Brexit: Energy Security (European Union Committee Report)

Lord Teverson Excerpts

Wednesday 6th June 2018 Lords Chamber

Moved by

[Lord Teverson]

That this House takes note of the Report from the European Union Committee Brexit: Energy Security (10th Report, HL Paper 63).

[Lord Teverson (LD)]

My Lords, while noble Lords from the previous debate leave, I will declare my interests. I am a trustee of the Green Purposes Company and a trustee of Regen Southwest, both of which are non-financial interests. I am also a board member of the Marine Management Organisation, which has responsibility for licensing offshore renewable projects in English waters.

If one thing is clear, is it is that a robust, reliable and affordable energy system and network in a country are absolutely vital for its economic—let alone its social—stability. It is in that context that we wrote the report and I am bringing it to the Floor of the House today.

A key point to remember is that while imports of energy from electricity make up only 5% from the EU and 7% for gas—although when we include imports from Norway it is much higher at close to 46%—they are growing because of interconnectors in place and the need to be able share loads in terms of energy systems. For that reason, and because we will be connected to the rest of the European Union’s energy systems after Brexit, this is an area where we believe that government action will be important.

One of the ironies of Brexit is that the United Kingdom has been one of the leaders on energy policy development within the 28 and, indeed, at the time of the 15. The internal energy market was created at the behest of, and is in the image of, a market that the UK would want to see and has helped to evolve. How that evolution takes place after we have left is of course another matter, but we have been fundamental to securing the position we are in at the moment.

I believe that the report is measured. While it sets out the challenges it also looks at the opportunities, and I shall go through some of those because it is important to stress them as well as looking at the challenges. There have been a number of developments since the report was originally published and there are areas in which I am sure that the committee would welcome the changes that have taken place. The Prime Minister spoke in her Mansion House speech of wanting a close association with Euratom, which is key to the energy area. She also said that she wanted to ensure that there would continue to be a single electricity market in Ireland, a market that is absolutely unified, indeed more so than the wider internal energy market itself. She has also stated that she wants to see our continued participation in the internal energy market. As a committee we strongly endorse that wish, although how to do so might be rather more difficult. I shall come on to that.

Claire Perry, the Minister responsible for energy from renewables, in response to a question put by the noble Lord, Lord Krebs, who will speak later in the debate, told the committee that Britain would remain operational within the EU emissions trading scheme up until the end of the transition period. We welcomed that statement. As we discussed earlier today, we welcome the progress that has been made on the Nuclear Safeguards Bill and the various discussions not only with the International Atomic Energy Agency but with our partners worldwide as well. Lastly, we welcomed in their response to the report the Government’s continued commitment to the Paris agreement, which is fundamental not only to us and the European Union but to the global position in terms of climate change.

I will go through some of the opportunities that we set out in the report. Post Brexit, we can operate our systems and networks in a way that suits our own energy grids within Great Britain. We can set our own decarbonisation and renewables targets, something that has been a source of friction in the clean energy package legislation that has come recently from the European Union. We may have more flexibility on state aid for chosen projects and how the Government might want to take forward their own energy strategy. At the moment, the charging structures for interconnectors are highly regulated by the European Union and we could opt out of those. Moreover, we must have a 5% tax floor for VAT and we could remove that for consumers. That was our list, but I am sure that the Government will set out many other opportunities that we look forward to hearing about from the Minister.

However, our report clearly needed to concentrate on the challenges, whether on costs for consumers both industrial and retail, security of supply, influence and continuing participation in a system that we will still be closely connected to, investment levels whether in interconnectors or energy systems, and the whole question of labour supply, an issue which has been a theme in all my committee’s Brexit reports. Moreover, as we heard from speakers in the previous debate, it is a theme in other areas as well. The island of Ireland is particularly key in the energy area, but not on that list is the issue of tariffs. There is no substantial risk of tariffs. They are potentially possible on electricity, but at a minimal level and are very unlikely. They are not applied to gas, although there is a potential issue as regards tariffs on spare parts and machinery imported for replacement of energy systems, particularly in the nuclear area.

On costs, our key concern was that outside the internal energy market we will not have the ability to participate in what is known as market coupling or the network codes that drive European energy systems, particularly in electricity. Does that really matter? It matters in terms of efficiency of trading, and it particularly matters the more that we are connected to the continent, as we will be increasingly, and the fact that those interconnectors give us a good opportunity to share loads and to import and export according to the different peaks in various countries, as well as the ability to share loads to prevent and reduce the amount of capital investment that will be needed for our energy systems, which of course saves on costs. As a part of that, our current membership of the European Agency for the Cooperation of Energy Regulators, known as ACER and one of the many acronyms used in this area, and its so-called subsidiaries, ENTSO-E and ENTSO-G for electricity and gas respectively, will come to an end. We will not be members unless we are inside the internal energy market.

Something that came over very strongly from our witnesses was that those inefficiencies in terms of trading will mean that upward price pressures in wholesale markets for gas and particularly for electricity will be inevitable. The answer to that is to stay within the internal energy market if that is possible, and indeed our witnesses almost universally wanted to achieve that. There is a real upward pressure on prices at a time when all of us are aware through the price cap Bill that energy prices are of considerable concern on all sides of the House and of course to the public and consumers.

I turn to security of supply. An area of the internal energy market that has grown in solidarity is in gas through the security of gas supply regulation. Where there are shortages in supply, there are requirements for individual nations within a region to help each other out. We will no longer be a part of that. However, the key area in security of supply is in the nuclear sector, which provides around a fifth of our energy. On Euratom, it comes back to our being able to trade in nuclear supplies, people, and in all the other areas where we enjoy flexibility at the moment. I will not go into detail on Euratom because we discussed those issues earlier. If we solve the Euratom issue and settle our nuclear co-operation agreements, we will be okay, but that is one area where we have an issue around security.

A stark point came from the energy ambassador for Switzerland—it has an ambassador just for energy issues. We wanted to explore as a third country, even though it is one that is very close to the European Union in all sorts of ways, what sort of influence it had. It was quite a shock to learn that, although Switzerland is literally at the centre of the European electricity and gas networks, its ambassador said that it has very little influence on European policy; sometimes it had some influence on regional policy for member states around it, but that was as far as it got. That again reinforced the need for us to find a way to stay close to the internal energy market; outside it, one has very little influence on European policy in this area, even when one is connected to those networks. Norway has a little more influence, perhaps, because it is a major gas supplier, but not a great deal more.

One of the other themes apart from labour was investment. As in many other areas, the European Investment Bank, which has invested some €37 billion in energy in the UK since 2000, is a major source of finance. This is about not just finance but expertise in terms of large deals and getting lower cost capital, hence evaluation expertise and being able to crowd in private investment. The Green Investment Bank is no longer a public sector body in this country. There is the challenge of where that investment, which is often the foundation of other investment—particularly offshore —will come from in the future. That is true in terms of both interconnectors and investor certainty once we leave the EU. In fact, programmes such as the Connecting Europe Facility, which has €5 billion available to it, and projects of common interest, where the UK has had €40 million for interconnectors, are also key areas that will no longer exist.

It was interesting that skilled labour was mentioned in the previous debate. One of the areas of concern for my committee is not just skilled, but less skilled labour or labour that would not be defined as skilled by the Home Office. In this instance, particularly in the nuclear field but also in the broader energy industry, there is a shortage of engineers and we rely very much on foreign labour. That is certainly the case in the nuclear industry: we have mentioned in this House the problem of feel-stixers—oh! steel-fixers—for EDF and Hinkley C, where such skills would not be included in a skills shortage list at the moment.

Lastly, I want to come on to the question of Ireland. We already have a single market there, which has become even more meshed and inseparable this year. It is vital that we maintain that single market in the island of Ireland. It is so impossible to pull it apart that a practical solution will have to be found. That will be key in the Irish negotiations.

How do we stay closer to the internal energy market if we keep our red lines? How do we keep our influence if we are not in that market? How do we remain an associate of organisations such as ACER that are critical in terms of energy and market efficiency throughout Europe? How do we keep investment? How do we find investment when the EIB and other European schemes have disappeared? How do we ensure our labour mobility for not just skilled but unskilled labour? How do we ensure that Ireland remains as one? How do we take advantage of the opportunities of Brexit as well? I am sure that my committee would be very pleased to hear the Minister’s reaction. I beg to move.

--- Later in debate ---

[Lord Teverson]

My Lords, I thank the Minister for his response. First, I reflect the thanks expressed by a number of members of the committee to our clerk, Alexandra McMillan, and our policy analyst Jennifer Mills, who looked after this report so well. They are not here this evening, and one of the reasons for that may be that they are not in their offices this week because the energy security of Millbank House has totally failed. So, although Britain might not be in energy security mode at the moment, this House is. I have not been in my office this week for the same reason, but I hope that that will be put right next week.

I shall not thank all noble Lords individually but I thank everyone collectively for their contributions. I particularly thank the noble Lord, Lord Davies of Stamford, who participated in the previous debate, although I was not here for that. I suspect that it had a very similar theme but I will not be checking it to such a great extent in Hansard. I am also very pleased to see the noble Lord, Lord Grantchester, on the Front Bench. He has obviously recovered well from his malady.

I thank my noble friend Lady Sheehan for mentioning prices. During his witness session, the Minister, Richard Harrington, was fairly relaxed about the whole subject. It is worth taking up the point about the importance of energy prices, in that we still have some 34,000 premature deaths over the winter and in England alone some 2.5 million households are still in fuel poverty. This is a real issue. I know that the Government understand that as well and they have introduced their price cap Bill, but this is an important area.

I shall say just one thing about the internal energy market, which many of us discussed. I do not see how we will remain a member of that market given the red lines that we and the European Union have in the negotiations, unless the conversation changes fundamentally. That inevitably means that we will not be at any table in any significant way with any influence whatever over EU energy policies post Brexit. The Government probably understand that but it is something we need to work on and we need to find a different basis for the discussions.

I challenged the Minister to go through the positives of Brexit regarding energy but I did not notice any in his speech. I listed the ones that the committee found but, in going through them, we found that they were minor and pretty pathetic. That internal energy market is the goal and I do not see how we can leave it at the moment.

We have come to the end of the evening. The very last thing that I want to say is that, as the negotiations go on and on, Europe is losing interest in Brexit. It has problems with Italy, eastern Europe and the rule of law, as well as migration and, potentially, the eurozone. Brexit will become more and more minor. Whether on energy or more broadly, if we do not get ourselves into gear pretty quickly, our negotiating position will degrade because there is a lack of interest in us as a subject. Regrettably, I think that that is true with regard to energy as well. However, I wish the Government well in the negotiations and I too look forward to their negotiating position, which I hope will have energy as a core part, as reflected in the Prime Minister’s Mansion House speech. I thank everyone for their contributions.

Motion agreed.