies to do this.

However, this fabulous piece of reporting does not even stop there. Present reporting regimes such as ESOS—the Energy Saving Opportunity Scheme, which covers the period to 2019—require only a report to be made to be signed off by a director, but the new report will have to go in front of the auditors. I have just been going around many auditors talking to them about how they will audit the reports for all their companies. They will have to look at how they audit all the individual measures. The report then has to go in front of the board for sign-off. It is particularly interesting that LLPs, which were not part of the original ESOS, will be brought in. I liked the measure which requires a named member of the LLP to take the report to the rest of the members. If that named member gets the figures wrong, they can be sued by the other LLP members. That has a real effect. However, the real kicker on the end of it, which I must say is genius from the Government, is that those companies will have to put all this information into their company report. That is a public document that must be listed with Companies House. The problem we have always had is that we have talked about the Paris accord, the agreements and what we are looking to achieve in carbon reduction, but these have always been commitments by the Government. This will be a way of measuring the ability of every large company in the country not only to record the carbon energy it uses but to list all its energy-efficiency measures and make sure that a director is responsible for them. For the energy managers, this is nirvana, this is heaven, because finally directors will be responsible for dealing with energy efficiency, which has always been a Cinderella subject

Of course, as many noble Lords will notice, the best form of energy is that which is not used at all, especially in carbon terms. I welcome very much the way that this is being brought forward. It means that if directors do not take these measures, there are sanctions, which could include a prison sentence. Of course, that will probably never happen, but we will end up with something that I do not think has taken place anywhere else in the world, which is a legal obligation on all the largest companies in the country to come forward with a measurement of their own use of energy, but also what they are doing about it. I hope the Minister will grab this with both hands and take it forward, because it is the most fabulous way of bringing forward energy efficiency in large companies, and if we are to tackle climate change severely, that is where we will have to do it. If we do go to COP, that will give two years of evidence of what all the companies in our country have been doing.

I could go on at great length about all the issues, because there have been so many raised that need to be addressed. I agree with the noble Lord, Lord Bethell, that the trouble with climate change, and one reason people do not take it seriously, is that if we really believed in climate change we would not take flights on holidays, we would not take that second hot bath, we would decide that our impact on the environment is very large. That is one reason people do not go down this route. One of the difficulties with climate change is that it is such a large subject that people shut down and think, “There is nothing I can do”. But as the noble Lord, Lord Bethell, said, we have to take people with us and I hope that the Government, especially with SECR, will do just that.

Nuclear Safeguards (Fissionable Material and Relevant International Agreements) (EU Exit) Regulations 2018

Lord Redesdale Excerpts

Tuesday 22nd January 2019 Lords Chamber

The definitions in these regulations are important, as are the nuclear safeguards regulations that this House will consider shortly, and will apply to qualifying nuclear material, including fissionable material, as defined in these regulations. I therefore commend them to the House.

[Lord Redesdale (LD)]

My Lords, I wrote only one speech to the two SIs, so I will make only one—do I get a sweetie as well? These provisions seem necessary. The Minister mentioned that NCAs had been signed with a number of countries. Does there need to be an NCA with Euratom itself if it is representing European countries? There seems to be no mention of that in the Explanatory Notes.

Obviously, these regulations will need to come into effect, but it is rather unfortunate that we are looking at the demise of the nuclear industry at the moment. Only Hinkley Point C, the last of the new nuclear fleet, may be built, and that is in jeopardy as well.

[Lord Adonis (Lab)]

My Lords, these are highly technical regulations and all I have to go on in seeking to scrutinise them is the debate that took place in the House of Commons on 14 January. On the issue of bilateral agreements with other nations, which are clearly vital to the handling of this nuclear material, the Minister, Richard Harrington, gave a comprehensive assurance that exactly the same agreements would be in place after 29 March as before. So that concern, which had been raised in the House of Commons, has been met.

However, in his concluding remarks, the Minister said:

“The nuclear safeguards regulations will also require operators to provide additional nuclear safeguards information to the ONR”—


the regulator—

“on qualifying nuclear material, and to the Secretary of State on certain non-nuclear materials”.—[Official Report, Commons, Third Delegated Legislation Committee, 14/1/19; col. 5.]

It was not clear to me whether that is a significant statement or an insignificant statement because it depends on what additional material they will be required to make available to the ONR and the Secretary of State. Can the Minister tell us the nature of the additional information that will have to be made available to the ONR, and why, in the event of no deal, additional information needs to be made available to the ONR over and above what needs to be made available now? Those in the industry who are reading accounts of our proceedings may be quite keen to understand that issue.

Transfrontier Shipment of Radioactive Waste and Spent Fuel (EU Exit) Regulations 2018

Lord Redesdale Excerpts

Tuesday 22nd January 2019 Lords Chamber

[The Earl of Selborne (Con)]

I have an observation, rather than a question, to put to my noble friend. He rightly says that these are vital measures, as they are because, in our wisdom, we are apparently to leave Euratom as well as the European Union. Of course, we were members of Euratom before we were members of the EEC. Everyone agrees that Euratom is doing an absolutely first-class job and why in the EU withdrawal legislation we had to leave Euratom remains a total mystery to me. Having made that very bad decision, we clearly have to proceed as my noble friend suggests.

[Lord Redesdale (LD)]

My Lords, I could not agree more with the noble Earl’s views on Euratom.

I have a couple of questions. Has the Minister assessed the cost of introducing the IT systems and the necessary bureaucracy which will be over and above the amount of money we have been spending with Euratom to fulfil those exact functions?

Secondly, Regulation 6, on prohibited exports, talks about how we would be stopped from exporting to countries that do not have the right regulatory framework. Can the Minister say whether there has been any discussion with countries that are part of the same agreement and concerned about exporting to the United Kingdom on that basis? As the noble Lord, Lord Adonis, referred to invasive species, I am tempted to move on to the subject of grey squirrels—on which we have had many debates in the past—but I think I will leave it there.

Justification Decision Power (Amendment) (EU Exit) Regulations 2018

Lord Redesdale Excerpts

Tuesday 22nd January 2019 Lords Chamber

[Lord Pannick]

I have two questions for the Minister. When were these regulations published, and has there been any public consultation on their content?

[Lord Redesdale (LD)]

My Lords, I am tempted to ask a number of questions to get them out of the way, because most of these regulations follow the same guidelines. My noble kinsman the Minister has already said that they will not come into effect if we remain in the European Union for whatever reason. Can he confirm that that is the case for all the regulations, and then I will not have to ask again?

I have only one question on this regulation, which concerns transparency. The noble Lords, Lord Adonis and Lord Pannick, have already talked about the justifying authority, and reading the SI it is clear that it could be any Secretary of State, but as we are dealing with detriment to health and ionising radiation can the Minister say at what point discussions by the justifying authority would be made public? Under what forum would people be able to find out about the decision-making process?

[Lord Warner (CB)]

My Lords, I had not intended to intervene on this set of regulations, but remarks that the Minister made in answering the noble Lord, Lord Adonis, sparked a thought in my mind, given some of the other discussions we have had on no-deal regulations. The Minister said that these justifying authorities, and presumably these regulations, could be just as relevant if there was a deal as they are for no deal. I thought they were being presented to the House as no-deal regulations. If there is a deal, will these no-deal regulations be abolished and will we start again? Or will they carry on on the statute book if there is a deal and be used as though there were no deal?

Renewables Obligation (Amendment) Order 2018

Lord Redesdale Excerpts

Monday 9th July 2018 Lords Chamber

[Lord Redesdale (LD)]

My Lords, I understand the purpose of this order; it covers one of the problems that many in the renewable industry have faced, especially the problems associated with a sudden rise in the number of people wanting to claim FITs. However, will the Minister say whether this is part of a longer-term strategy to deal with renewable heat, which is very difficult, and ROCs was one of the main planks for dealing with it, or whether this is just a way of making sure that the subsidy cap falls within the budgetary requirements set? I declare an interest as CEO of the Energy Managers Association—so I quite understand my members’ need for lower bills. However, if we are to diversify the energy systems, we need to look at biomass quite carefully. I quite understand that ROCs is an expensive way forward on this. One final question: does this have any effect on the anaerobic digestion industry?

[Lord Grantchester (Lab)]

I thank the Minister for his explanation of this order, which seeks to control the costs of supporting two forms of renewable energy generation under the renewables obligation scheme: in former fossil-fuel generating stations using as fuel biomass, or a mixture of biomass and fossil fuels—called co-firing. It also requires a declaration to be provided by certain stations when claiming support for combined heat and power generation, and clarifies the greenhouse gas emissions trajectories with which certain CHP stations must comply.

It must be said at the outset that although this RO scheme has not yet come to an end, it is now closed to new applicants and has been superseded with a contracts for difference scheme. It also needs to be said that, in 2011, the Government introduced the levy control framework to govern the budget for low-carbon electricity schemes, including the RO scheme, which are paid for through consumer bills.

The operation of the LCF has come in for considerable criticism for being opaque and disingenuous, such that in the Autumn Budget 2017, the Conservative Government announced the control of low-carbon levies to limit new levies until the LCF can be seen to be falling. The scheme here is set to achieve a further constraint on expenditure by setting a limit on the number of ROCs that can be applied for. It is fair to say that in the other place there was a long debate on whether this order would achieve the intention, as the amount of expenditure can vary according to the price of ROCs in the market.

The accompanying documentation to the order appears to confuse the process of creating a ROC, which is done by the generating station producing a certain amount of power and hence creating a ROC, and accounting for the value attached to that ROC, which is created and varies according to the demand for ROCs by suppliers which are obligated to purchase them from generators to meet their renewables obligation quotas. However, it does not follow that the reduction in the number of ROCs issued translates directly into savings in overall amounts paid for ROCs, and hence savings on customers’ bills—an amount set against the LCF—because ROC prices vary with supply and demand against the obligation level. The reduction in supply may send the value of a ROC up because more people are bidding for fewer ROCs to meet a fixed obligation level. The calculations attached to the SI do not appear to take this factor into account, but instead treat the estimated range of income as a fixed range determined by the number of ROCs.

As part of the consultation, several comments reflected that this could lead to discouraging biomass in a co-firing plant. This order could have a perverse effect and the proposals could potentially place more coal back on to the system, and do not properly account for the mechanisms behind ROCs. We therefore have great reluctance in passing the SI and suggest that the Government should take the measure away and recast it. It is a complex jigsaw that seeks to use the number of ROCs as a way of constraining expenditure, when the price of ROCs is not set but can vary. There are serious misgivings that the scheme will not do what it claims. However, as a scheme that is now replaced by the CfD scheme, the situation may be contained over time. With that, I can reluctantly approve the order.

Contracts for Difference (Miscellaneous Amendments) Regulations 2018

Lord Redesdale Excerpts

Monday 9th July 2018 Lords Chamber

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

My Lords, the draft instrument makes three separate changes to existing CfD regulations. First, it amends the Contracts for Difference (Allocation) Regulations 2014 to establish remote island wind projects as a category of technology eligible to take part in the CfD scheme and compete alongside other less established technologies. In doing so, it delivers on manifesto and Clean Growth Strategy commitments.

Secondly, the SI removes from the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 the requirement for certain generators to intend to accredit their project under the combined heat and power quality assurance standard. This minor amendment will facilitate the delivery of future CfD allocation rounds and is not otherwise expected to impact upon the operation of the CfD scheme.

Thirdly, the regulations update the definition of “waste” in the Contracts for Difference (Definition of Eligible Generator) Regulations 2014. This ensures that generators are not incentivised to intentionally modify or contaminate biofuels to avoid the application of sustainability criteria which would otherwise apply. We are proposing these legislative schemes following a 12-week public consultation earlier this year, during which our proposals received broad support.

The CfD scheme is designed to offer long-term price stabilisation to new low-carbon generators, allowing investment to come forward at a lower cost of capital, and therefore at a lower cost to consumers. The scheme typically sees support contracts awarded in a competitive auction process, which ensures costs to consumers are kept to a minimum. The technologies which are eligible to take part in the CfD scheme are categorised into two distinct groups, or pots. Pot 1 contains the more mature technologies, such as solar PV, which typically require less support. Pot 2 contains the less mature technologies, such as offshore wind, which typically require more. The scheme has been very successful, bringing forward significant new investment in large-scale renewable generation. The two previous CfD auctions should deliver over 5 gigawatts of renewable electricity capacity by the early 2020s, helping to meet our decarbonisation targets. We plan to open the next one in spring next year and are laying these amendments today to give certainty to businesses in advance.

I will briefly describe each of the three amendments in turn. The first amendment is to make remote island wind projects eligible for pot 2 auctions. The Government confirmed in the Clean Growth Strategy that it was our intention that wind projects on remote islands, where they are expected to directly benefit local communities, would be eligible for the next pot 2 auction. These projects have certain unique characteristics which set them apart from wind projects elsewhere in the UK, including higher costs. It is therefore appropriate for remote island wind projects to be recognised as a distinct technology within the CfD scheme, one subject to its own administrative, maximum strike price and eligible to take part in pot 2 auctions alongside other, less established technologies.

These regulations set out the criteria that projects must satisfy to constitute a remote island wind project for the purposes of the CfD scheme. These criteria have been carefully selected to ensure that remote island wind projects are sufficiently remote to be subject to more challenging operating conditions, as well as increased network-related costs. Allowing remote island wind projects to compete alongside other less established technologies in pot 2 will allow developers to build on the falling cost of onshore wind and provide a further boost for the supply chain. More than 750 megawatts of wind projects in the Western Isles, Orkney and Shetland could be eligible for the next auction. If successful, these could deliver long-term benefits to the UK.

The second amendment is to remove the requirement for certain generators to intend to accredit their project under the combined heat and power quality assurance standard. The CfD scheme currently supports only two types of project, namely dedicated biomass and energy from waste, if they are built with combined heat and power. The Contracts for Difference (Definition of Eligible Generator) Regulations 2014 currently require developers to those projects who want to be eligible to apply for a CfD to intend to accredit their project under issue 6 of the combined heat and power quality assurance standard, usually referred to as CHPQA. The department recently launched and responded to a consultation on options to replace issue 6 of the CHPQA standard. The incoming, replacement issue of the CHPQA standard will include increased efficiency reference values, against which future CfD-supported CHP projects will be assessed.

These regulations will remove the requirement to intend to accredit from legislation. Developers will still have to accredit their projects under the CHPQA standard to receive CfD support, but this will instead be specified in the contract terms that developers have to agree to, and comply with, to receive CfD support. This amendment will not have a practical impact on the operation of the CfD scheme because, in practice, a developer’s intention to comply with the CHPQA’s requirements is not something which is capable of being meaningfully tested at this early stage in the CfD application process, long before a plant is actually built.

The third, and final, amendment that we propose concerns a minor change to the definition of “waste” in the definition of eligible generator regulations. This amendment is relevant only to technologies that may use waste as a fuel to generate electricity. It simply makes clear that substances will not constitute waste where they have been deliberately modified, or contaminated, to bring them within the definition of waste. This will make sure that we do not inadvertently encourage generators to modify or contaminate biofuels to avoid the application of sustainability criteria which would otherwise apply.

These legislative changes need to be made ahead of the next CfD allocation round, which is planned for spring 2019, so that developers have certainty as to who will be eligible to take part, and on what basis. Subject to the will of Parliament, these arrangements will come into force on the day after the regulations are made. I commend these regulations to the House.

[Lord Redesdale (LD)]

My Lords, although we support these minor amendments, I have two questions for the Minister. First, there is talk of making sure that there is no contaminated feedstock for combustion. Is this as a result of a particular action, or is it looking forward to a potential breach of the rules? Secondly, CfDs have had one benefit, although they have often skewed the marketplace rather badly: they have shown, through the auction prices, that offshore wind is one of the most economic ways of generating, and that onshore wind is even better at generating power at the lowest cost to consumers. In the light of that, will the Government reconsider their position on onshore wind?

[Lord Grantchester (Lab)]

My Lords, once again I thank the Minister for his explanation of these regulations, which in general we support. I understand that the Government are beginning to be congratulated on allowing onshore wind, in some shape or form, to finally compete in the marketplace for renewable generation. We note that the Conservative Party manifesto introduced a ban on onshore wind and are pleased to be able to welcome this small element of it coming on to the market, albeit in a highly constrained way. These remote islands must, by definition, be 10 kilometres off shore; over 50 kilometres of cabling must be used, of which 20 kilometres must be under sea. I was wondering how important it was that these so-called onshore wind turbines must not be seen and whether I would be able to see them if I went to the top of Blackpool Tower. I am teasing the Minister, but this seems to be a risible attempt to allow some kind of offshoring of onshore wind. I am sure we could all enjoy some of the programmes which could be made around these regulations.

To be more serious, because of these definitions, we feel that we are looking at a more expensive offshoring of onshore wind being favoured over the less expensive contribution of near-to-onshore wind. Regrettably, the costs to the consumer will therefore be more than if the Conservative Party had been able to allow onshore wind to compete openly and genuinely in the marketplace. With that, I approve the regulations.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Redesdale Excerpts

Report stage (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

[Lord Grantchester (Lab)]

My Lords, Amendment 11was previously moved in Committee. It may be the last but it is certainly not the least of those being debated today. Perhaps it is the most crucial, because it proposes an on-going condition in the energy market that the electricity and gas suppliers will always operate fairly and proportionately between customers and tariffs.

Labour is in favour of the Bill. The energy market has been broken for some time. My right honourable friend in the other place, Ed Miliband, first proposed that price caps should be in place to protect consumers from excessive gas and electricity prices. Customers have been paying on average up to £300 more than they would have paid if the market operated more competitively. The excess weighs more heavily on more vulnerable households—those less able to bear it.

While it is flattering to see our policies recognised and implemented by the Government, they have to be implemented right, and preferably right first time. While accepting and applauding what the Bill achieves, it is nevertheless not quite there. It does not tackle the scourge of “tease and squeeze” by the utility companies. This amendment calls out the behaviour of energy suppliers where they tease customers to nominate a cheaper, more attractive tariff in the first instance, only to move them slowly over time to a higher tariff when the customer will be squeezed again.

This feature of the market has been operating for some time. The effect is that those customers who do not ceaselessly monitor and challenge what is happening, once again move back to being in a more disadvantaged position vis-à-vis the more nimble and fleet of hand and foot customers. Those whom the Government call disengaged are protected by the price cap mechanism on the standard variable tariff and default tariffs of the Bill, while it is in operation. Once these mechanisms are withdrawn, ultimately no later than 2023, this protection will fall away. The loyalty penalty is a self-perpetuating dynamic of the market. This is perverse.

The Bill is only a short-term measure. It professes that whatever happens, however competitive the market may or may not be, the price cap will cease in 2023. Clause 8 provides for this to happen at an even earlier date should the Secretary of State be advised that effective competition has returned to the market. However, the default mechanism of 2023 does not mean that competitive conditions will be operating at that date. Indeed, under amendments proposed by the noble Baroness, Lady Neville-Rolfe, the default date would be sooner.

It would be risky and optimistic to expect competition to return. We do not know whether the Bill will be enough. Notwithstanding that, Labour wants to outlaw tease and squeeze from the market, which could generate a more competitive market altogether hereafter. Under Ofgem’s determination of a relative tariff cap operating in relation to the lowest price tariff, this behaviour can be removed from the market.

This measure does not indicate that Ofgem must look both ways. By this I mean it cannot be claimed, if it is determined that the market is operating competitively and therefore that the cap may be removed in 2020, 2021 or 2022, that the amendment is contradictory—that the market is operating competitively. There is no contradiction as the competitive market would be operating within a relative price differential: the more competitive, the narrower the differential would be. It would be up to Ofgem to determine that differential.

The market could look very different by 2023. The House has just passed the Smart Meters Act, in which the Government gave strong assurances that the UK’s infrastructure will have been transformed by that date. The Government are on notice to make those changes. Here, we have the means to outlaw tease and squeeze for all time without the need for new legislation at some later date. It is a priority now and we cannot be sure that it will remain a priority under whatever market conditions might pertain at a later date, or even should the market move away again and back towards a less competitive environment where this kind of behaviour thrives. Not only must it be clarified that Ofgem will have the power through the amendment; Ofgem must act to underline that tease and squeeze behaviour will not be tolerated. It is an open goal for the Government to score. I beg to move.

[Lord Redesdale (LD)]

My Lords, while I understand where the amendment is coming from, it is not one I can support. The problem is that while we are asking the authority, Ofgem, to set a maximum price, we are now also specifying that there must be a minimum price. It would then be almost impossible for the authority to have a competitive marketplace to operate with.

The second problem inherent in this—a problem with the whole Bill—is that, while I understand the problems the bigger companies have because they do not have some of the obligations of the small companies, it will be an issue for Ofgem to try to work out where the cap will be in the first place. That will cause problems. We are also in a period where wholesale prices are rising. Therefore, there might be a slight problem if the companies, for different financial reasons, have to raise their prices. Would Ofgem then have to set a date at which all the companies raise their prices at the same time so that they do not break the cap? At that date, would it also then say that the minimum price has to be raised at the same rate?

I understand the idea that vulnerable customers should be protected. However, we are ending up with a marketplace in which there will be one default tariff that every single supplier will have to put forward. If there is a vote, I will vote against this, which is very much against my views—obviously my Front Bench will have a different view on this. This, however, is an area where what we want to happen and the reality on the ground vary substantially.

I should also declare an interest as the CEO of the Energy Managers Association. We represent all energy managers. It is rather unfortunate that while we are looking to protect vulnerable customers, we are not doing the same to protect SMEs and micro-businesses. There is an enormous amount of bad practice in the industry, with TPIs that have no code of practice, and Ofgem failing to enforce or even to have the power to protect SMEs in this marketplace. We are looking at protecting one sector of the marketplace while non-domestic customers will be hammered under bad practice. I raise this as this is the tail end of the Bill, although I spoke at Second Reading. I hope the Government can bring forward a Bill further down the line to regulate the whole third party, intermediary and energy broker marketplace for the non-domestic, but obviously it might be beyond the Minister’s ability to bring that forward.

[Baroness Kennedy of Cradley (Lab)]

My Lords, I wish to speak in favour of Amendment 11, in the name of my noble friend Lord Grantchester. Millions of people who stay with the same energy supplier are being overcharged, ripped off and paying hundreds of pounds more for the same gas and electricity because they are cross-subsidising deals for new customers. There are recent examples of companies charging new customers as little as £800 a year and existing customers more than £1,200 for exactly the same product. In this way, the energy market is not harnessing competition to bring about low prices for all customers, because suppliers are able to exploit and overcharge their existing customer base to subsidise time-limited, often loss-leading, tariffs designed to scoop up new customers. This “tease and squeeze” behaviour is becoming the standard business model for some energy companies and it means that the most reliable customers face a hefty loyalty penalty.

While the Bill marks an important first step in protecting customers from the worst excesses of this failing market, it is clear that political consensus is emerging that, until the cause of this detriment is addressed, it will be only a sticking plaster. It is also clear that there is growing support for a relative price cap as the only way truly to reform the market and harness competition to the benefit, and not the detriment, of customers. Indeed, the tease and squeeze dynamic will become only more pressing as society becomes more digital and customers more distant from the point of sale in consumer markets. As well as accepting this amendment, I ask the Government to meet those experts calling for a relative price cap to find a way truly to address the tease and squeeze dynamic in energy and build a regulatory structure that will be fit for purpose for all consumer markets.

It would be a wasted opportunity to allow this legislation to pass without also addressing the cause of the loyalty penalty, which is why I support Amendment 11, to bring in a relative price cap. Such a cap would force energy companies to link their teaser rates to their underlying default tariff. The Government’s solution is to encourage switching, but if 100% of customers switched every year, administration costs would go up and undoubtedly be passed on to the customer. Where is the incentive for companies to build quality relationships with their customers when they know that they will leave them in 12 months’ time?

In well-functioning consumer markets, such as groceries, loyal customers get low prices even when they do not switch, because new customers are offered the same price as loyal ones. Switching may have increased, but a recent YouGov poll found that 33% of people did not feel that they knew enough to select the right tariff or supplier for them. Data from the energy regulator, Ofgem, reveal that an even higher percentage of people, 42%, are not confident comparing the different energy deals available.

Only a relative price cap will bring an end to exploitative overcharging once and for all. It will give customers the choice to stay where they are without fear of being exploited and remove the need to hunt every year for a fair price. Introducing a fairness mechanism into the UK energy market is long overdue and will benefit everyone, from those who buy energy to the suppliers who are forced to improve efficiencies to compete. A relative price cap is a good idea for everyone. I hope that the Government will support the amendment and agree to meet those in the energy market who are confident about the benefits to consumers of a relative price cap.

--- Later in debate ---

[Lord Henley]

I am grateful to the noble Baroness, Lady Featherstone, for giving that clear and concise explanation of why the Liberal Democrats will support the amendment. I am also grateful that the noble Lord, Lord Redesdale, is prepared to stand up against the might of his party whips and explain why he thinks it is not such a good idea. I am also grateful to the noble Baroness, Lady Kennedy of Cradley, for her remarks. I agree.

[Lord Redesdale]

I am grateful to my noble kinsman— I always like saying that; it is so rare to be able to say that in this House now. For the avoidance of doubt, I do not support this Bill in any shape or form. I think it is a very bad piece of legislation. However, I think this amendment might make a very bad piece of legislation somewhat unworkable.

[Lord Henley]

I thank my noble kinsman for that explanation, and make it quite clear that I am sure the reason for his support is nothing to do with the fact that we happen to be related, but he does bring a breath of fresh air to his Benches.

Turning to the remarks of the noble Baroness, Lady Kennedy of Cradley, I will come on to “tease and squeeze” later, but I agree with her that that is a problem, and we think there are ways to deal with that. She made it clear that she would like certain experts from the industry to talk to Ministers, and if she gets back to me I will certainly make sure that that is possible. I would be more than happy to talk to them as the Bill continues its passage—but we are near the end of it—about life post the Bill and under the new arrangements.

The noble Lord, Lord Grantchester, is seeking to place a duty on Ofgem to develop a relative price cap that would come into effect on the termination of the tariff cap conditions which are set out in this Bill. The noble Lord is nodding in assent, so I think that I have got it right. That would cap each supplier’s most expensive advertised standard variable and default-rate tariffs as a proportion of its cheapest fixed-term deal, and again, Ofgem would set the differential. The new clause would be inserted by the amendment and its effect would be to introduce an indefinite relative price cap. It remains the Government’s position that this amendment is not necessary, and I hope to set out why we believe that that is the case.

It is not the intention of this Bill or the Government to put in place a permanent market-wide cap, as I have explained on earlier occasions, and I would pass that on to my noble kinsman Lord Redesdale. I know that the intention of the amendment is to stop the practice of “tease and squeeze”, whereby customers are lured in with a cheap fixed rate and then fall into an expensive default rate at the end of the fixed term. However, as with any relative cap, there is a risk that under this proposed amendment suppliers would raise their least expensive tariffs rather than decrease their most expensive standard variable rates. That is the Government’s fundamental concern about any kind of relative price cap.

The Government and others, which includes the detailed work done by the BEIS Select Committee during its pre-legislative scrutiny of the Bill, believe that a relative price cap would not work. Indeed, a relative cap as a permanent feature of the market risks undoing the work of the temporary absolute cap, because it would remove the incentive for the market to innovate and reform. I would emphasise in particular those points to the noble Baroness, Lady Kennedy of Cradley, who I think possibly did not understand how markets work. It also puts in place a solution to a problem that is anticipated some years hence. We believe that it is better for Ofgem to consider what measures may be needed once the price cap is lifted rather than prejudge the situation now and tie Ofgem’s hands in a way that might damage consumers or be ineffective.

The key way of ending the practice of “tease and squeeze” will be the detailed work that Ofgem is undertaking to develop better ways of securing customer engagement. The work was emphasised by the noble Lord, Lord Grantchester, when he talked about smart meters. It will make switching quicker and more reliable, so smart meters and other programmes will help to make the market work better.

I recognise the concerns of noble Lords opposite in this area and the need for action to protect consumers following the removal of the price cap, should that be necessary. In acknowledging this, I can confirm a triple commitment by the regulator on this issue. I can confirm that Ofgem has committed to assessing whether ongoing protection will be needed for vulnerable consumers beyond the end of the price cap. I can confirm that Ofgem considers that it can implement price protection for selected consumers should that be appropriate. I can also confirm that, ahead of the price cap ending, Ofgem has committed to producing a report on what additional protection might be needed, who needs that protection—we are thinking of vulnerable consumers—and what form that protection should take. Following the production of that report, Ofgem will act accordingly. I repeat: Ofgem will act accordingly having produced a report on what additional protection might be needed, who needs the protection and what form that protection should take.

The House might also have seen Dermot Nolan, the chief executive officer of Ofgem, giving evidence to the BEIS Select Committee during its pre-legislative scrutiny of the Bill. He was asked whether a price cap or other protection might be needed for vulnerable consumers upon the removal of a market-wide price cap. Mr Nolan responded:

“In my view, yes. … I would envisage a very possible situation in which if a full, marketwide price cap was removed, Ofgem would continue with the price cap for vulnerable customers”.


I hope that those commitments from the regulator, alongside the comments of its chief executive officer, would go some way to reassuring noble Lords, including the noble Lord, Lord Grantchester, of Ofgem’s capabilities and stance towards protecting consumers beyond the life of the Bill. I hope that my explanations have been helpful and that the noble Lord will therefore see fit to withdraw his amendment.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Redesdale Excerpts

2nd reading (Hansard): House of Lords
Tuesday 22nd May 2018 Lords Chamber

[Lord Redesdale (LD)]

My Lords, I declare my interest as the CEO of the Energy Managers Association, which runs courses on procurement—I can tell noble Lords that it is an extremely complicated area in the non-domestic sector—and as the CEO of the Water Retail Company, a retailer in the new water market, next to which the energy market looks positively logical.

The Minister started by saying that there has been a failure in the marketplace and this should lead to major intervention. Here I must digress. I have just been talking to my son, who is doing his politics A-level at the moment, and some of the work that he has to do is to link political ideology to certain policies. I was trying to work out where this Bill fits. One could say that it fits with Corbynism. Obviously it was introduced originally by Ed Miliband, so it is a Labour policy going backwards, but I suppose that now it could be seen as a Mayism, if there is such a thing. However, this policy does not have an ideological base; it is really just a way of trying to garner public support. Saying that energy bills are high and we want to reduce them is a very easy way of bringing about public support. The speed with which this is being introduced could have something to do with the very valid points raised by my noble friend Lord Teverson, but it could also be that people are just trying to get the political benefit of doing this.

I am not against the reduction of the cost of energy and looking the problems of the marketplace. However, for years we have been talking about the energy sector becoming one of the most competitive marketplaces in Europe. If we have a competitive marketplace that is being pushed forward, there will be winners and losers. Indeed, the problem with the marketplace is that for companies to afford the deals to bring customers through the door, there have to be tariffs where they make more money in the marketplace.

The CMA report came out with a number of assertions about the amount of money being made by energy companies. I have to agree with the noble Viscount, Lord Ridley—perhaps for the first time ever in this Chamber—that there are certain problems with that assumption. I believe that the CMA report was highlighting a problem but I do not think the figures given could be taken as anything more than indicative. The reason I raise these points is not that I believe energy companies have a right to receive a certain amount of profit, but that I believe any cap being set is fraught with a number of difficult assumptions.

The cap will skew the marketplace. It is not as easy as saying, “We will set a cap”, because certain things going on at the moment mean that the cap may have to change quite quickly. As of half an hour ago, 48.1% of our energy came from gas. Twenty per cent of our gas comes from Qatar, and the recent problems with the treaty with Iran mean that there could be problems with the Strait of Hormuz. Even if nothing actually happens, the uncertainty could lead to a rise in fossil fuel prices which will have a major effect.

The noble Viscount, Lord Ridley, said—

[Viscount Ridley]

As we are agreeing so much today, does the noble Lord agree with what the Energy Minister said yesterday: these are reasons why we should get on with shale gas in this country?

[Lord Redesdale]

I am very tempted to go down that line. Of course, we could become energy independent if we were to use shale gas—for a whole seven years, and then it would be gone. I am not sure it is such a long-term solution.

There is a real issue about the cost of fuel, although wholesale costs will of course be a smaller amount compared to levies. However, we have to move to a low-carbon economy, away from our present one, although today, no power whatever was being generated by coal.

The Bill is flawed. It is being taken forward at great speed. Many people are saying that it is a popular Bill, because we all want to reduce the cost, especially to the most vulnerable, but I ask the Minister to look again at three things in the Bill which I know will be raised in amendments.

First, I ask him to reintroduce the CMA as the body that reviews any price cap. I do not suggest that this would hold up the process in any shape or form—a point raised by the noble Lord, Lord Hunt—but as the CMA is used as the backstop for most other Bills as good practice, leaving it out of this measure seems slightly perverse.

Secondly, I hope, following the Minister’s statement in another place that renewables tariffs may well be exempt from the price cap, that that provision will be introduced. I am thinking of shifting to a renewables tariff that would be higher than the price cap. I am prepared to pay more for a renewable source of energy. That is probably a point on which the noble Viscount and I disagree, but there is value in renewable energy. Although the Minister talked about ensuring that that was the case, I should like to see something in the Bill.

Thirdly, one problem often raised by energy companies, as well as the risk that they face from global politics, is regulatory risk. I find it interesting that the last substantive clause in the Bill says that this tariff rate might end in 2020, but it might go to 2021, 2022 or 2023, at which point it must stop. That is a difficult assertion to make, considering that companies buying large amounts of energy for the future have to make certain assumptions about where the price will be and what regulation they will face in future. On that point, I look forward to the next stage of the Bill.

--- Later in debate ---

[Lord Henley]

I am grateful to the noble Baroness for making clear the Liberal Democrat policy on this, but she did start by saying that the cap should never have been necessary and that she did not like it. However, she then stated that she wanted the cap introduced. I want to make sure that we have it in place, and that is why I must go back to the timing. While I cannot guarantee that we will have it in place by the time the clocks change, we hope to have it by the winter. For that reason, perhaps I may remind noble Lords that it would be helpful if we could deal with the Bill and see it returned from the Commons with all the concerns having been dealt with in one way or another by the time we take up our buckets and spades at the end of term. I do not know what it is that noble Lords do in the holiday months. We should get the Bill on to the statute book with Royal Assent so that the processes can continue and, by the end of the year, we will have a cap that offers benefit to consumers. If the Motion that I shall move at the end of the debate is agreed, I look forward to a constructive Committee stage in the Moses Room so that we can go through these matters and then sort them out on Report. I hope noble Lords will bear in mind what I said about timing at this stage.

As I said, the noble Lords, Lord Stevenson and Lord Teverson, set out a template for a number of points that I want to deal with: vulnerable consumers, the absolute versus the relative, conditions for effective competition, the cost of an energy review and green tariffs—other noble Lords covered all these points so I hope that they will not mind if I do not pause to mention every name—as well as some of the network costs, the timing of the Bill, which I just have dealt with so I can cross that out, appeals and, finally, the cost of environmental levies, as mentioned by my noble friend Lord Ridley. I will refer to some of those at the end.

For now, I will run through some of those points; it might save a little time in Committee but I doubt it. I also want to say how grateful I was to my noble friend Lady Bloomfield for reminding us that bringing forward a Bill of this sort was very unusual for a Conservative Government, as I tried to make clear at the beginning of the debate. We believe, as she cited, that there are occasions where markets are not working and it is necessary to intervene. That is what we are doing; we are intervening temporarily. These are not rent controls. This is not about bringing back a prices and incomes commission. It is a temporary measure to deal with the current problem of markets not working. In time, we hope to be able to return to what I sensed the noble Baroness, Lady Featherstone, wanted to take the Liberal party back to—a glorious, 19th-century free market approach—although she reverted to something different later on. We will get there in the end and I look forward to that joyous Committee stage.

I begin with the crucial point about appeals made by my noble and learned friend Lord Mackay, my noble friend Lord Hunt—an eminent lawyer whom I have served under—and other eminent lawyers whose tongues I have borne the sting of, such as the noble Lord, Lord Carlile, and the noble Lord, Lord Redesdale. Obviously, we will debate this issue in much greater detail in Committee; as noble Lords know, it was raised in another place and considered by the Select Committee. We should all be grateful for the work done by that committee on the Bill and for our process of sending draft Bills to Select Committees or other committees. Having considered this issue, the committee concluded that,

“judicial review is a common and satisfactory appeal route for energy decisions, even highly technical ones”.

The Government hope that energy suppliers will focus on engaging with the regulator’s consultations on the design of the price cap, rather than the scope for appeals and legal challenges. I appreciate that noble Lords who spoke on this think otherwise. They think that an appeal to the CMA would be less burdensome than using judicial review. We can reflect on that and we will consider it, but I note what Members have to say at this stage. I think we will have considerable discussion on it in Committee.

Concerns about vulnerable consumers were raised by the noble Lord, Lord Carlile, the noble Baroness, Lady Featherstone, and others such as the noble Lord, Lord Whitty. Again, additional protections for vulnerable customers and the interaction of the cap with Ofgem’s existing safeguard tariff will be a matter for the regulator. The Bill provides for Ofgem to maintain a cap for vulnerable consumers that is separate from the prepayment meter cap imposed by the CMA. In addition to the duty imposed on Ofgem by Clause 1(6) to protect all existing and future domestic customers on standard variable tariffs, the Gas and Electricity Acts impose duties to protect the interests of customers. In carrying out this duty, Ofgem should have regard to all the points that noble Lords have raised. The noble Baroness mentioned the document produced by Scope, which I have seen. Obviously, Ofgem should take into account the interests of individuals who are disabled, chronically sick, of pensionable age—as the noble Baroness, Lady Featherstone, pointed out, there are many of that last group in this House—with low incomes or residing in rural areas and others. Again, these are matters that we can consider later.

The subject of the absolute versus the relative cap was raised by the noble Lords, Lord Stevenson and Lord Teverson. This matter was discussed at considerable length in another place; quite often, one needs a cold towel wrapped around one’s head to understand some of the technicalities. Again, it is a process that we will consider in great detail. The Government, Ofgem, the Select Committee and another place all believe that what we are doing is the right way to proceed. A relative cap might simply prompt the withdrawal of more competitive rates by larger companies while offering no protection to those on poorer-value tariffs. We will look again at this in greater detail but, on some occasions, I think noble Lords will find these matters difficult.

The noble Lord, Lord Stevenson, talked about the conditions we need for effective competition—it was the third point he raised. The legislation is framed so that consumers’ incentives to switch, which is what we want, and suppliers’ incentives to compete are maintained. I appreciate that the noble Lord, Lord Carlile, in his usual amusing way, pointed out how difficult it can sometimes be when we sit down with our computers and have all these messages appearing. We want to make it easier; we will try to do that. That is one reason why we hope that the cap will be just a temporary measure which is removed when the conditions for effective competition are in place. We have not provided in the Bill for what those conditions will be, as in a changing market we do not want to impose conditions that may not be met or tie the removal of the cap to measures that will not be in place by the time that the wider market has become competitive. It will be for Ofgem to report on whether those conditions are met, and the Secretary of State will then make that decision on removal or extension. Clause 8 makes provision for that to happen repeatedly over the years if we seek an extension.

The fourth point raised by the noble Lord was the Cost of Energy Review. We are aware of Dieter Helm’s comprehensive and fully independent review of the cost of energy: I think it arrived very soon after I became a Minister and it was probably the noble Lord who put down a question very soon after that, which I had to respond to despite the fact that the review was some 158 pages. I had to assure him, or someone, that I had not read the entire review in the time available, which was about four days. I have had more time. I cannot claim to have read it absolutely from beginning to end, but we are still considering those findings and we will in due course set out our next steps in light of the responses we have had from others to it.

The Government have already taken action that has helped reduce costs and helped consumers to manage their bills. The cost of offshore wind, as noble Lords will know, has halved over the last two years. We have paid compensation to eligible businesses in energy-intensive industries across the UK for the indirect costs of energy policies: that has totalled well over £500 million since August 2013. We are also seeking to do more by upgrading something like a million homes to meet our obligations to make them more efficient. The costs of those policies to deliver clean growth on bills are more than offset by savings from improvements in energy efficiency, saving on average in 2016 something of the order of £14 on household bills.

The noble Lord, Lord Stevenson, and others raised green tariffs. The Bill places a duty on Ofgem to consult on exemptions to the cap for green tariffs. I note in passing that while the noble Lord, Lord Redesdale, is perfectly happy to pay more, that will not be the case for everyone; but we leave that to him. Green tariffs are tariffs that support the production of gas or the generation of electricity from renewable sources.

[Lord Redesdale]

My Lords, I raised the example of myself but there are tens of thousands, if not hundreds of thousands, of consumers who are also prepared to take that route and would want that opportunity.

[Lord Henley]

I appreciate that that is the case and I have been on various websites that have offered me the choice of going either for a cheaper deal or what is termed a greener deal: that is an option for individuals to make. What we are looking at in this Bill is obviously to provide a cap to provide safeguards for people.

The Bill places a duty on Ofgem to consult on exemptions to the cap for green tariffs—those tariffs that support the production of gas or the generation of electricity from renewable sources. Having consulted, Ofgem will then have the power to implement exemption from the cap. That is for it; we are not opposed to green tariffs being exempt.

Moving on, network costs was another concern of the noble Lord, Lord Stevenson, and others. He asked, while being tougher in the future was all well and good, were customers being ripped off now? One could say that this is a matter for Ofgem: it is the independent regulator and responsible by law for setting the price controls. Ofgem reports that its assessment of network company business plans and the benefit-sharing arrangements in place in the price control is expected to save the consumers yet another £15 billion in the current price control Bill.

The seventh point the noble Lord raised was about timing. I repeat what I said at the beginning: it is important that we make good progress with the Bill, that we get it through to Royal Assent before the Summer Recess, and then we—or, rather, Ofgem—can get on with the process of bringing in a price cap, so that we will be ready with everything in place for the coming winter.

Lastly, I will touch on some of my noble friend Lord Ridley’s points. He referred to the “pachyderm in the parlour” and blamed the Government for putting up energy costs by imposing greenery, as I think he would put it, on household energy bills. I say to him that government policy costs make up only a relatively small proportion of the household energy bill—around 8% on average, according to Ofgem. Last year, as he will be aware, we published our Clean Growth Strategy, which outlined our commitment to supporting the growth of clean and renewable energy for all. Action to cut emissions can be a win-win for consumers: better insulated homes and more efficient vehicles mean less money spent on gas, electricity and other fuels. Our policies have helped reduce energy bills and costs overall: for example, my noble friend will be aware that we have seen the cost of solar cells come down by some 80% since 2008 and, as I said earlier, the cost of offshore wind has declined by about 50% over the past two years.