Nuclear Energy (Financing) Bill

Lord Stunell Excerpts

Report stage
Thursday 24th March 2022 Lords Chamber

[Baroness Worthington (CB)]

My Lords, I shall speak to this group of amendments, particularly Amendment 1, moved by the noble Lord, Lord Oates. As I said in Committee, I have some sympathy with the greater transparency of the assessment of the value for money of new nuclear, partly because it will prove once and for all that there is a very strong case for pursuing reinvestment in our nuclear capabilities at every scale, whether the large-scale reactors that we are considering at Sizewell and Hinckley Point, or the SMRs, which I hope will be pursued with a considerable increase in speed as we address our needs for secure, affordable and zero-emission electricity.

As noted by the noble Baroness, Lady Bennett, we will be seeing a greater need for electricity. We will, I hope, see a huge increase in energy efficiency as we move to electric vehicles, because they are inherently more efficient than the combustion engine fuel supply chain, but there will be a greater load on the grid so we will need vastly more electricity, even as we get more efficient. We need a varied set of technologies providing power reliably and with resilience throughout the year. Nuclear can clearly play an excellent role alongside greater increases in solar, wind and other forms of renewable electricity. There is no need for these to be seen as competing; they complement each other very well.

I suspect that the Minister will reply that it is not necessary and that there will be information in the public domain about the choice. The noble Lord, Lord Howell, made a very compelling case for how difficult it would be to provide a full value-for-money assessment when such things as national security are so hard to translate into a sum of money. As we noted in Committee, there are countries much less concerned by the terrible events in Ukraine because of the nature of their electricity supply. It is right and proper that the UK should pursue the Bill—that we get on with it and see money flowing in the sector, which has been very stop-start. If we get this going, can sustain our interest and not do stop-start, the value for money will increase. The Bill is all about making these investments less costly for the taxpayer and the consumer and I support it. I am sympathetic to the amendment, but I do not support it.

[Lord Stunell (LD)]

My Lords, there were a couple of paper tigers dancing around in the Chamber today. I will deal with one of them straightaway. We are not unique in this Chamber in thinking that it is a good idea to do a value-for-money study on these projects. In Clause 2(3)(b), one of the criteria for designation is that

“the Secretary of State is of the opinion that designating the nuclear company in relation to the project is likely to result in value for money.”

Given that the Government themselves believe it is appropriate to have a value for money study, those who think we have somehow dreamt up something totally unfeasible, ridiculous and stupid need to address their remarks to the author of the clause, not the authors of the amendment. The two amendments actually say two things, the first of which is that we believe the Secretary of State thinking it likely to result in value for money is not a sufficiently high level of evidence. It needs to be that it

“will result in value for money”.

I would express that as being the difference between “the balance of probabilities” in a civil case and “beyond reasonable doubt” in a criminal case. Basically, we want a better than 50% chance that the value for money guess comes out right. I do not think that unreasonable or contrary to the spirit of value for money, as Governments ought to be exercising it when spending public money. That needs to be considered quite carefully by those who think that value for money is somehow a Liberal Democrat evil which has been conjured out of nowhere.

The second of our Amendments says that when that has been done it should be published. My noble friend Lord Oates drew on examples in the nuclear industry in the past 60 years of evidence and material being gathered and kept very, very quiet. Of course, eventually it all comes out, if only in the decommissioning costs or from the actual unit cost of producing the electricity, which nobody can any longer avoid. The first generation was built on the basis that the electricity would be so cheap we would not need to have electricity meters. We tend to forget that those kinds of claims were ever made, but they were never supported by evidence because the evidence was never published at a relevant time when it could have affected the decisions being made.

The two amendments the Liberal Democrats have put into play are based on making sure that the Secretary of State does a proper value for money exercise and that they base their decision not just on the balance of probabilities—“If we’re lucky it’ll be all right; if we’re unlucky, well there we go”—but with some reasonable level of certainty that the exercise has produced the right result. Making it transparent and putting it on the public record is a good way of making sure that those who make a professional evaluation of value for money are well aware that what they put into their report will be in the public eye and open to challenge and discussion.

If only that had been the case with previous generations of nuclear generation decision-making, we would have got a better outcome. I do not mean that there would be no nuclear plants built, but we would have perhaps avoided what the noble Baroness, Lady Bloomfield, speaking on behalf of the Government, complained about in relation to the decommissioning process. The noble Baroness, Lady Worthington, said that it is necessary to avoid “gold-plating” decommissioning costs

“that deliver millions of pounds to contractors unnecessarily”.—[Official Report, 8/3/22; col. GC 434.]

I thought those were powerful words. She was talking about decommissioning costs, but should we not be doing the same with commissioning costs? What can be wrong with testing that out?

Also, value for money is not something that can be assessed anyway, because there are impenetrable questions which make valuing the outcome completely unfeasible. When one looks at the value for money of any project, there are two issues. The first is the actual cost of the project. Have the costs been realistically assessed and are they properly built into the estimates being presented? For generation after generation of nuclear plants, it has been perfectly obvious that the cost of building them has not been correctly assessed. Indeed, that is true of the plants currently under construction.

The second thing that needs to be quantified is the nature of the rewards that one gets from the project when it has been built. What are they? The rewards from a nuclear plant consist of the electrical output and the security factor. The noble Lord, Lord Howell, made an excellent contribution on that topic in Committee, the essence of which he repeated just now. I do not reach quite the conclusion that he did, but I will say how I think we might best analyse it.

We know that at the moment, the electricity that will be produced will be at least 50% more expensive than if it came from offshore wind power, for example. The noble Baroness, Lady Bennett, gave some of the figures. This plant will not come on stream for another 15 years. We do not know what the unit cost of offshore wind will be in 15 years’ time but, if you follow the graph, it is reasonable to suppose that it will be quite a lot cheaper than it is now. So it is a competition where nuclear starts 50% ahead; it will probably be more like 70% ahead when it comes online. I am setting aside any consideration of whether any allowance should be made for decommissioning costs.

Then, we get to the security argument: what happens when the wind does not blow? Well, we have a strike price that is nearly double that of offshore wind. It is therefore obviously a premium product. It is not something you would indulge in unless you could see a substantial value that was related not to its electrical output but to something else. The carbon reduction is real and not to be neglected but, of course, other renewables—certainly offshore wind, solar and onshore wind—have those carbon savings. It is a matter of debate whether they provide more or fewer savings per gigawatt than nuclear but, as I understand it, nobody is really saying that other renewables would not deliver the same carbon savings. So security of supply is the point in play. For me, the exam question, therefore, is this: can we get that security of supply in any other way that is cheaper and faster, with less or no impact on the RAB figures, which consumers will have to pay at the end of the day?

By coincidence, yesterday morning, I attended a presentation given by National Grid. It was asked some quite poky questions about whether it thought that the national grid would have the resilience for all the electrical power that will be demanded to flow through the system. Its answer was surprisingly upbeat. It said that it would be relaxed about the grid’s capacity if, for instance, there were 15 million or 20 million electric-powered vehicles dispersed widely throughout the United Kingdom, and, incidentally, concentrated in the places where electrical demand is greatest, such as the south-east of England. It sees the grid as a fundamental element of the storage of power to cover the times when it is needed. It did say, however, that there will have to be additional investment by the distributive network organisations, or DNOs, to reinforce the local distribution grid.

Nuclear Energy (Financing) Bill

Lord Stunell Excerpts

Committee stage
Tuesday 8th March 2022 Grand Committee

[Baroness Wilcox of Newport (Lab)]

My Lords, this group of amendments centres on the important aspects of nuclear waste and the decommissioning process. As we have heard, they give rise to polarised opinions. I will be brief, given the number of amendments that we are aiming to get through this afternoon.

A number of speakers raised issues around nuclear waste at Second Reading. The Minister acknowledged that work on a geological disposal facility to dispose of high-level waste permanently is still ongoing. It is doubtful that the Minister will be able to provide any meaningful updates on that project this afternoon, but I may be proved wrong.

There are genuine questions to be answered. However, whether they need to be answered in full through this Bill is less clear. The answer to that question may lie in the likely process once the Government are finally ready to proceed with their chosen long-term solution. Will separate legislation be required to get that project under way?

[Lord Stunell (LD)]

My Lords—

[Lord Foulkes of Cumnock (Lab Co-op)]

Oh, no.

[Lord Stunell (LD)]

Yes, I know—it’s boring hearing the facts, isn’t it? I apologise for not catching the noble Baroness’s eye earlier but I want to contribute briefly to this debate with just a couple of historical facts that might help.

I thank the noble Lord, Lord Howell, for his words about the Liberal Democrats in the coalition. As one of the four people from the Liberal Democrat side who contributed to the agreement with the Conservatives, my recollection on that is that, as I am sure he will remember, nuclear power was to be at no cost to the public purse. That was very much the coalition’s starting and finishing point; I hope that it will continue to be so.

I have done most of the things that the noble Baroness, Lady Worthington, invited us to do to apprise ourselves of the facts. Indeed, back in 2001, with the active co-operation of BNFL—British Nuclear Fuels Ltd—I produced a short report, Cleaning Up the Mess, which looked specifically at what would be the best way to deal with nuclear waste; at that time, it was much more prominent in the headlines than it is now and just as intractable. We looked at some of the conditions needed. One is stable geology but the other, which the noble Baroness, Lady Bennett, mentioned, is stable politics. If you look at Europe, only two countries —England and Sweden—have had even 350 years of political stability. Of course, the events in eastern Europe at the moment are a reminder of that.

[Lord Foulkes of Cumnock (Lab Co-op)]

It seems to have been relatively stable in Scotland.

[Lord Stunell (LD)]

I am sure that the noble Lord’s colleagues from the Scottish National Party will remind him of the Act of Union, which was subsequent to that date. Yes, England was a deliberate choice, but I will accept other places; it is hard, however, to find another place other than Sweden that has had even 300 years, let alone however many thousands of years we are talking about, of stability.

[Lord Foulkes of Cumnock (Lab Co-op)]

What about Portugal?

[Lord Stunell (LD)]

Let us try Portugal. The Duke of Wellington was required to liberate Portugal from Spanish and Napoleonic domination. It is easy to forget Napoleon and Hitler and all sorts of things but—not that it is particularly relevant to this debate—political stability is important and rare. This country is one of the places that has been able to exhibit that despite our sometimes fractious debates on nuclear storage.

The conclusion of my report was that you need deep geological storage. It would be sensible for it to be in England. This is not, and never has been, Liberal Democrat policy, but my report pointed out that there was a big business opportunity because nobody else in the world—neither then nor, for that matter, now—had a good place to put their nuclear waste. I am certainly not opposed to having a deep geological disposal point.

The purpose of this is to establish the risk and the cost to the public purse. I go back to where I was in 2010—that there should be no cost to the public purse. We have gone backwards since 1999. Then we at least had a site and a plan—or BNFL did, which was strongly advocating it—but at the moment we have neither. We had a timescale; it would have been operational in 2024, which would have been very convenient for the passage of this Bill. Now it will probably not be for another 25 years, even if it gets a fair wind.

[Lord Wigley (PC)]

When the noble Lord says that there should be no cost to the public purse, is that in regard only to future projects or also to existing nuclear power stations? I mentioned in my intervention the situation in Trawsfynydd, the cost of decommissioning which could never have been anticipated when it was built. Is there not a case in those circumstances that the public purse is the only way to bail out that sort of situation?

[Lord Stunell (LD)]

The noble Lord is almost certainly right. That ship has sailed, to say the very least. In phases one, two and three of the nuclear programme, no adequate provision was made for decommissioning or any way of storing the waste. Unfortunately, that will clearly fall back on to the public sector in some form or another.

We are talking about a new generation. It is surely right and proper to learn from the mistakes of the last 60 years and make sure that that is properly costed in the formulation given for the construction and operation of these plants. I do not think that it is particularly controversial that we should learn from previous experience, although it is often very hard to do so.

Is the Minister satisfied that the public purse will be properly protected over a period of time from finally picking up the costs of geological disposal of nuclear waste from the plants that this Bill is intended to finance? The Government ought to answer that honestly and frankly so that there is no illusion on anyone’s part either about what is happening in terms of public subsidy or that the true costs of delivering a nuclear programme incorporate the costs of decommissioning, rather than shuffling them off at the start and delivering them as a bill of unknown but undoubtedly large size to the public purse.

[Baroness Worthington (CB)]

Before the Minister responds, I would be interested in whether we should have a review of the societal demands of how we treat the decommissioning and waste of nuclear, because it seems to me that we are operating against a set of principles that have become detached from the reality of how you can manage this more cost-effectively. A large body of evidence says that geological disposal is not needed, because you can just do subterranean management. If it were not for the widespread lack of understanding about the nature of the problem and the way it can be dealt with, we would not have to incur these costs. If there is a review, we should go back to basics.

The same is true of decommissioning. The simplest and cheapest way to decommission is to leave it alone and then decommission it. The desire to bring it back to greenfield status is utterly unnecessary. These are highly concentrated industrial sites that serve clean energy to millions of people. We should not be seeking to return them to greenfield on an accelerated timescale, unnecessarily incurring huge costs to the taxpayer. We should have a review, go back to basics and consider all of the above in terms of what we should do with our waste and decommissioning.

Construction Sector: Roadmap to Zero Retentions

Lord Stunell Excerpts

Wednesday 15th December 2021 Lords Chamber

[Lord Stunell (LD)]

I thank the Minister for the way in which he has engaged with noble Lords who have taken an interest in this subject. I recall that he told us of the guidelines that have been issued to departments on taking out construction contracts. I ask him to spend a bit of time in the remainder of this financial year chasing up those government departments that are not yet implementing the guidelines, so that in the coming financial year every contract that is signed by a government department has this retentions clause removed.

[Lord Callanan (Con)]

The noble Lord makes a very good point. The vast majority of government departments no longer use retention clauses. The main exception to that is the Department for Education, and I continue to urge it to follow the lead of other departments in this regard.

Net-Zero Carbon Emissions

Lord Stunell Excerpts

Wednesday 21st April 2021 Grand Committee

[Lord Stunell (LD) [V]]

My Lords, I start by reminding noble Lords that I am the honorary president of the National Home Improvement Council and an honorary fellow of the Institution of Civil Engineers.

I intend in my contribution to highlight the urgent need for the Government to set out a coherent plan to make our built environment zero carbon by 2050. Debates about reducing carbon emissions often focus on fuel substitution—let us stop burning coal to generate electricity, for instance. When the debate moves on to talk about the necessary infrastructure to deliver those things, the discussion tends to focus on how to get more vehicle charging points, what technology to use for charging for road use, building more cycleways and putting in showers and bike stores at workplaces. That is all good stuff, but one basic fact about climate change policy is often overlooked: that noble Lords’ houses emit more carbon dioxide each year than noble Lords’ cars.

The built environment as it exists now is responsible for at least 30% of the United Kingdom’s emissions each year, twice as much as the whole transport sector, road, rail and air combined. Every year we are building more homes that actually make it worse. Each new school, hospital, factory and office block makes it worse, making reaching the target of zero carbon by 2050 harder, not easier. Noble Lords might expect, in a rational world of evidence-led policy making, that here in your Lordships’ House, and along the road in Whitehall, we would see carbon reduction of the built environment getting twice as much attention as all that expended on the transport sector, with twice as much spent on research and twice as much invested in cutting emissions. Noble Lords would expect a laser-like focus on delivery on that by any Government aiming to meet their statutory zero-carbon deadline by 2050, let alone trying to meet an 80% reduction by 2035. In fact that is not what is happening, despite Ministers setting out to turn the UK into the pre-eminent soft power of the world, sailing on an independent course as global Britain.

This November the Government will host the one international forum where they might be able to demonstrate genuine world leadership, COP 26. Surely the Minister can see the value of demonstrating at that conference that they have a credible plan to decarbonise the built environment. All the participants at that conference will be looking to the UK to see what world leadership on climate change really means. They will surely see through an empty promise for 2038 that is not backed by a credible delivery strategy for carbon reductions from existing buildings, especially homes.

Let me chart a course for the Minister to follow on that perilous journey to super soft power status at COP 26. First, he should stop building stuff badly. Back in 2015, the incoming Conservatives scrapped the plan for all new homes to be zero carbon. Since then 800,000 homes have been deliberately built to a lower standard, which means they all face the need for upgrading before 2050. That was an environmental scandal, and it remains a continuing wasted opportunity. Today the Minister should announce that all new homes started on site from April 2022 must be zero carbon. Let us stop building stuff badly. That surely is a policy no-brainer. And, yes, of course, he should also require all new publicly funded buildings of every type to be zero carbon from the same date, with a firm timetable for the private sector to be zero carbon too.

But all that zero-carbon new build will still be only a small fraction of the built environment when we get to 2050. There are 24 million homes now and it is likely that 20 million of them will still be standing in 2050. They all have to be massively upgraded if there is to be any chance of reaching zero carbon by then. In that context, the announcement of the green homes grant last year sounded very promising: a 600,000 home programme to be completed by this March. If we kept going at that rate, 33 years later all homes would be upgraded—a three-year overshoot on 2050, but a promising start. However, as of this week the Government have set themselves the new target of an 80% reduction by 2035. I say to the Minister that even had the green homes grant delivered 600,000 home upgrades a year as originally planned, the scheme would have reached only 8.4 million homes by 2035, with only 40% of existing homes upgraded, not the 80% targeted.

But, as your Lordships know, sounding promising was as good as it ever got with the green homes grant. I hope the Minister will not use any of his time to tell your Lordships how nearly successful it was. The fact is that it did not deliver any extra jobs—the key reason given at the time of the scheme’s launch; it delivered less than 10% of the planned improvements to homes; it completely disillusioned the home improvement industry; it deeply frustrated a large pool of willing home owners who have been turned away from making improvements; and it enriched an incompetent IT company in Virginia, USA. Now, finally, it has been cancelled. The very small slice of the unspent money rolled over into this year has now been slashed as well, with an announcement this week—the first sign, perhaps, of ministerial understanding of real life—of £300 million being redirected instead to local housing providers for use in upgrading homes in the low-income housing sector.

The green homes grant was not world beating, nor will it be a soft power enhancer at COP 26. In fact, it was a perfect working example of what the noble Lord, Lord Teverson, referred to as silo policy-making by people who took no advice from anyone.

Therefore, the second step for the Minister to announce today is a completely fresh start to upgrading all of England’s homes in a steady multiyear programme. It will need innovation and investment in capacity building. It will need to be driven by regulatory changes and supported by serious workforce planning, with recruitment and retraining in the skills needed. Essential to all that is a shelf life not of the laughable 26 weeks offered by the green homes grant but more like 26 years. It will need to work and build with trusted partners. The one undoubtedly successful outcome from the green homes grant was the demonstration that local authorities, given their head, can deliver in this area, as they have done with the low-income owners scheme.

To get 80% of our homes upgraded by 2035, an average of 1 million homes a year will need work done. That is not as daunting as it may sound: nearly twice that number of central heating boilers are replaced each year without any drama at all. That is done because there are skilled installers in place all over the country, a marketplace that functions well, and a regulatory system that underpins safe and efficient schemes. But to deliver that for home energy upgrades will take a serious level of long-term commitment by this Government to lay sound foundations for establishing a capable delivery programme.

The Government will need to work very closely with the construction industry on to deliver the work. The great majority of those 1.6 million central heating boilers installed each year are put in by small and micro-businesses, not by mega construction firms. In the future, home energy upgrades will be done best when they are delivered through small companies and businesses. With those things in place, success can certainly follow.

In summary, the Government need to stop making it worse with new build and make zero-carbon infrastructure the new normal; to tackle the backlog of energy wastage and carbon emissions in our existing building stock; and to plan ahead and plan long term. They need to learn from the green homes grant experience that a press release is not a policy nor a delivery plan—and that Rome was not built in 26 weeks. The Government need to work with trusted partners in local government, empowering them to supervise and deliver, and give confidence to the construction industry that it is safe and indeed profitable for it to invest in the skills and capacity building needed.

My question to the Minister is: does he take to heart the urgent need to cut carbon in construction and to upgrade the country’s 24 million homes? If so, what is the plan, when will it start, who will deliver it and what are the milestones on the journey? Does he not, at the least, accept that answers to those questions that are provided before COP 26 starts will have a double value in giving leadership at that conference on the urgently needed international framework of climate change mitigation?

My noble friend Lord Teverson has set the Minister the exam question today. I have done my best to prep the Minister on what he might best say in response, at least in regard to the 30% of our carbon output that comes from buildings. I am looking forward with great interest to hearing from the Minister later whether or not my coaching has borne fruit.

Construction Industry: Retention Payments

Lord Stunell Excerpts

Thursday 14th January 2021 Lords Chamber

[Lord Callanan (Con)]

At the risk of repeating myself, it would require primary legislation and there is pressure on the legislative timetable. There are a number of different options to take this forward. We are committed to ending the practice of late payment and we will work with industry to try to find a solution to this problem.

[Lord Stunell (LD) [V]]

The Minister’s answers so far have been deeply disappointing. Of course there is no consensus within the industry, because there are winners and losers. The winners of the present system are the big companies; the losers are everybody else. The current retention system undermines trust and confidence, destroys capacity and deters long-term investment in training and skills. Having heard noble Lords today, will the Minister agree to come back to your Lordships’ House before the end of this Session and say exactly how and when the Government plan to mitigate the damage caused by the current system? He cannot sit on his hands and say he is waiting for other people to come to their decisions first.

[Lord Callanan (Con)]

We are not waiting for other people to come to their decisions. We are actively working with the Construction Leadership Council to try to find a solution to this problem.

Green Homes Grant Scheme

Lord Stunell Excerpts

Wednesday 6th January 2021 Lords Chamber

[Lord Callanan (Con)]

I thank my noble friend for his question. The smart meter scheme is not part of the Green Homes Grant scheme. It is a separate scheme, for which I also have responsibility, but I would be happy to talk to him separately about the issues he raises.

[Lord Stunell (LD) [V]]

On Monday, the Minister announced that building contractors delivering the Green Homes Grant scheme no longer need to be registered with TrustMark, be certified with PAS or be MCS compliant, thus lowering the standard of entry for those undertaking work. This comes at a time when there is also an acute shortage of professional retrofit assessors, who are essential to check and sign off completed projects. That leaves owner-occupiers who are trying to do the right thing and make their homes energy efficient increasingly exposed to undetected bad workmanship or fraud. Exactly how does the Minister propose to increase the number of assessors, safeguard consumers and prevent this vital scheme getting a reputation for dodgy work and becoming a wild west waste of money?

[Lord Callanan (Con)]

We absolutely want to ensure that that is not the case. The noble Lord is incorrect. Main contractors still need to be registered with TrustMark. They also need PAS certification or be on a pathway to it. We are working with contractors to make sure that more are registered. We are also talking to the certification bodies. I have met a number of them to ensure that more contractors are signed up to the scheme. The noble Lord is absolutely right that the quality of the scheme and the standards of work carried out are of priority importance and we will make sure that that happens.

Carbon-neutral Homes

Lord Stunell Excerpts

Thursday 10th December 2020 Lords Chamber

[Lord Callanan (Con)]

We are committed to reviewing the decent homes standard for social housing around energy performance and decarbonisation. We will be consulting on further regulations for homeowners in 2021.

[Lord Stunell (LD) [V]]

In Greater Manchester, there are over 1 million homes needing energy efficiency upgrades but only about three homes are being assessed daily, so a householder who applies for a grant today is likely to face a three-month wait to get the go-ahead to start work. It will take more than a thousand years, at the current rate, to bring all Greater Manchester’s homes up to EPC level C. Does the Minister now accept that recruiting and training green home assessors, and upskilling the construction workforce, has to be his top priority, and that underpinning that has to be a decades-long investment plan to give certainty to those who are ready to invest their lives in this key endeavour?

[Lord Callanan (Con)]

I agree with the noble Lord that we need to invest further in training opportunities and upskilling. There are many jobs available in this sector and that is exactly what we are doing under the green home grant scheme. As well as grants to home- owners and the local authority delivery scheme, we are also investing in training places to bring those new jobs into fruition.

Electricity Capacity (No. 2) Regulations 2019

Lord Stunell Excerpts

Wednesday 17th July 2019 Lords Chamber

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

My Lords, the capacity market is a key element of the Government’s strategy for maintaining the security of electricity supplies in Great Britain. This instrument will help maintain a strong security-of-supply position into the future. The capacity market secures the capacity required in Great Britain during periods of peak demand through competitive, technology-neutral auctions normally held four years and one year ahead of delivery. These are known as T-4 and T-1 auctions. Those who win capacity agreements—known as capacity providers—commit to providing capacity during periods of system stress in exchange for receiving capacity payments.

I will briefly provide some context before expanding on the provisions of this draft instrument. On 15 November 2018, the General Court of the Court of Justice of the European Union annulled the European Commission’s state aid approval for GB’s capacity market, introducing a “standstill period” until the scheme can be reapproved. The judgment means that the UK Government are not able to award capacity agreements or make capacity payments unless and until state aid approval is obtained. The Commission is currently conducting a state aid investigation for the capacity market, and we are working with it to ensure it can reapprove the scheme as quickly as possible.

We have taken steps, through an earlier instrument—the Electricity Capacity (No. 1) Regulations 2019—and associated changes to the capacity market rules, to maintain the operation of the capacity market, to the extent possible, while state aid approval is obtained. The steps we have taken to put in place these interim arrangements are currently subject to judicial review proceedings, which we are robustly defending. The House of Lords Secondary Legislation Scrutiny Committee has highlighted the continuing uncertainty for the capacity market resulting from these judicial review proceedings and from the Commission’s state aid investigation.

This second instrument put before the House today focuses on future auctions, which will not proceed unless and until the capacity market has state aid approval. This means the instrument is unlikely to be impacted by the judicial review. First, the instrument makes changes to enable the T-4 auction for the 2022-23 delivery year, which was postponed following the state aid judgment, to be replaced by a one-off T-3 auction. It will only be held if state aid approval has been received and would be held in early 2020. Secondly, this instrument makes changes to remove or reduce what might otherwise be unnecessary burdens on business in relation to credit cover.

Applicants seeking to enter certain types of capacity market unit—for example, those that are unproven or not yet constructed—into a capacity auction are required to provide and maintain credit cover. The instrument adjusts the credit cover requirements for a CMU entered into both the upcoming T-3 and T-4 auctions, to enable the credit cover obligations for both auctions to be satisfied jointly rather than separately.

It also extends the existing suspension of credit cover obligations, provided for by the Electricity Capacity (No. 1) Regulations 2019, to the three upcoming capacity auctions likely to take place in 2020. It makes changes to ensure that when the suspension of credit cover is lifted, following state aid reapproval, existing exceptions to credit cover requirements still operate as intended. Finally, the instrument makes changes to support the participation of certain unsubsidised renewable technologies in future auctions.

The capacity market was always intended to include all unsubsidised technologies. Some types of renewable technology, such as biomass, have always been able to participate provided they are not receiving other specified low-carbon subsidies. However, when the capacity market was conceived, wind and solar required subsidy, so were not included in its technical rules. With unsubsidised renewables now a prospect, the capacity market rules have recently been amended to allow wind and solar to participate.

This instrument supports this change by requiring state support for new-build renewable CMUs, which has been declared under the rules to be deducted or repaid from capacity payments. This enables renewable technologies in receipt of subsidies—other than those which exclude them from the scheme entirely—to participate without cumulation of state aid received through the capacity market and other schemes. Alongside these regulations, we have also laid complementary amendments to the capacity market rules, which govern the technical and administrative procedures relating to capacity market operation.

These regulations are necessary to ensure the smooth running of the capacity market in the period after state aid approval is received, and to broaden the participation of renewable technologies. I commend the draft regulations to the House.

[Lord Stunell (LD)]

My Lords, I will ask the Minister some questions, and I express some surprise that, in his presentation to the House, he did not mention demand-side response, which was the subject of an intervention I made on a previous occasion, and the reason why the state aid ruling was made by the European court. As it is absolutely at the centre of the reason why this matter has not been settled and the UK Government’s proposals were rejected, the Minister owes the House a little more detail about that, particularly because, as I understand it—he made the point himself—all the paperwork in front of us today is conditional on implementation on receiving state aid approval from the EU. At the moment, that is still outstanding.

That arose from an action taken at the European Court back in 2015 by a small company called Tempus Energy, which claimed that the system was discriminatory against those who sought to reduce electricity consumption as opposed to increase electricity generation. The outcome of that was that its claim led to the UK’s scheme being sent back for a rethink.

The way it is supposed to work is that firms bid into the auction at the price they need, either to keep existing plants open to generate electricity or to create new capacity from scratch. It does not deal adequately with the situation of companies which have come forward with a commercial proposition that they will reduce overall electricity consumption. That is surprising because, in fact, overall electricity consumption is falling, not rising. The Government itself recently took account of that, having for a long time somewhat denied the relevance of it to the whole question.

Having said all that, it is surprising that the Minister has not referred to the ECJ judgment, in particular to paragraphs 203 to 207 of it, and paragraphs 27(e) and 69 of the official guidance put in support of that judgment. Has the Minister read those paragraphs, and if he has, does he think that the plain and ordinary meaning of them could in any way be construed as a simple technical reprise as opposed to an outright rejection? How certain is he that the judgment of the European Court was not, as the Minister in the House of Commons alleged it to be,

“a challenge to the nature of the UK capacity market mechanism itself”?—[Official Report, Commons, 19/11/18; col. 1090WS.]

It seems that it is not very easy to make that stand up, and as regards our taking a decision today, it needs at least a little amplification and clarification.

The allegation put to the European Court was that our UK system was discriminating against those who had a commercial appetite to reduce electricity consumption as opposed to having proposals to provide generation. I hope the Minister will say that is not true and contradict the advice I have been given that, the way the system is designed at the moment, those who want to reduce consumption—the capacity supply industry—have to make sure they have a payback period in 12 months, whereas those on the demand side are given 15 years. That inequality is leading to discrimination, which means that DSR is extremely difficult to bring within the scope of the support that these regulations are intended to provide.

I hope the Minister will be able to give us some reassurances about the amount he has read and the legal interpretation of it he has, as well as something about demand-side response and getting that playing field level for all those who want to contribute to carbon reduction in the UK via the electricity market.

[Lord Teverson (LD)]

My Lords, I know the Minister always likes to hear optimism and congratulations on energy policy from these Benches. I will start with that, in that I am pleased that renewables—I understand the caveat about unsubsidised renewables—will be able to bid for the capacity market in future. The irony, somewhat, is that the form of renewables that costs the least and is most likely to be unsubsidised—onshore wind—has been banned by the Government. I think others will speak about that area later in this debate.

The capacity market came into operation in about 2014, which to us in this House probably sounds like yesterday, but in the development of the energy market—decarbonisation and the way in which variability, storage technology and all those other areas have moved forward—there has been a big change. The question we should come back to—as well as many of my noble friend Lord Stunell’s excellently made points—is: where do we need to go with the capacity market at this stage?

In this statutory instrument we have more of the same, to catch up with what we have not been able to do because of the European Court of Justice decision. I suggest that the capacity market, which was essential back when the Energy Act put it into place, is more questionable at the moment. I ask the Minister: what has the cost of the capacity market been to date? In recent years, what percentage of annual electricity consumption has the capacity market contributed? I am trying to get an idea of the scale of this instrument’s use and how important it has been. One thing is quite obvious: I understand that there has been an auction during this period of standstill. Given that there is no panic about this, do we need this capacity at all?

I repeat my noble friend’s points about demand-side management. It has been a characteristic of energy policy that we have always prioritised supply and capital investment, following demand, rather than trying to reduce demand and looking at the demand side rather than the supply side of the equation. Will we be in a position where demand-side response—the aggregators and that side of the industry, so important to our future —is able to compete not just in the one-year bids but in the three- and four-year bids? Will that now be the case? Where are we on storage? I believe that it is still not included as a sector that can bid for the capacity market. I hope that I am wrong on that, but I would be interested to hear that from the Minister.

So my real question is: how does the Minister see the capacity market moving in the future? I would love to see in the new energy White Paper—I hope the Minister will tell us this evening when it will be published—onshore wind coming back on to the system.

In terms of this particular statutory instrument, yes, it does the business, but we need a far more strategic approach to this part of the market than we have at the moment.

--- Later in debate ---

[Lord Henley]

I might have to write in greater detail, but both T-1 and T-4—the short term and longer term—deal with the point about discrimination. I might be wrong, but I will think about that and come back to the noble Lord.

[Lord Stunell]

I am sure that the Minister is aware that for the cost of a gigawatt of generation capacity, you could have a great deal more demand reduction capacity, but only if the right trading environment is in place. If I can offer support to my noble colleague on the Front Bench, it does mean that by the time you have built the generating capacity, the case for the demand-side reduction shrinks. The noble Lord’s argument that six months was therefore justified in the one case, and 15 years was necessary in the other, is precisely the point that the European Court of Justice felt was evidence that the European Commission had not looked thoroughly enough at the UK Government’s scheme. I would have expected him to be saying that this aspect had been reviewed in bringing forward alternative regulations to the House.

[Lord Henley]

Again, it might be better if I write to the noble Lord on that point. He is aware that the Commission—which we support on this—is not happy with that judgment. It needs to be looked at and, as I made clear earlier, we are working with the Commission to ensure that it has everything it needs to continue considering that wider state aid approval for the regime as quickly as possible. I will write to both noble Lords on that point. I made it clear to the noble Lord, Lord Teverson, that I will also write with a more detailed letter on the cost of capacity auctions and the amount of capacity that has been used in the past.

The noble Lord, Lord Teverson, also asked about storage. Both he and I have stressed on other occasions that we see storage playing a great role in the world of energy in the future. I can give an assurance that storage is able to compete in the capacity auctions and has been able to since the outset. I have dealt with the question from the noble Lord, Lord Grantchester, about when we will publish the five-year review; as I said, we hope to do so shortly. That will not be the end of the process, which will identify areas of the capacity market’s design where further amendments may be necessary.

The noble Lord, Lord Grantchester, also asked about support under some schemes preventing renewables participating in the capacity market altogether, where other schemes simply deduct from the capacity market payments. It remains appropriate to exclude CMUs which benefit from contracts for difference, the renewables obligation and feed-in tariff payments, as those are the most likely and significant alternative support for CMUs participating in the capacity market. That prevents the accumulation of state aid. Less significant forms of support do not exclude renewable CMUs from the capacity market. Instead, the rules require new-build wind and solar generation to declare this support, so that it can be deducted from capacity payments. What a capacity provider is authorised to receive under state aid, in addition to its capacity payments, does not need to be declared or deducted.

I turn to a matter rather beyond this debate: our general policy on onshore wind. I can tell both noble Lords who raised the subject that I know of no plans to change that policy. We have seen great improvements in offshore wind, which has the great benefit over onshore wind of being in windier, flatter places where it is possible to build even bigger windmills than are possible on land, as I think even the noble Lord would agree. I therefore cannot offer him any hope that our policy is about to change on that.

Lastly, the noble Lord asked about the energy Green Paper, which we still hope to publish before we break for the summer. He will have to be patient for only another four or five days.

I have dealt with most of the points raised and offered to write on others. I beg to move.

Electricity Capacity (No. 1) Regulations 2019

Lord Stunell Excerpts

Wednesday 3rd April 2019 Lords Chamber

[Lord Tope (LD)]

My Lords, I am grateful to the Minister for a full and clear explanation of both the regulations and the need for them, which arises from the CJEU ruling. As he has said, the majority of the industry clearly supports these regulations, they are necessary, and they go a considerable way to reduce uncertainty. Therefore, we certainly will not oppose them and will support them.

First, on the theme of uncertainty, the Secondary Legislation Scrutiny Committee, to which the Minister referred, concluded its report to your Lordships by referring in paragraph 18 to the “considerable uncertainty” and suggesting that we might wish to explore further how the Government propose to deal with it. I will be brief, because this is not my subject. Can the Minister tell us specifically how the Government will continue to engage with the industry—I am sure they will wish to reassure the industry that that will be the case—and what steps they will take to try to perhaps restore and certainly to keep the confidence of the industry and investors at what is inevitably a very uncertain time?

Secondly, probably the greatest uncertainty at this precise moment, which is not particular to this industry, is our place within the European Union. The regulations are brought forward at this stage on the assumption, quite rightly, that we are members of the European Union and that we will remain members of the European Union during the implementation period of a negotiated withdrawal agreement. The inevitable question comes: what if that is not the case? We may all hope—I certainly do—that that is the case; indeed, I hope that we remain members of the European Union, full stop. But at this moment, many would argue that the most likely scenario is a no-deal withdrawal, not in weeks but days. That may happen. Can the Minister give us any guidance as to what preparations have been made and how ready the Government are to deal with that scenario if, unfortunately, it actually happens?

My third point was raised in the other place when it debated the regulations yesterday. There was strong doubt whether the CJEU ruling was based solely on procedural grounds, as the Minister said and the documents on the regulations state. It was suggested that other grounds were included in the ruling; it would be useful to know whether the Government recognise that to be the case and, if so, what steps they are taking to deal with those other concerns.

I thank the Minister again for bringing the regulations to the House. They are necessary in the light of the ruling and the uncertain times we are in, and I wish them a fair way for such time as they are needed.

[Lord Stunell (LD)]

My Lords, first, I support what my noble friend said and pick up in particular his final point about the scope of the judgment in the European Court.

I thank the Minister for his reply to my Written Question last week. I am pleased to have had the Answer, although not so pleased with what the Answer was. The point I was raising, which I want to raise now, is that in looking at the capacity market, the UK Government have not made sufficient allowance for demand reduction strategies. They have looked purely at providing capacity to fulfil forecast future electricity demand.

We know from the predictions made over the past decade and the reality of electricity consumption that those predictions have, year after year, been wrong, assessing an electricity demand that has not been reached. In other words, electricity demand is not rising as rapidly as the predictions, and the calculations being used by the Government in drawing up state aid do not provide a level playing field between cash available to those delivering additional capacity and cash available for those who have strategies to reduce the demand for electricity.

My Question sought to explore that point, but the reply I had was that that was not the case: there is an allowance for demand reduction and, if I understood the reply, it would be possible, at least in theory, for those with a strategy to reduce demand to draw on the same aid as is available for those who would provide additional capacity to meet demand. Is that the case? In particular, is the calculation of the time period over which a capacity building strategy is calculated and over which a demand reduction strategy is built the same?

The point being made to me by those who might be willing to provide a strategy to reduce demand is that it is not a level playing field. My understanding of the European court decision is that it was not just a technical and procedural point: the court believes that the British Government are fiddling the figures and not providing a level playing field for both sides of that equation. I would like the Minister to provide a more complete answer than the one he gave me last week and perhaps he will explain to noble Lords how in the future the requirements of the European court judgment will be met and how the calculations will be put on a more even footing so that we can do what is surely more sensible, which is to spend taxpayers’ money on reducing demand rather than spend it on fulfilling capacity commitments which are in fact unduly onerous and pessimistic.

--- Later in debate ---

[Lord Henley]

I am grateful to the noble Lord, Lord Grantchester, for his support for this instrument, and I look forward to that support in a few minutes when I conclude my words. At the same time, he called for a halt. Since we are talking about security of supply, I simply cannot go along with him. It is the Government’s view, widely supported by the industry, that the capacity market is the best way to deliver security of electricity supply at the lowest cost to consumers. We will debate this matter tomorrow at Question Time. It is important that we have security of supply and that we have it at the best price. As I said in my opening remarks, our current security of supply positon is robust. I cited the figure that we reckon the margin this winter will be— over 11%, the highest for five years. That shows that the market works.

A number of concerns have been raised and a number of questions put, and I hope I can deal with them. I will first get on to the question of uncertainty and engagement that the noble Lord, Lord Tope, raised, echoed by the noble Lord, Lord Grantchester. It is important to recognise that there is uncertainty. We appreciate that any judgment of the Court of Justice of the European Union creates uncertainty and potential difficulties for the industry.

As I made clear, the Commission is investigating the scheme, and recently confirmed that it is moving on to the next phase. This is an important step as we work to reinstate state aid approval for the capacity market as soon as possible. We are working with the Commission to ensure that we have everything necessary to reconsider the scheme as quickly as possible. I assure the noble Lord, Lord Tope, that we will continue to engage regularly with stakeholders; we will provide them with updates on progress and the re-notification process, and clarity on arrangements during and following the standstill period.

We are confident that the Commission will approve the scheme following its investigation. We hope that that investigation will conclude ahead of October 2019, the start of the 2019-20 delivery year. We consider it very improbable—although it is possible—that the decision will be delayed into 2020. In the unlikely event of a negative state aid decision, or no decision, by October 2020, the instrument will terminate capacity agreements and, as I said in my opening remarks, any entitlement to receive capacity payments. Supplier payments then held by the settlement body will also be returned, which will ensure that supplier payments cannot be held indefinitely.

The noble Lord, Lord Tope, asked about the position after a no-deal Brexit. The Government have made it clear that no deal is exceedingly unlikely. However, while the UK remains a member state or is subject to an implementation period following a negotiated withdrawal, the current state aid regime will apply and the Commission will need to approve the scheme. The Government intend there to be a domestic state aid regime after the UK leaves the EU. The draft State Aid (EU Exit) Regulations 2019 are currently before Parliament. In a no-deal exit, the UK will be subject to a domestic state aid regime, for which the Competition and Markets Authority, rather than the Commission, will be the regulator. This assumes that the draft State Aid (EU Exit) Regulations are agreed by both Houses and made. If, at the time the UK leaves the EU, the Commission has not yet approved the scheme, it will then be a matter for the CMA to investigate and approve that scheme.

The noble Lord, Lord Tope, asked whether the decision of the court itself was purely procedural. This question was echoed by the noble Lords, Lord Stunell and Lord Grantchester. The court gave examples of where the Commission should have had doubts and should have investigated them, but it did not rule that the design was incompatible with state aid requirements. We have carefully considered each issue raised through that court judgment and remain confident that the design of the capacity market is compatible with the state aid requirements. We cannot pre-empt the outcome of the Commission’s investigations, but we are confident that the scheme will be approved by the Commission following investigation, not least because it has approved six other capacity markets since 2014.

The noble Lord, Lord Stunell, asked whether the capacity market did not sufficiently support demand-side response. As I made clear, the purpose of the capacity market is to ensure security of supply, at least cost, for the consumer—something we all desire to achieve. It is technologically neutral and allows all types of capacity, including DSR, to participate without discrimination.

The design of the capacity market provides for features that support demand-side participation, including lower credit cover, participation as price takers and three metering options. The Government are also taking broader action to support DSR, as set out in the smart systems plan. The five-year review of the capacity market, which the noble Lord, Lord Grantchester, asked about, will also explore further ways in which DSR participation can be supported.

The noble Lord, Lord Grantchester, also asked about the judicial review and the case raised by Tempus. We are confident about our position. The Government will robustly defend this challenge and, as I said, we are confident in the steps we are taking to reinstate the capacity market and to operate the scheme to the fullest extent possible during the standstill period within state aid constraints.

Turning to renewable generation and carbon reduction, the noble Lord, Lord Grantchester, implied that we were not serious about switching to low-carbon electricity generation. As he will be aware, we are committed to switching away from coal. We have announced that we will be giving up coal in 2025 and increasing the share of renewables and gas in electricity generation while reducing the cost of renewables. We have seen a dramatic reduction in the cost—I recently cited the figures for offshore wind—and we have invested £92 billion in clean energy since 2010. We have quadrupled our renewable electricity supplies since 2010 and the share of electricity generated from low-carbon sources reached a record high of 56% in the third quarter of 2018, with 33% from renewables. I hope the noble Lord will accept our commitment in that area.

[Lord Stunell]

I thank the Minister for what he has said so far and for his shopping list of money well spent. I do not wish to challenge that but is he satisfied that the Government’s investment is rightly balanced between generating new capacity—renewable or otherwise —and demand reduction? He said that the system takes account of DSR but he did not answer my point about whether there are equal investment opportunities to reduce a kilowatt hour as there are to increase capacity by a kilowatt hour.

[Lord Henley]

My Lords, I am satisfied but I will consider carefully what the noble Lord has said and look again at the Written Answer to which he referred, which I sent to him last week. If I can elaborate on it and provide him with further examples of how we have taken DSR sufficiently into account, I shall write to him on that if I feel it necessary. However, I do not accept his basic premise that there is not a level playing field.

I believe I have answered all the questions put to me. This is an important statutory instrument and I commend it to the House.

Climate Change

Lord Stunell Excerpts

Thursday 24th January 2019 Lords Chamber

[Lord Stunell (LD)]

My Lords, it is a great pleasure to take part in this debate. It is timely and important and I strongly endorse the many excellent contributions that have been made so far. I intend to focus my remarks on the UK’s domestic policy response to the formidable challenge of climate change. It is—literally—domestic policy: what is it doing about houses? We have to face up to the fact that we have 20 million homes in this country and the Government would like to be building an extra 200,000 a year, and the standards of the existing and new ones are absolutely crucial to tackling climate change. So I am afraid that my remarks will not be quite as positive as those of the noble Lord, Lord Bethell. Perhaps he will provide the carrot and I will provide the stick to the Government to persuade them to get on with some of the things that need to be done.

The built environment contributes 30% of the carbon dioxide emissions of the United Kingdom, so any policy that we have to reduce carbon emissions has to take tackling emissions from the built environment deeply seriously. Better energy efficiency for our buildings, especially for our homes, reduces carbon emissions, saves energy consumption, reduces the amount of power we need to generate in the first place, lowers the cost to the consumer and improves their health, and reduces costs to the NHS. There are so many different boxes that you have to tick once you start on it that it is perhaps very surprising that we do not take improving energy consumption in the built environment with anything like the seriousness with which we treat improving energy consumption in the transport sector—which actually produces fewer CO₂ emissions.

I am afraid that the present Government have a very poor record of inaction and of making things worse as far as the built environment is concerned. They blocked the introduction of zero-carbon homes energy standards for new homes in 2016, they have frozen and diverted a lot of the energy company obligation payments which were due to be supporting improvements to the existing housing stock and they have abolished feed-in tariffs. At present, 51% of homes with cavity walls still do not have insulation in those cavities, 63% of the roofs of homes in England have less than 200 millimetres of insulation, which is regarded as the minimum to ensure sensible living standards, and 44% of those on the gas network still have older boilers with up to twice the gas consumption of up-to-date condensing and combined boilers.

Those figures come from the ironically titled Progress Towards the Sustainability of the Building Stock in England: Sixth Parliamentary Report, which was published in July last year. It may be characteristic of the problems that its publication date was delayed by 15 months and came only after I had asked three Parliamentary Questions about when it was going to be published. It contains many well-hidden gems, including that the average efficiency of new homes fell in 2016 compared with 2015.

The Government try to deflect responsibility for taking action on to others and to rely on transparency and peer pressure in order to achieve progress. That is why I asked a Question in December about the proportion of public buildings that display energy performance certificates and what the Government were going to do to improve those figures. The Answer I got was interesting.

“We have no estimate of the proportion of publicly-owned buildings to which the public has access which display an Energy Performance Certificate”.


It goes on to state that responsibility for enforcement rests with local weights and measures authorities—LWMAs. They have guidance issued by the department. The Answer states:

“This guidance has been updated periodically since 2008, most recently in March 2016”—


and it is for them to get on with it. I looked at that guidance, but obviously the person who drafted the Answer to the Question did not.

I am very aware of the time here. The guidance makes very clear the duties of those authorities, and that their duty is to report annually to the department, which will,

“publish each year the outcome of their submissions”.

If that is true, the Answer I received to my Question was clearly false, because the Government do have an estimate of the progress being made and of the proportion of public buildings. It might have been more truthful to say, “We haven’t actually bothered to look and we really don’t care that much”. The impression is that slowly, stealthily and insidiously the Government are backing out of their climate change commitments. I will be more charitable: I think that they have just completely lost focus on the easy wins of CO₂ emission reduction in the built environment.

That brings me to my final point. A briefing from Oxfam alerted me to the fact that the UK Government are currently considering offering to host COP 26—the Conference of the Parties 26—in 2020. Oxfam wants the UK to do so in order to,

“ensure that the international community honours their commitments”.

My plea to the Government is that, while we weigh up the options of hosting that event and of pulling splinters out of other nations’ eyes on their carbon emissions, we should also urgently start to pull the planks out of our own.