Hinkley Point C

Lord Teverson Excerpts

Tuesday 26th June 2018 Lords Chamber

[Lord Henley]

My noble friend, with his local knowledge as the former Member for that area, knows exactly what his former constituents are going through, and he is right to address those points. All sites of this sort go through a rigorous planning process. In that process, it is possible for the planning authorities to grant planning permission through a Section 106 agreement, looking to get benefits from the developers in that area. That has been dealt with by the local authority in that process.

On top of that, as I made clear in earlier answers, there are also the advantages to the area through spend in the area—I mentioned the spend directly on the site, on the roads and on other things, the contribution that EDF is making, as well as the spend on the supply chain in the entire south-west region.

[Lord Teverson (LD)]

My Lords, we are often told that one Parliament cannot bind the actions of the next, and we are in another Parliament now. Clearly, as the noble Lord, Lord King, said, the disruption to the local community is now. So why do the Government not think that it would be better to bring these payments forward? The district authority, Sedgemoor, has proposed that ridding the district of fuel poverty would be an excellent way to use some of the money—appropriate and something that could start now. Surely the Government could do that.

[Lord Henley]

My Lords, we have a process, we announced what that process was and that process is to bring in benefit to the area when the plant becomes operational. Meanwhile, there are other ways in which EDF can help, which I have gone through—the Section 106 agreement and other things, and the spend it is making in the area which, again, is of benefit to the area. I could go on listing—

Energy Policy

Lord Teverson Excerpts

Monday 25th June 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, the Hendry report comes out with headline figures that it is important to bear in mind as we think about and discuss what was said in the Statement. The report states:

“Across the National Audit Office’s three Value for Money tests, Tidal Lagoon Swansea Bay can match or outperform the Contract for Difference awarded to new nuclear power station Hinkley Point C with relevant support from Welsh Government …Tidal lagoon capacity can reduce UK system carbon emissions by 36% in 2035 … Lifetime CfD subsidy cost of £302-£390m achieves net positive social NPV benefits of £787-875m”.


That is a factor of more than 2:1, which is a lot better than the return HS2 and some other projects that I can think of will get.

Of course, that is not the whole story. Although the Statement was very strong on direct costs and the problems that the Government would have in justifying them, there are other benefits that would come from a project such as this. This is a first in its class—a first attempt to do something new in alternative energy production—so there is a difference there that cannot be measured in terms of the direct costs of well-tested wind or solar arrangements. There is an amenity, because clearing up Swansea Bay and costing a very small amount to provide something that is visually attractive and also rather beautiful cannot be costed. In order to give confidence to the overall task that we as a country have to make sure we have a diversity of supply, starting things that are new and different would add something that is not easily costable.

In the past two years, the Government have repeatedly kicked a decision about Swansea into the long grass, and the handling of this must surely be agreed by everyone to have been absolutely atrocious. Not only have the Government taken an inordinate amount of time to come to the House today, they have kept Tidal Lagoon Power, the Welsh Government, the trade unions and other stakeholders completely in the dark about what was happening. Indeed, they had to learn about it through leaks in the press. Indeed, it emerged in a Select Committee hearing last month that the Minister had not spoken to Tidal Lagoon Power in more than 16 months. In the last few days there have been conflicting reports indicating that a Statement was coming last week, then that it was coming this week, and then that there would not be a Statement—and now here we are. This is no way for the Government to conduct themselves on an issue that is so important for Swansea, the UK economy, the climate and therefore the world.

The key point here is that tidal lagoon power is a new, world-first technology, and yet it has been judged as if it were just one of a number of things that could be done in order to get us on the path to a carbon-reduced energy supply. The Government’s decision on Swansea tidal lagoon is of public policy importance not only because of its impact but because of the potential it offers the UK economy to meet our global climate change targets.

The project is estimated to generate and support more than 2,000 high-skilled construction and manufacturing jobs. It could engage more than 1,000 businesses in its supply chain—from figures in the Hendry report we know that the supply chain reaches right across the UK—and it could power directly more than 150,000 homes once it is constructed.

I go back to the point about being a pathfinder. The technology that is tried out successfully in Swansea could be rolled around the UK. It is not surprising that we might have problems exporting it since it is a very geography-specific solution. However, given our tides, our climate and our particular style of landscape, it seems to be something that would work in the UK.

Finally, tidal technology could make a valuable contribution to the UK’s transition to renewable energy, which is becoming ever more urgent. The UK is currently on track to miss its globally agreed climate change targets, so the Government’s plans in relation to Swansea Bay and renewable energy generation as a whole are of greater significance than they would otherwise be.

If we are going to have a diverse energy mix, tidal lagoon technology has an important part to play in our transition. The Government say that the costs are too high, but that seems to be a very narrow description of the costs involved. I understand that, even though that is the main reason why they are not going forward, they have not even met Tidal Lagoon Power to work out what additional funding could be supplied by the market. Perhaps when he responds the Minister could tell us what the acceptable cost is that would allow the project to go ahead.

[Lord Teverson (LD)]

My Lords, we on these Benches believe very much that this is the wrong decision. I will very quickly give the reasons why. First, in order to meet our climate targets, we need all technologies to contribute. We believe very strongly—as was shown in a number of studies—that there would be a reducing price in terms of scale as the technology rolled out. We have seen this very strongly with other renewable technologies.

There are other elements to the project. It is also partly an energy-storage project—an area that is particularly needed in terms of the variability of other renewables. And of course, perhaps not in Swansea but in other lagoons where something similar could have happened if this had gone ahead, there is the whole area of flood management that would also save considerable costs in terms of a holistic management approach to the coast.

Of course, the irony is that 2018, the year we are in at the moment, is 10 years after the Climate Change Act, yet between 2016 and 2017 we saw a 56% reduction in renewables investment. So the curve the Minister talked about in terms of our improved performance will go down because of lack of investment. In fact, renewables investment last year was at its lowest since 2008, when the Climate Change Act came in. We are not heading to meet our fourth or fifth carbon budget and we need to reduce our carbon emissions by 3% per annum to get to our target in 2050. So we have an investment crisis at the moment.

The noble Lord, Lord Stevenson, mentioned the time taken over this. The Hendry report came out 18 months ago. I remember that the original discussions were during the coalition Government period. What message is this to investors in renewable technologies? The way that it has been dealt with, the timescales and the opaqueness of the decision taking are difficult to understand, particularly when it was obvious that the Government were going to say no several months ago and have only just got round to giving that reaction and decision.

I come back for a moment to costs and refer to the Hendry review. Charles Hendry was a Conservative politician and Minister of State. He was highly respected across the whole of Parliament when he was an MP. He said about the project:

“I believe that the evidence is clear that tidal lagoons can play a cost effective role in the UK’s energy mix and there is considerable value in a small … pathfinder project … Most importantly, it is clear that tidal lagoons at scale could deliver low carbon power in a way that is very competitive with other low carbon sources”.


That is something that cannot be written off in the way the Minister did.

I have the following questions. Why has it taken so long to take the decision, which was clearly going to be taken some time ago? How are we going to meet the fourth and fifth carbon budgets? Given the regular quote in that Statement about the costs of technologies, when are the Government going to bring back onshore wind, which is the cheapest of those technologies and the one that would help to bring down energy bills tomorrow and in the years to come?

[Lord Henley]

My Lords, I thank both noble Lords for their contributions and for their questions. I hope that I can deal with the points they made.

I will start with the point made by both noble Lords about the delay in getting the decision right. I have to say that the noble Lord, Lord Stevenson, in a sense answered that point. The important thing was that we wanted to get the decision right and wanted to look at it as a whole, not just in relation to the cost of energy but also taking into account all the other factors that the noble Lord mentioned, including, for example, the amenity advantages and—this was raised in another place—the use of steel and the effect that that might have on the Port Talbot steelworks. Of course we did. We looked at those issues, which made the sums much more complicated. At the same time, we were also seeing quite a reduction in the cost of offshore wind, as the Statement made clear. I quoted those figures; the reduction complicates matters further. It also makes clearer the case put forward by my right honourable friend about making this decision. That is why—at the right point, I would say—my right honourable friend came to another place and made decisions. It is my privilege to repeat them today.

The noble Lord, Lord Stevenson, asked about other potential benefits. There are some, which we looked at. In the end, one has to come back to them, whether they are amenity advantages or jobs in the construction phase, as mentioned by the noble Lord, Lord Teverson —or perhaps it was the noble Lord, Lord Stevenson. The benefits are necessarily limited and the jobs are limited to the construction phase. Though great, the amenity benefits are not enough to deal with the fact that, over the period of this project’s existence, we will still pay three times as much for electricity as for electricity that could be obtained from offshore wind, because the cost of that wind has reduced so much.

The noble Lord, Lord Stevenson, also talked about the need for diversity of supply. Again, I have discussed that at some length in this House a number of times. Occasionally, I put to noble Lords on the Liberal Benches the need to look at the advantages that might come from the extraction of shale gas. I know that the noble Lord, Lord Teverson, does not like to comment on that, but his noble friend Lord Bruce offered praise for shale gas, whereas his noble friend Lady Featherstone is not so keen. The noble Lord, Lord Teverson, looked as though he did not want to comment on this when we discussed it last week. We want diversity of supply because, as made clear by the noble Lord, Lord Stevenson, it brings us security. We want security, but not at excessive cost. I will not rehearse the figures in the Statement about the potential cost, but it is too great on this occasion.

The noble Lord, Lord Stevenson, also talked about new technology and the possibility of costs coming down. On this occasion, I do not think that the technology is particularly new. We are talking about boring earth, concrete and other things with steel into the ground or the sea to make barriers. That is the major cost. I do not think there is the scope for cost reduction that came with the development of offshore wind, where we saw installations getting bigger and blades getting more efficient. As a result, we saw the great advantages of technology moving forward. Here, we are dealing with what one might call relatively old technology that will not come down in cost.

The noble Lord, Lord Stevenson, asked what the acceptable cost was. As my right honourable friend the Secretary of State made clear in another place, he was not prepared to put a figure on the cost because other factors would be taken into account for each project, which we would look at in the context of other possible benefits and the cost of the electricity. We are not ruling out the prospect of tidal lagoons in the future but this particular one looked expensive. Other tidal lagoons might be cheaper if they are bigger. There are economies of scale in electricity costs. Each project would have to be looked at individually.

Both noble Lords talked about the reduction of carbon emissions. We accept that there would be such a reduction in this case. We want to go on doing what we can to reduce our emissions as much as possible. But again, as I want to make clear, we can do that only when taking costs into account.

I want to comment briefly on the alleged reduction in investment. There has been a reduction but a great deal of investment was made. We have seen rapid growth in renewables since 2010. We have seen the use of renewables go up from 6.9% in 2010, at the beginning of the coalition, to around 30% today.

I think I have dealt with most of the points made by noble Lords. I hope they will accept that, in the end, the case is pretty clear. The scheme was imaginative and good, and it was right that we looked at it in some detail, but the cost of the electricity is just too great.

Scotland Act 2016 and Wales Act 2017 (Onshore Petroleum) (Consequential Amendments) Regulations 2018

Lord Teverson Excerpts

Thursday 21st June 2018 Lords Chamber

[Lord Bruce of Bennachie (LD)]

My Lords, of course I support the instrument, not least because, as the Minister said, it fulfils a pledge of the Silk and Smith commissions to transfer these powers to Scotland and Wales, but I have one question and a bit of context, because the transfer of these powers has generated a lot more heat than light in Scotland, where the Scottish Government claim that this gives them the power to ban fracking or any other form of onshore exploration, which the Court of Session says does not exist. In other words, the First Minister says that fracking is banned in Scotland, but the Court of Session says that it is not and is simply subject to normal planning considerations, so we are in a state of confusion, which is no responsibility of the Minister or the UK Government, having transferred that power.

This will become a significant issue only if there is a commercial desire to do significant onshore drilling or shale activity in Scotland, which Ineos has been preparing the ground for. It is entirely hypothetical, but it has been stated that if the future of Grangemouth, for example, depended on being able to extract shale oil that exists right underneath the plant, the issue would become politically more real, because you would be banning something that had a significant impact for Scotland, as opposed to current theological arguments about whether we should be doing that.

The only question I have for the Minister relevant to the regulations is on the section that says that everything is devolved except for the consideration—which is presumably the fee that might be involved. I completely understand that the administration and licensing of oil and gas energy is a reserved matter and therefore entirely for the UK Government, but I wonder, given the context that I have just outlined, whether adding to the pot the economic benefit of a licence—not only the commercial benefit but the revenue and royalties that might accrue to the Scottish Government—could change the tenor of the debate.

I have to make it clear that my party is not in favour of fracking and supports a ban. I personally do not agree with that; I think we should wait and look at the facts and the science rather than take a decision before it becomes a reality. Right now, it is purely theoretical; the whole thing is a power to do something that no one commercially is seeking to do and which the Scottish Government and public say that they do not want to happen. However, I can anticipate a situation in which reality will say that it is material and significant—that there are jobs and investment that matter—and the devolution of this power will become a problem, albeit one for Scottish politicians, not UK politicians. But I repeat what I said about transferring the consideration as well—not necessarily the licence, but the consideration. That would just be another factor that might realistically be put into the mix.

[Lord Teverson (LD)]

My Lords, my noble friend has pretty well gone through everything that I might have said, except to say that from these Benches we fully support this extra act of devolution in an important area. It is about making sure that those in the energy field—in this area it is petroleum, but it can also be nuclear, renewables or whatever—such as energy developers and owners, put the environment or land back to what it was originally. Should be public need that, the Government or the devolved authorities are able to insist on a financial consideration. So we very much support these regulations.

[Lord Grantchester (Lab)]

I thank the Minister for his explanatory introduction. As he says, this instrument devolves Section 45A of the Petroleum Act 1998 to the devolved Administrations of Scotland and Wales. As obligations for plugging and abandoning wells are included in the licence conditions, Section 45A, relating to the financial ability of the relevant party, is a key part of the licensing regime that needs to be devolved.

I have only one curiosity to be satisfied in agreeing to the regulations. The territories of Scotland and Wales are defined in area according to the Territorial Sea Act 1987, which defines the onshore area to include up to 12 nautical miles offshore. Could there be a situation whereby an offshore activity could be undertaken under onshore petroleum legislation? I am sure the Minister may reply that up to 12 nautical miles offshore is, in fact, onshore territory. May I follow that up with a further question? Should there be a well or field that straddles the border both within and without the 12-mile limit, who would have to apply the wisdom of Solomon to adjudicate on whether it was onshore or not? While the Minister puzzles over the question, I am happy to approve the regulations.

Offshore Combustion Installations (Pollution Prevention and Control) (Amendment) Regulations 2018

Lord Teverson Excerpts

Thursday 21st June 2018 Lords Chamber

[Lord Teverson (LD)]

My Lords, as this is a separate debate, I declare that I am still a board member of the Marine Management Organisation, as far as I am aware. I was going to start by telling the Minister that I very much support this but I am not sure that that is in line with my noble friend Lord Bruce’s contribution. I am sure we are agreed on this. The industrial emissions directive is generally an excellent piece of legislation. It is intelligent, in that it looks at best practice and varies its requirements according to what is possible and as best practice improves over time. Of course, it replaces the rather obsolete large combustion plant directive.

I have only a couple of questions about this because I welcome it. Coming back to one of my noble friend’s questions about cost, the medium combustion plant directive 2015, which is part of the EU’s clean energy package, says specifically that for new plant the directive applies immediately but for retrofit it does not need to apply until 2025 or 2030, which comes back to my noble friend’s point. My only real question on that is: is that the sort of timescale the Government are looking at in their understandable, correct and—lenient would be the wrong word—intelligent approach to getting these installations right? My other question is one I should know the answer to: what is the enforcing authority on this and how is it enforced—how are emissions measured—offshore? It is fairly straightforward onshore but how is that done offshore?

[Lord Grantchester (Lab)]

My Lords, once again I thank the Minister for his explanation of the regulations before the House. This instrument widens the scope of the 2013 regulations to include both the industrial emissions directive, IED, which applies to large combustion plant over 50 megawatts, and the medium combustion plant directive, MCPD, which applies to plant with an individual thermal input of up to 50 megawatts.

Previously, the control of pollutant emissions from large combustion plant was not seen to be relevant for offshore facilities. Controls from the MCPD need to be extended to regulating emissions harmful to human health and the environment. The objective of these regulations is to control atmospheric emissions from offshore combustion plant that previously had been limited to onshore facilities under the Department for Environment, Food and Rural Affairs. The Explanatory Memorandum explains:

“The amending of the existing Regulations and widening of permit requirements are already familiar to offshore operators, who will receive a single permit covering all the qualifying combustion plant for each installation”.


We welcome this rationalisation. The memorandum further explains that OPRED, the offshore regulator mentioned in the previous regulations, will have its duties extended to implementing the instrument and will be able to recover its costs through fees charged for permits. Rather like the noble Lord, Lord Teverson, I assume from the previous regulations that OPRED will have the sanctions we have just approved to ensure compliance.

I understand that there are two large offshore plants over 50 megawatts, as the Minister explained, and 13 smaller offshore plants covered by the MCPD. However, the memorandum explains that implementation will apply to plants covered by the MCPD according to a timetable, whether they are new or already in existence. Further expanding on the words of the noble Lord, Lord Teverson, new plants will need a permit from 20 December 2018. However, if they are already in existence, implementation is phased according to whether they are greater or smaller than 5 megawatts. Those greater than 5 megawatts will require a permit from 1 January 2024 and those less than 5 megawatts will require a permit from 1 January 2029—five years later. This begs several questions. First, for what reason are existing plants given this grace period of five or 10 more years? I would be grateful if the Minister explained. Secondly, why is a distinction made between plants over or under 5 megawatts? Of the 13 plants covered, how many will fall each side of the line? What is the significance of that, and does it lead to a discrepancy on costs or to competitive distortion between the various plants? The consultation did not give rise to any comments on this point.

The consultation merely gave rise to issues regarding the ease of monitoring and access to exhaust stacks on existing facilities. I am glad to see that the department is aware of this and that OPRED will be taking a pragmatic approach. However, there could well be issues regarding the monitoring of carbon monoxide for its effects on human health. Can the Minister assure the House that this pragmatic approach will not give rise to possible monoxide risks to human health? With the assurance that these issues are not material, I am content to approve the regulations today.

Offshore Environmental Civil Sanctions Regulations 2018

Lord Teverson Excerpts

Thursday 21st June 2018 Lords Chamber

[Lord Bruce of Bennachie (LD)]

My Lords, I thank the Minister for that explanatory introduction, and I have just a couple of points to raise with him. I welcome the purpose behind this change in the law, which I assume is to reduce the number of incidents. Has the regulator made an assessment of the impact it will have? The figures the Minister gave are for the number of breaches, most of which were not serious. However, those that were serious cause a little concern, and obviously the point that prosecutions are not effective under the present law has to make it a consideration as to whether civil sanctions will make a significant difference.

My second point is whether the criminal burden of proof will have a difficult impact in the sense that it is quite a high standard of proof, although that is right and proper given that these are new regulations. Nevertheless, is the regulator satisfied that it will be able not only to prosecute effectively but, more importantly, that it will be able to create a climate in which there will be a significant reduction in the number of incidents? That is really what I am seeking. Has there been any assessment by the regulator of that?

[Lord Teverson (LD)]

My Lords, when I first read the regulations, I had a vision of a motorboat chugging up to an offshore oil rig and sticking a parking ticket on it with a fixed penalty fine, but obviously that will not be the situation.

One of the questions I was going to ask is about numbers. I thank the Minister for going through them. It is certainly very stark that we have two prosecutions for environmental offences out of 4,000. I guess that is one of the reasons that this measure is needed.

Paragraph 7.2 of the Explanatory Memorandum states:

“The need for the instrument has arisen due to a number of contraventions of environmental Regulations”—


the Minister has gone through those very well—

“going unpunished as a result of OPRED’s lack of a proportionate enforcement response”.

What resources does OPRED have? Is it an organisation with capacity? Is it underfunded at the moment? Is that part of the problem? Can it do enforcement in a quicker and cheaper way?

I want to expand on my noble friend Lord Bruce’s point. It rather surprised me that we were moving from criminal law to civil law but the burden of proof did not move to balance of probability; it stayed at the level of criminal proof—that is, beyond reasonable doubt.

Regulation 9(1) states:

“A person on whom a final notice is served may appeal to the Tribunal in relation to the decision to impose the fixed monetary penalty”.


That is fair enough. However, Regulation 9(2) states:

“In any appeal where the commission of an offence is an issue requiring determination, the relevant enforcement authority must prove that offence according to the same burden and standard of proof as in a criminal prosecution”.


If I were faced with a £48,000 fine, what would I do? I would just say, “Take me to court. Go through this criminal proof”. If that is getting in the way of prosecutions at the moment, the barrier is still there. There is a quick and easy way for justice to be avoided once again.

Going through the regulations, I looked at the fixed penalties. Although I realise that they are rather more draconian than going through a Cornish village at more than 30 mph, I wonder whether £500, £1,000—as for most of them—or the top limit of £2,500 would even be in the petty cash of the sort of organisations that we are talking about, which I assume are the potential offenders. Although I realise that the fines can go up to £50,000, I wonder whether organisations would even notice these fixed penalties, which are the cutting edge of these regulations. It seems that it will be part of the P&L line where you just pay your money to avoid environmental regulations.

I have a final question for the Minister. I assume that the answer will be no. I like the idea of immediate penalties in low-impact environmental impacts, so that the system is sped up and more enforcement takes place. Might this apply to any marine-based activities other than the hydrocarbons industry?

[Lord Grantchester (Lab)]

I thank the Minister for his introduction to the regulations before the House. They are relatively straightforward, which the memorandum explains very well.

The instrument will allow the offshore petroleum regulator for environment and decommissioning—OPRED—to impose civil sanctions under the Regulatory Enforcement and Sanctions Act 2008 for RESA offences and the European Communities Act 1972 for ECA offences. The memorandum explains that these regulations are due to the number of contraventions going unpunished, as the noble Lord, Lord Teverson, explained. However, I am a little more relaxed than he is on them. I will explain why. The regulations are a sufficient and proportionate deterrence against non-compliance. They will tackle poor behaviour and stop it becoming persistent. They are consistent with measures available to onshore environmental regulators.

--- Later in debate ---

Could the Minister share with your Lordships’ House the helpful table that the Minister, Claire Perry, shared with the committee in the other place, portraying the underlying regulation, the offence and the proposed level of sanction? I suggest that the department should consider publishing a report to Parliament each year on the operation of the sanctions. Should the Minister underline and confirm that civil sanctions in no way downplay the significance of environmental breaches and is not a signal that there will be in any way less stringent enforcement of the regulations, I will be very pleased to affirm them.

[Lord Teverson]

My Lords, before the Minister gets up, I declare an interest as a board member of the Marine Management Organisation, which has certain responsibilities relating to marine pollution in the English seas.

[Lord Henley]

My Lords, I note the declaration of interest from the noble Lord, Lord Teverson. I am more than happy to share the table that the noble Lord, Lord Grantchester, referred to, which my right honourable friend Claire Perry shared with colleagues in another place. I will write to the noble Lord and the other noble Lords who took part in the debate.

In response to the noble Lord, Lord Teverson, let me make it absolutely clear that the regulations apply only to breaches of legislation by offshore oil and gas companies in this field and that they do not cover other marine activities. Obviously they are, as the noble Lord, Lord Bruce, put it, designed to reduce the number of incidents. I quoted figures of a little over 4,000 since 2016. That figure sounds rather alarming, but it includes, as far as we know, spillages of the most minor sort, just as any petrol station will report even very minor spillages if it is operating properly. We want to make sure that we can deal with the more serious matters. By extending this to civil sanctions, we are trying to offer OPRED a more proportionate response in how it deals with these matters. I can assure the noble Lord, Lord Teverson, that OPRED is perfectly content with the resources that it has—it has some 20 offshore inspectors, no doubt speeding around in their boats waiting to put their parking tickets on the various rigs, as the noble Lord put it.

However, as we said, we want to make sure that we can make an appropriate response in the right case. The noble Lord, Lord Teverson, said, “But, hold on, you’ve got exactly the same standard of proof, and since they can appeal against this, wouldn’t it be just as easy to use the criminal sanctions, as they are already available?” The point of being able to use civil sanctions is that one can operate much more speedily, whereas with criminal sanctions, OPRED, not being a prosecuting authority, would have to hand this over to other bodies. Not understanding much about criminal law in Scotland—I am sure that the noble Lord, Lord Bruce, will correct me if I am wrong—I imagine that would be to the procurator fiscal, whereas by using civil sanctions, one can be more nimble-footed.

The imposition of civil penalties will be published. Although, as the noble Lord, Lord Teverson, put it, we are talking about small change for some of the big boys, it is our considered view that, because we can publish this information, offshore operating companies would be very keen to avoid the negative publicity. In addition, criminal prosecutions have to be retained in the relevant regulations for the most serious breaches. The noble Lord, Lord Bruce, suggested reducing the burden of proof for the civil prosecutions. I do not think that is possible under the parent legislation in terms of the powers we have to make this regulation—if I am wrong, I will certainly write to the noble Lord to correct it. Therefore, we will be looking at the same standard of proof.

I am grateful for the words of support from the noble Lord, Lord Grantchester. I commend the Motion.

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.

Nuclear Safeguards Bill

Lord Teverson Excerpts

Ping Pong (Hansard): House of Lords
Wednesday 6th June 2018 Lords Chamber

[Lord Broers (CB)]

My Lords, as one whose name was on Amendment 3, it gives me pleasure to support the replacement of that amendment with Commons Amendment 3A. The Commons amendment supports the basic proposals that we put forward in the Lords amendment but is more detailed and will better ensure that, if adequate agreements are not in place 28 days before exit day, the Secretary of State must request the continuation of the present Euratom arrangements. Amendment 3A more tightly defines the request that the Secretary of State must make and the relevant principal international agreements, and seeks to eliminate other possible ambiguities.

I would also like to say how much I welcome the Government’s acceptance of other Lords amendments, particularly the one that specifically points out that civil nuclear activities for peaceful purposes include production, processing or storage activities, electricity generation, decommissioning, research and development—a particular interest of mine—and any other peaceful nuclear activities.

Overall, I observe that the way this Bill has been handled is an excellent example of what can be achieved when there is constructive collaboration between the political parties, we Cross-Benchers and even between the Lords and the other place. Our parliamentary system has really worked well in this instance and it is my sincere, if naive, hope that this admirable spirit of collaboration continues throughout the consideration of all of the other Brexit-related Bills.

[Lord Teverson (LD)]

My Lords, I am also very pleased that we have come to a suitable arrangement. I support this amendment and reflect the comments of the noble Lord, Lord Broers. However, the challenges in achieving this are still major. We know from the leak from the risk assessment of the Office for Nuclear Regulation that we have an IT system that has only just been commissioned and timescales are very short for that £100,000 programme. We know that training has not been fast or easy in terms of recruitment or giving skills to those people to ensure that we have the right number of people in the Office for Nuclear Regulation. We have already had a concession that the standards that can be met by Brexit day are best international, rather than the Euratom standards the Government originally wished for.

Also, I understand that we have not yet had ratification of any of those nuclear co-operation agreements. Although I recognise and welcome the fact that we have agreement with the United States, agreement is not ratification. As the Minister himself said in a Written Answer to me:

“Ratification in the US requires the agreement to remain in Congress for 90 joint sitting days, whereby the US Senate and House of Representatives both sit, and the consent of two-thirds of the US Senate. Congress also has the option of adopting either a joint resolution of approval, with or without conditions, or standalone legislation that could approve the agreement. UK officials have held detailed discussions with the US and both sides are satisfied that this process can be completed ahead of the UK’s withdrawal from Euratom”.


I am glad to hear that optimism, but I still believe that that is a very difficult timetable to meet. I will be interested to hear from the Minister where we are on the other three nuclear co-operation agreements as well.

[Lord Carlile of Berriew (CB)]

My Lords, as another who took part in the earlier stages of this debate, my eye joined with my noble friend Lord Broers in expressing thanks to the noble Lord, Lord Henley, for listening to the arguments that were made earlier, and to the Government for showing that the dynamic relationship that sometimes exists between your Lordships’ House and the House of Commons actually improves Bills, even in the febrile context of Brexit. I hope that this result today on Motion A, which I certainly support, will be a clear message to those who are given to say glibly that your Lordships’ House is merely trying to wreck Brexit. That is just not true. What is happening this afternoon is clear evidence, which the Government should cite, that there can be constructive work between the two Houses to improve even the legislation on this very difficult issue.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Teverson Excerpts

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

[Lord Teverson (LD)]

My Lords, I have been ambivalent about the Bill since it was published some months ago. However, I accept that it is a sticking plaster, as the Government rightly describe it, and that a huge problem needs to be solved.

We have heard some of the statistics: £1.4 billion of overcharging, as estimated by the Competition and Markets Authority, and 11 million households affected, many of them the most vulnerable. As the noble Lord, Lord Stevenson, mentioned, there were an estimated 34,000 excess deaths due to cold weather in 2016-17. I know it is an estimate but it is why this Bill is as fundamental as life and death to many households. People fear turning on their energy supply during winter because they cannot afford the bill, and being confronted by court action and cut off, even if that is not would happen if that occurred.

In a broader context, the title of the Bill refers to a tariff cap, not a price cap. In this country we are obsessed by prices and not by the total of the invoice or the bill. I am not arguing against this Bill, but invoices or bills are more important because our housing stock is so energy inefficient. It is one of the major problems and one of the reasons why we have this issue.

I am the first to agree that there is no option to change that between now and the coming winter, but I am seriously disturbed by the Prime Minister’s speech yesterday on science and modern industrial strategy at Jodrell Bank. She said that,

“in the clean growth grand challenge, we will use new technologies and modern construction practices to at least halve the energy usage of new buildings by 2030”.

Until the Chancellor of the Exchequer got rid of the target after the 2015 election, we were going to have zero carbon homes by 2016, two years ago, and zero carbon commercial buildings by next year. Now, we seem to have moved to a target—which the Prime Minister has crowed about—of halving energy usage only in 12 years’ time. That concerns me because the industry was set to achieve the 2016 target but it was taken away by the then Chancellor, George Osborne.

I understood from both the green growth strategy and the 25-year environmental plan that we were going to be more ambitious in this area and bring back some of those targets. However, if we are talking about half of homes being zero carbon by 2030, then, frankly, this is missing the plot completely. I re-emphasise that this problem cannot be solved overnight, but if we lose that focus I am afraid we will have tariff cap bills for the next 12 years and they will not end in 2020.

Perhaps I may go through some of the issues briefly because the noble Lord, Lord Stevenson, and the Minister have mentioned a number of them. We have the broad outlines but we do not know exactly how the system is going to work, so Ofgem will have to invent it. What we certainly do not know are the outcomes. In some ways, I welcome the fact that this issue will have to be looked at again regularly because it is difficult to understand what the practical outcomes will be. As we know, interventions in markets tend to create all sorts of unintended consequences, so it is important to keep a close eye on this.

I turn first to the green exemption. I have a renewables-only tariff for my domestic electricity supply which I have just been informed will go up by 10%. The year is up and I have to do something about switching again. It seems that this is a particularly uncertain area in the Bill, and I wonder whether there should be a relative cap if we are letting renewable energy suppliers off the hook, if you like, as regards the price cap. Are we sure that there will be no cheating going on in this area? I am also concerned that decisions about the green exemption do not have to be made on the same date as the rest of the cap. Everything should be done at the same time.

I will reflect on the remarks made by the noble Lord, Lord Stevenson, about the safeguarding tariff. It may be absolutely straightforward, but perhaps the Minister could clarify whether the benefits which will come from that tariff continue for those consumers, despite what this Bill is going to do?

Unlike some others, I am less convinced that an absolute cap is entirely right. I am referring to “tease and squeeze” and how we get rid of that. It is the main problem with the way the market and pricing work: getting people on board for the first year and then hoping that they forget about you. I wonder whether having the fixed percentage that is allowed between the minimum or entry tariff and consequent tariffs is a better way to do this, but I could be convinced otherwise.

However, what I would like to see is price comparison sites being obliged to show what the tariff will be after one year if the consumer fails to renew. That would provide real transparency in the growing switching market. We could look at that issue in a potential amendment. The mortgage market is often held up as the example in that regard, but that may have more to do with Financial Conduct Authority rules; it may be that Ofgem needs to be given similar powers.

The timing of the Bill is absolutely crucial and I am sure that the House will not want to hold it up in any way. But my concern, as with all legislation, its implementation and consultation periods—all of which are important—is that we will be too late for a number of consumers, and that there will be excess deaths if the winter weather sets in early. I would like to know from the Minister when he expects the price caps to come in and the benefits to be available, and about the broader issue of improving the efficiency of our housing and commercial building stock. What is the vision after the Bill expires, because I am far from clear about that?

[Lord Hunt of Wirral (Con)]

My Lords, I declare my interests as set out in the register, in particular as a partner in the global commercial law firm, DAC Beachcroft LLP and as one of the Ministers who took through the Gas Act 1986. Introducing price controls into the energy market was indeed included in the last Conservative manifesto and codified in a draft Bill published last year. Today’s debate should therefore focus on how a price cap can be implemented in the most appropriate way, not on whether it should be.

The Bill represents a major intervention in the energy market with significant implications for competition and consumers. It is therefore essential that the Bill provides for strong oversight of how the cap is formulated and introduced. The noble Lord, Lord Stevenson of Balmacara, has already mentioned my noble and learned friend Lord Mackay of Clashfern; I know I am not alone in feeling that the Bill does not include the long-established precedent that organisations should be able to appeal to the Competition and Markets Authority against a price control set by a sector-specific regulator. This right exists in every comparable example of sector-specific regulation, including in the energy sector, and plays an important role in driving better regulatory decisions.

The Bill directs the energy regulator, Ofgem, to introduce a price control on default energy tariffs. It also states that the regulator must have regard to ensuring that the market remains competitive, incentivising switching and allowing suppliers to finance their operations while inducing them to operate efficiently. This will be an extremely complex balance for Ofgem to strike. It is clear that greater competition has been vital to improving this market; Ministers have indicated that this trend should not be reversed. There are now 60 suppliers in the market, compared with just six in 2010. Consequently, there is more choice of tariff than ever before, with 17% of customers switching supplier last year. On a historical basis, these switching rates are better than those of broadband, mobiles and fixed-line telephone markets.

Ofgem will also need to undertake a detailed analysis of the cost of major national infrastructure programmes when constructing the cap, including the smart meter rollout programme, which is central to innovation and future competition. Her Majesty’s Treasury estimates that there will be £100,000 million of investment in critical infrastructure between now and 2021. Ofgem’s approach must ensure that a cap does not impede these large investments. Recent regulatory interventions in the energy market show that meeting this balance of regulation and competition is difficult to achieve. Regulators occasionally err in their decisions. I remember that the CMA concluded in 2016 that Ofgem’s previous attempts to regulate the number of retail tariffs that could be offered by a supplier—the Retail Market Review —had damaged competition and should be removed. We have also seen that the introduction of a prepayment meter price cap led to prices bunching to within £15 of a cap. Like any major intervention in a competitive market, the introduction of price regulation therefore needs a strong system of scrutiny and oversight.

Appeals to the CMA are the long-established way of providing such scrutiny and ensuring that any errors can be corrected efficiently. The CMA is a specialist economic regulator, established to review regulatory decisions and ensure that they are well founded. Price control decisions in every other comparable sector—such as telecoms, water, aviation and post—can be appealed to the CMA, as can other price control decisions made by Ofgem. Price regulation for network companies can also be appealed to the CMA by third parties, including consumer organisations. An appeal to the CMA in 2015 on the level of price control imposed by Ofgem found that Ofgem had made an error. As a result, £105 million was returned to consumers.

There are currently 26 panel members on whom the CMA may draw for any price control appeals. There is also a specialist utility panel within the CMA. The CMA and its predecessor, the Competition Commission, have more than two decades’ experience in assessing such matters across any number of industries. My noble friend the Minister may say that there are specific examples, such as payday loans and the PPM price cap, where CMA appeals are not allowed. I do not believe that those are analogous. The FCA is not comparable to Ofgem and has not been tasked with the same challenges of setting a complex price cap that assesses the cost of the provision of service and maintaining competition. The PPM price cap was adopted by the CMA itself, so its scrutiny had already informed the process.

My noble friend the Minister may add that he has concerns that an appeal could delay or frustrate the introduction of a cap. Ministers have made clear their desire that this legislation should be passed by July and implemented by next winter, but there is no precedent for CMA appeals delaying the implementation of a price control. In the last 11 price control appeals, no delay took place. CMA appeals typically take place while the regulator’s original decision remains in place. Any remedies are then implemented prospectively. The Bill could easily make provision to ensure an appeal could not delay or stop the implementation of a cap—no doubt my noble and learned friend Lord Mackay of Clashfern will have all sorts of ideas about how we might do that, particularly in Committee.

On stopping a price cap being introduced at all, this is not possible in practice, because the Bill imposes an explicit duty on Ofgem to impose a cap. No appeal process could override the will of Parliament. A CMA appeal would be less burdensome, more straightforward and less costly than the alternative route of legal challenge; namely, the judicial review. Since 2000, CMA appeals have taken on average a little under nine months end to end, compared to around 10 months for JR cases. The CMA’s procedural rules and the rules on costs deter litigants from bringing vexatious challenges.

Equally significantly, the CMA is able to make changes immediately, while a court would need to remit the matter to the regulator, potentially extending the process by a number of months. Based on my experience, judicial review does not seem the appropriate standard for an assessment of a price control. A judge would be focused primarily on the process through which a price control was set and not on the type of complex considerations relating to the level of the cap that should be taken into account. Additionally, judges are not adequately equipped to assess this type of decision. The CMA was established and equipped with the appropriate resources and specialist expertise to undertake such work. It must be better and more helpful in alleviating the burden on the courts to have a specialist body looking at these technical issues.

In summary, the Bill introduces a significant intervention into the energy market, and recent history shows that care is needed to support competition and consumers. Price interventions are complex and should not be taken lightly. It is our responsibility to ensure that the appropriate checks and balances are in place to provide for a fair measure of legal and regulatory certainty, which is essential to underpin vital confidence and investment in the energy sector. I do not believe the usual mechanism for such oversight, CMA appeal rights, would delay, obstruct or frustrate the implementation of a price cap—on the contrary. I hope the Government will reconsider to ensure that a more proportionate, efficient and appropriate form of intervention is achieved.

[Lord Teverson]

My Lords, although it is a non-financial interest, I should have declared that I am a trustee of Regen SW.

--- Later in debate ---

[Viscount Ridley (Con)]

My Lords, I fear that the Bill is flawed. I accept that we may need to tackle the “tease and squeeze” culture and that this is a manifesto commitment, but price capping and rent controls often turn out to be ineffective or even counterproductive, especially with respect to the most vulnerable. They tend to treat symptoms rather than causes and in this case I fear that they pass the blame for energy costs from the Government to scapegoats.

The pachyderm in the parlour here is that the costs of government policies vastly exceed any aggregate saving to the consumer that might come about from a price cap. Policies deliberately introduced, mainly under the coalition Government, with the full knowledge that they would push up energy prices are now coming home to roost. Telling the industry to cap prices is like fattening a pig and then demanding that it weigh less. Like worrying that in crossing the Rubicon Julius Caesar might get his feet wet, it lacks a sense of proportion.

Even if we restrict ourselves to the official data from the Office for Budget Responsibility by consulting its Economic and Fiscal Outlook from March 2018 and go to tab 2.7 of its spreadsheet, “Fiscal supplementary tables: receipts and other”, we find that in the current year, 2018-19, environmental levies will cost £10.4 billion. That is more than seven times the “customer detriment” found by the Competition and Markets Authority inquiry on which the Government are relying. It is seven times as large as the sum that my noble friend the Minister described as huge. Subsidies to renewables account for £8.9 billion of that annual sum, or 86%.

The total cost of subsidies to renewables, according to the OBR, from the current year to 2022-23 is an almost unbelievable £52 billion, as the table that I referred to confirms. It is appropriate to look towards 2023 because, under the Bill, the price cap could be extended till then. Domestic households will pay for all of that £52 billion. About one-third of it, £17 billion, hits them directly in their electricity bills, but they will pay for the rest through increased cost of living. If a supermarket has to pay more to refrigerate milk, it must recover that cost at the check-out.

Remember: none of these subsidies for renewables is actually working very well. These technologies are not market ready; they are manifest failures, still begging for subsidy after decades of public largesse. As suggested by the Dieter Helm review, to which the noble Lord, Lord Stevenson of Balmacara, referred, we are not getting emissions reductions at a reasonable price.

[Lord Teverson]

I will not argue with the noble Viscount, although I disagree with him. But one thing I would specifically point out is that a number of onshore energy companies are trying at the moment to operate subsidy free. They are being prevented in doing that largely by government policy, but they are looking for subsidy-free onshore wind.

[Viscount Ridley]

I shall come to that point in a minute.

The recent low bid prices for offshore wind were, frankly, a bad joke. They were a play on the optionality that the Government have created and tell us nothing about what is really happening in the market. Onshore wind, far from being the lowest cost generator, remains one of the most expensive when its systems costs are taken into account. That is the key point: going subsidy free, to which the noble Lord, Lord Teverson, refers, did not include the systems cost of adding wind in remote areas. Systems cost contributes to these energy prices.

Here, the Government are proposing an ineffective and probably counterproductive price cap to save, at best, £10 billion on bills up to 2023. It is probably more like £3.5 billion and may even be a negative number, when their own failed policies are already stinging the consumer for £50 billion over that period. I am sorry, but I think this makes no sense. In effect, the Government have asked the energy suppliers to be their tax collectors and are now, in an incoherent gesture, forbidding their tax collectors from collecting the revenue. The energy suppliers would be acting entirely reasonably if they were to tell the Government to collect their own taxes and take the consequent blame.

Yet I believe the situation is even worse than that because the estimate of £1.4 billion a year detriment that the CMA identifies is almost certainly an overestimate. As the former electricity regulator Stephen Littlechild put it in a letter to the BEIS Select Committee in the Commons, Oxera argued that the correct figure could be anywhere between £0.7 billion, which is half of the CMA’s estimate, and minus £0.7 billion. Adjustments of £1 billion were made after the data room closed, so they could not be scrutinised by anyone. This point has not been rebutted.

Five former energy regulators—Littlechild, Callum McCarthy, Eileen Marshall, Stephen Smith and Clare Spottiswoode—have argued, in a strongly worded criticism of the detriment calculation, that:

“In our view this is a very misleading calculation. It is not, as might be thought, an estimate of excess profit. Rather, it is an estimate of how much lower prices could be if all suppliers in the sector were hypothetically more efficient than any actual supplier in the sector today. Such an approach seems to be without precedent in investigations by any UK competition authority”.


These former regulators warn that the Bill could result in increases in lower prices as suppliers remove offers from the market to offset the cost to them of the cap, and could be harmful to competition and customers generally, a point made by the noble Lord, Lord Stevenson. So even on its own terms the Bill might well be taking a non-problem and turning it into a likely one, and it ignores the real reason why Britain’s electricity prices are so high and are hurting our competitiveness.

What does the Minister propose to do about the real £10.9 billion a year detriment to customers instead of the specious £1.4 billion? What is his estimate of the cost of renewable subsidies to the British consumer over the next five years? What does he think is the risk that this price cap will drive prices up rather than down? What weight does he put on the criticisms of the five former energy regulators?

If I have failed to do so, I declare my interests in energy, including mainly coalmining.

--- Later in debate ---

[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.

[Lord Teverson]

Does the Minister agree—I am sure he does—that when it comes to vulnerability and all the issues around keeping warm, it is important to note that the gas and oil that I have to use as a rural dweller to keep warm are not charged any environmental costs and so do not incur those additional costs?

[Lord Henley]

I am not aware of how the noble Lord heats his house—unless he was the Liberal who confessed the other day to having an Aga run on oil, which always struck me as a good Liberal policy: it is a thing others are accused of. I will find out about that in due course. I will look carefully at the noble Lord’s question and come back to him in writing in due course. I was trying to make clear that our policies have helped reduce energy bills for households in efficiency savings—

[Lord Teverson]

I am sorry to interrupt the Minister again, but I was trying to be helpful. I apologise that I clearly was not. Environmental charges are only on electricity: they are not on gas and oil. He can take it from me. I do not want a reply from him. I apologise for having put him off his stride when I was trying to be helpful.

[Lord Henley]

The noble Lord is always helpful, as are the Liberal Democrats. I look forward to the help they will be offering and providing in Committee and at later stages. I will end by making it clear—as I was trying to do before the noble Lord interrupted me twice—that our policies have helped reduce energy bills for households as, on average, energy efficiency savings have more than offset the cost of supporting the low-carbon investment. The Bill will help consumers in due course. I look forward to an interesting Committee and Report thereafter, and I hope that all noble Lords will bear with me in what I said about the importance of timing in relation to the Bill. I beg to move.

Smart Meters Bill

Lord Teverson Excerpts

Report stage (Hansard): House of Lords
Tuesday 15th May 2018 Lords Chamber

[Baroness Featherstone (LD)]

My Lords, I support this proposed new clause on the national plan for smart metering, to which I have added my name. As I said in Committee, I came to the smart meter table relatively late, far more recently than most of your Lordships, who seem to have been debating it in one form or another for some years. I was shocked at the seemingly piecemeal way it has evolved, as if it were not one of the major infrastructure projects of this century, which it is. As a consequence of this approach, I have seen a lack of vision, scale and form, which is why this project has been so poorly executed. I was astounded to find that the suppliers were to be the agents of change; I did not understand why it was not the distributors.

However, we are where we are, as they say, so this new clause is proposed to give the opportunity for the rest of the scheme to be conducted in a far more responsible and farsighted way. It would allow the Government and all the players to ensure the best way forward and to deliver certainty and security for consumers, who have been expected to change—we know how difficult change is—but then have heard conflicting and different advice at different times from different people.

The proposed new clause would make sure that all parties are involved; it puts in metrics, targets and incentives to maximise take-up. It makes tracking progress on those tasked with delivering the objectives of smart meters and details what that will require. It would make sure that everything is properly reported, measured and documented. At last, we might actually have a critical path and a critical path analysis from which to work.

The proposed new clause would put this massive civil infrastructure project on a certain basis; it provides certainty for the consumer and a more sure and stable critical path for providers and all those participating in the rollout and beyond. As the noble Lord, Lord Grantchester, said, that is central to all our commitments on energy and energy efficiency in the future.

I very much hope that the Government will take a deep breath and graciously accept that they need help, and that the national plan would be a sensible and professional way forward.

[Lord Teverson (LD)]

My Lords, I support Amendment 1 in the names of the noble Lord, Lord Grantchester, and my noble friend Lady Featherstone, and I should also like to speak to my Amendment 2.

It is important to remind the House that this is an £11 billion programme; it is one of our major national infrastructure programmes, started in concept when I joined the House in 2006. It is now 2018—12 years later—and all of 300 meters have been installed, but we are not sure whether they work. There are another 10,000 which do not comply with the final regulations that we are trying to achieve—that is another potential problem for the future.

The one person I have really missed in this debate is Lord Patrick Jenkin on the Government Benches. He was one of the great analysts who brought together the real facts of a case, and we miss his presence.

One concern I had in Committee was prompted by my noble friend Lady Featherstone, who spoke very cogently of how, when the congestion scheme in London was rolled out, huge testing was carried out to make sure that the system worked when it was launched and that it was effective from day one. Yet when I asked the Government about their tests for SMETS 2 meters and their systems to ensure that the machines were ready for the massive rollout of 50 million meters by 2020—it is almost amusing to say that date—I got no response. The Minister looked at me as if to say, “What are you talking about?” It seems that there is no bar that has to be crossed—there is no test before we roll out these additional 40 million meters, supposedly over the next couple of years.

Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018

Lord Teverson Excerpts

Wednesday 9th May 2018 Grand Committee

[Lord Henley]

I am grateful to the noble Lord. As I said earlier on, I will endeavour to improve; I know that the noble Lord will keep a record on these matters.

The purpose of the draft orders is to implement reforms to the renewable heat incentive, or RHI. The reforms will deliver changes that will strengthen the focus on long-term decarbonisation, offer better value for money for taxpayers, increase protection for consumers and further support supply chain growth in the renewable heat sector. Heat accounts for around half of the UK’s energy use and one-third of total carbon emissions. Increasing the share of heat derived from renewable sources is a critical challenge, both to meet our renewable energy targets and to deliver the Government’s long-term carbon goals. Building a vibrant renewable heat sector is a key objective of my department’s clean growth strategy and the industrial strategy. The RHI is the main programme to deliver those goals over this spending period. Before the RHI started, only 1% of our heat came from renewable energy sources; that figure is now around 7% of total heat.

This type of tariff-based support for renewable heat is the first scheme of its kind in the world. Inevitably, there are lessons to be learned, and these reforms are a response to some of the lessons from the early years. The National Audit Office published a review of the RHI in February this year, which we were pleased to receive. Many of its comments related to issues covered by the draft regulations, which I hope will go some way towards addressing some of the issues raised by the NAO, which were also noted by the Secondary Legislation Scrutiny Committee. The draft orders will deliver a series of important reforms that will help us to deliver a more strategic mix of technologies and improve value for money over the next three years until the scheme closes in March 2021. I will highlight the main ones.

We will increase the tariffs available for biogas and biomethane technologies while introducing new restrictions on the feedstock that those plants use. That will encourage the increased use of food and agricultural waste and will reduce the use of energy crops, making better use of farmland for food production. Alongside changes already made last year, this will rebalance deployment away from biomass in favour of heat pumps, biogas and biomethane, which will all play a much stronger role in the scheme over the long term.

Another important change is that we will bring in tariff guarantees that will allow RHI applicants to secure their place on the scheme in advance of construction. This will support investments in larger plants that deliver better value for money. We will cap the amount of heat covered to 250 gigawatt hours per year to protect the scheme budget.

In the domestic scheme, take-up to date has been dominated by owners of larger homes. To promote wider uptake, we will introduce the assignment of rights. This will allow third parties to finance renewable technology and to be repaid directly from the RHI. Crucially, that will open up access to the scheme for those without up-front capital to pay for a new heating system.

Following consultation last year, we will limit the eligibility of certain heat uses. These provisions will remove most instances of wood-fuel drying and waste processing or drying. In addition, we will remove the use of heat for drying digestate in anaerobic digestion facilities as an eligible heat use. We consider that these processes are poor value for money and that many would not exist without RHI support. We will also remove support for heating swimming pools on the non-domestic scheme, unless the pool is for commercial or municipal use.

We are also introducing changes to allow more than one heat pump to use a common or shared ground loop. This should facilitate greater deployment of that important technology. The introduction of electricity metering for heat pumps across both schemes will allow participants to better monitor the efficiency of their plant and build confidence in the technology.

Following consultation, another change will be to increase the power efficiency threshold of combined heat and power technology from 10% to 20% to reduce the risk of overcompensation and to encourage plants to run more efficiently. There is also a whole series of mainly administrative changes to tighten cost control, reduce the risk of gaming and improve Ofgem’s delivery of both schemes, including by tightening its enforcement powers.

The Renewable Heat Incentive Scheme Regulations 2018 also consolidate all previous revisions to the original regulations, as recommended by the Joint Committee on Statutory Instruments. The RHI plays a central role in the Government’s programme to decarbonise heating. These regulations are an important step in refining the scheme and I commend them to the Committee. I beg to move.

[Lord Teverson (LD)]

My Lords, in general, I welcome this secondary legislation, in that the National Audit Office report from February certainly needed some reaction from the Government on the way that the scheme operates. Just to put it in a bit of context, the audit report included some very interesting figures: between 2012 and 2017, there have been some £1.4 billion-worth of payments, which should lead to commitments of some £23 billion. To me those sound like big numbers but, as we know from smart meters, they are absolutely piffling. There have been 78,000 installations already and there were expected to be 500,000 by 2020. It is estimated that we have got to about a fifth of that original target. To give the Government their due, they have responded to reality in this area and moved some of those targets.

Although the Minister made a strong point about this being a major contributor to our carbon targets, the point I want to make is that, in many ways, it is a small drop in the ocean of what we need to do to meet our carbon budgets in future. The renewable heat incentive is certainly nothing like sufficient to meet those budgets in the heating sector, nor was it ever meant to be. That sector is so important, but it is one in which we still have so few solutions for meeting our targets. In electricity generation, we are well on our way; in transport, we at least have the solutions on hand; but in space heating, we do not yet, and the RHI is never going to get us there. There are big challenges for this scheme.

I was quite surprised to see in the audit report that Ofgem, which is the manager of the scheme, had not really managed to tackle some of the gaming issues and was uncertain on the overpayments side. I guess that all auditors have to find something. Certainly, the report praises the GB scheme in comparison with that in Northern Ireland, where clearly the scheme got completely out of control and caused the political difficulties that we now have there. However, it is estimated that we still have some £3 million-worth of overpayments.

--- Later in debate ---

[Lord Henley]

My Lords, as always, I make the offer of a letter to all noble Lords who took part in the debate, because obviously I will not be able to pick up all the points. I am grateful for noble Lords’ general welcome for the regulations and our response to the NAO report.

The noble Lord, Lord Teverson, talked about this being a drop in the ocean given the large sums of money that are involved—we all know that a billion here and a billion there soon adds up to quite a large sum. Take, for example, AD, which was mentioned by the noble Lord, Lord Teverson, and the noble Baroness, Lady Featherstone. We know that AD will never solve all our problems, but it can deal with a certain amount of waste. As was pointed out by the noble Lord, Lord Teverson, the important thing with any AD plant is to make sure that you have adequate waste as feedstock for the future. We do not want people producing waste for the sake of waste just to go into a plant. We want to use only genuine waste or, on occasion, to top it up with a certain amount of crops that are grown for that purpose. Principally, however, plants would be designed to deal with waste.

In my former life as a Defra Minister, I saw quite a number of AD plants taking in waste from very different sources. Where they were attached to a supermarket, one would see bucket loads of old yogurts or whatever else had gone past its sell-by date being tipped in. That was a good way of using it, and we want to devise schemes that will, as the noble Baroness rightly said, prevent that waste going to landfill. I saw excellent small schemes also. I remember one used by a salad producer, which took the waste from its own products—the stalks from tomatoes are actually rather difficult to break down—and used it to produce both heat and power to grow more tomatoes in due course, and used the digestate that comes out in the end to fertilise those tomatoes. It was, wonderfully, almost a closed loop. There are terrific advantages to AD, but, as we all know, it will not solve all the problems.

RHI will be an important step in helping to reduce carbon emissions and—I say this to the noble Lord, Lord Teverson—make progress towards the legally binding renewable energy targets that we have. As I made clear, we will certainly look very carefully at ensuring that there is suitable waste feedstock and that the scheme ensures current and future supplies to anaerobic digestion. If the noble Lord has a local problem in the south-west, it is important that he, and those in that world, brings it to the attention of the department when it is reviewing this matter. I assure the noble Baroness, Lady Featherstone, that my right honourable friend Claire Perry and the department will look constantly at these matters to make sure that there can be further tinkering to get it right.

The noble Lord, Lord Teverson, asked about solar thermal. My understanding is that it is eligible for both schemes, so it is already supported by RHI. If he wants to look at that for his own domestic arrangements, he is welcome to do so.

As I said, I very much welcome what the noble Baroness, Lady Featherstone, had to say. I made it clear that we will keep these matters under review. I cannot give a precise date for when and how my right honourable friend will respond. I will certainly respond to some of the noble Baroness’s more detailed questions, particularly those relating to electrolysis and other matters, most of which I shall make a complete hash of if I try to respond to them now. I think all those taking part in this debate would be far more grateful for a written response.

The noble Baroness is right to raise the whole question of detecting abuses and gaming—something touched on by other noble Lords and which the NAO was wary of. As she pointed out, with any changes that we make, there are always potential unintended consequences, and we keep that under review. It is a large and varied scheme, and the non-domestic scheme in particular has huge variation in size, heat and use and the technology used between projects.

Despite all those challenges raised by the NAO, the department—the former Department for Energy and Climate Change, which noble Lords on the Liberal Democrat Benches will know well because it was one of their great Secretaries of State who sat in that department, which is now within BEIS—is working with Ofgem and, I think, developing a better approach to identifying gaming. We will certainly respond to the NAO in due course.

The noble Lord, Lord Stevenson, also welcomed the changes, and I am again grateful. He particularly welcomed the assignment of rights, but was concerned that it might lead to a lack of access to loans or other finance for a number of businesses and that that could be a barrier for them. I can only say that we have no plans to widen the assignment of rights beyond the household sector at the moment, but we would always want to keep all matters under review.

[Lord Teverson]

What is the logic to that? The issue for small and medium-sized businesses is exactly the same as for domestic users: it is about high capital outlay, which is equally difficult for SMEs as for private, domestic householders. This has really got in the way. The Government have a great solution there now for the domestic sector; if the principle is being breached, I do not see why it is a difficulty to extend it to the SME sector.

[Lord Henley]

I appreciate what the noble Lord says about there being no logic to it. It is just that there is no evidence at the moment that lack of access to loans is a barrier to business. If the noble Lord thinks otherwise and can produce evidence, it can be looked at.

As I said, the order has largely been welcomed, and I am very grateful for that. These changes are necessary as a result of the NAO report. I think that we would all agree that there have been considerable successes this year. It is only part of the whole scheme of trying to decarbonise the system—again, we wish to pursue that even further.

I want to pick up on one final comment from the noble Baroness, Lady Featherstone. If I could persuade her and some of her Liberal friends of the benefits of what she referred to as fracking and of pursuing greater domestic production of gas—of which there is potentially a great deal in this country—in that it improves both our chances of a degree of decarbonisation and our energy security, I would feel that I had achieved a very great thing. That will no doubt come in the future. In the meantime, I will give way before I finally put these regulations to bed.