Draft Strategy and Policy Statement for Energy Policy in Great Britain

Alan Brown Excerpts

Tuesday 19th March 2024 General Committees

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Amanda Solloway)]

I beg to move,

That the Committee has considered the draft Strategy and Policy Statement for Energy Policy in Great Britain.

The past few years have brought unprecedented changes and uncertainty to Great Britain’s energy system, but we have remained resilient. Last year, we laid the foundations for an energy system fit for the future with the landmark Energy Act 2023, the largest piece of energy legislation in the United Kingdom in a generation, which is world-leading in legally mandating net zero. The changes in that Act, including the powers to establish a National Energy System Operator—NESO—and new duties for Ofgem, mean that now is the right time to reaffirm the Government’s strategic priorities and policy outcomes in this strategy and policy statement.

The Strategy and Policy Statement for Energy Policy in Great Britain is developed according to part of the Energy Act 2013. The SPS sets out in clear terms the Government’s strategic priorities and other main considerations for energy policy, the policy outcomes to be achieved, and the roles and responsibilities of persons involved in implementing that policy. The Secretary of State, Ofgem and the National Energy System Operator —a new independent public corporation responsible for planning Britain’s electricity and gas networks and operating the electricity system—will be required to have regard to the strategic priorities set out in the SPS.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Can the Minister give us a timescale for when NESO will be operational as an independent body, in the way envisaged by the Government?

[Amanda Solloway]

I will come on to that in a moment.

The Secretary of State and Ofgem must also have regard for the policy outcomes contained within the SPS, and both parties must carry out their respective regulatory functions in the manner which they consider best calculated to further the delivery of the policy outcomes.

NESO is expected to be established this year. The SPS serves an additional purpose of setting out and clarifying the roles and responsibilities of NESO alongside Ofgem and the Government. The SPS is intended to provide guidance to the energy sector on the actions and decisions that are needed to deliver the Government’s policy goals, and places emphasis on where the Government expect a shift in the energy industry’s strategic direction.

As the independent energy regulator for Great Britain, Ofgem cannot be directed by the Government on how it should make decisions. Similarly, NESO is being set out to be operationally independent and free from day-to-day Government control. However, the SPS will provide guiding principles for Ofgem and NESO when it is established. The strategic priorities and policy outcomes within the SPS do not include the creation of any new policies or duties.

[Amanda Solloway]

Absolutely. That is the very reason we are doing this—to make sure that we achieve our net zero targets.

The statement will support strategic alignment between the Government, Ofgem, NESO and the industry, by making clear what the Government want to achieve in the energy sector. The legal framework of the Energy Act 2013 requires that Ofgem, NESO and the Secretary of State all have a duty to have regard to the strategic priorities within the SPS.

Ofgem must publish a strategy showing how it will further deliver the policy outcomes and its annual report must assess its contribution to deliver those outcomes. The SPS also acts as a tool to promote alignment between Government, Ofgem, NESO and industry. As per the Energy Act 2013, the SPS has completed two consultations. The first was undertaken with Ofgem and the Welsh and Scottish Governments, and the Government worked with all parties to make sure views were correctly captured before moving on to the second public consultation, which was held last summer.

[Alan Brown]

I refer the Minister to the 16th report of the Secondary Legislation Scrutiny Committee, which was published earlier this month on 7 March. It details the fact that there was consultation with Scottish and Welsh Ministers, as the Minister said. However, additional information provided by her Department makes it clear that the Welsh Government asked for the Welsh net zero targets to be included in the SPS, and that the Scottish Government asked for the same for the Scottish net zero targets and also for the networks section to be strengthened. According to her Department, information was added to the introduction for the Welsh and Scottish net zero targets, but I cannot find it in the introduction. I wonder if the Minister could provide clarity on where that was included in the documents.

[Amanda Solloway]

I will have a look at that information and see if we can get that to the hon. Member if it is not included.

The feedback throughout both consultations was generally positive, and stakeholders were keen to see the SPS implemented to give guidance to the sector on the roles of Ofgem, NESO and the Secretary of State in delivering the Government’s priorities for the energy sector. Since the consultation was concluded, officials have worked through feedback and, where appropriate, used that to inform the current iteration of the SPS before us. The Government are confident that this SPS reflects the right strategic priorities and policy outcomes for energy policy for the whole of Great Britain. The SPS reaffirms the Government’s commitments and priorities for the energy sector and, in doing so, acts as a tool to support strategic alignment between Government, Ofgem, NESO and industry. I commend this draft statutory statement to the Committee.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

The power to designate a strategy and policy statement, as the Minister has set out, has been in place since the passing of the Energy Act 2013. That Act envisaged, among other things, that a strategy and policy statement would be an essential tool in aligning the actions of Government and of Government agencies and bodies, such as Ofgem, and ensuring that they were marching in lockstep as far as the development of strategic priorities was concerned. Indeed, this strategy and policy statement is very important in making sure that, with the designation of a net zero mandate for Ofgem, which took place in the recent Energy Act 2023, the alignment is complete with the issue of the strategy and policy statement. However, I point out that these strategy and policy statements are supposed to last for five years and to be reviewed at the end of a five-year period—or, significantly, should an election take place in the meantime.

The strategy and policy statement power, therefore, has not been used since the introduction of the 2013 Act. We should have had one almost immediately after the Act, and we should be revising the second one now. The fact that one is not in place is a theme of this Government because we other publications have been long delayed, including a new national policy statement for energy and a national policy statement for nuclear.

The document necessarily acts at a very high level, and there is a lot that we agree with, particularly the strategic overview and priority that has been put forward with this policy statement. As I have mentioned, having an SPS is a great improvement on not having one in this area. However, it is clear that the document will not stand for five years, which is the time at which the legislation says it should be reviewed. For one, there is an election coming this year. While there are several points of substance on which Labour plans would differ from the Government’s, the most important is our commitment to clean power by 2030, which is a clear differentiation from the strategic view set out in the document. Certainly, should there be an election shortly and should Labour be fortunate enough to win, we will revise the policy statement at a very early stage in the next Labour Government.

[Alan Brown]

If Labour gets in and if the policy document is revised, how will it be funded to get to zero carbon by 2030? Surely, that was a key component of the £28 billion a year pledge, which has now been scrapped. The two are surely incompatible now.

[Dr Whitehead]

I am tempted by the hon. Member to go down the lengthy path of discussing how the move to clean power by 2030 will be financed. I can assure him that that is fully set out and sorted out as far as Labour policy statements are concerned. However, he makes the important point that a number of things that Government have done recently run against not only the idea of clean power by 2030 but their own strategy and policy statement as it is now being put forward —for example, putting back the mandate for the end of the sale of internal combustion engine vehicles to 2035 when it was originally 2030.

Regardless of the results of an election, I do not think the document can stand for five years because it leaves so much undefined. The Minister has mentioned the issue of the National Energy System Operator and its relationship to Ofgem, but that is completely undefined in the document because that has not yet been worked out. NESO itself is not yet established and, indeed, the strategy and policy statement makes frequent reference to unpublished interim steps, such as an interim strategic spatial energy plan, which we think is a good thing and long overdue. As NESO is established in the various plans that the SPS hints are in place, we need a much more substantive update to the policy statement, including what is to happen on the question of regional energy system planners, which the document mentions but does not discuss further, as far as their operation and organisation are concerned.

Can the Minister tell us when she hopes to issue an update to the strategy and policy statement? Perhaps, when we are clearer about what the National Energy System Operator will actually do and how its relation to Ofgem will pan out, she will be able to say to the House that a revision of the strategy statement will be forthcoming and will put things into place in a much clearer way regarding the new arrangement for energy systems.

There are also one or two drafting errors in the statement that I will point out. Twice, the document refers to plans that are due for completion in 2023. We are now in 2024, and it is not that the plans have not been completed or addressed; it is just that the document is referring to, I assume, something that has not been updated in terms of where we are now. It would be a shame if the document went out with factually inaccurate material on dates.

There are other commitments for 2024, on which we are not convinced the Government are making sufficient progress and which are mentioned in the document as if they were. One example is developing a plan for long-duration energy storage. Indeed, other areas bear little relationship to reality; for example, the Government reaffirm their commitment to the 2030 fuel poverty target, but National Energy Action says that they will miss it by over 90%. The SPS also talks about the roll-out of smart meters, but as we all know, that too is well off-track. I would question the value of a strategic overview that does not take proper account of the real state of the policy landscape it is summarising.

This strategy and policy statement is clearly going to need to be revised in the near future. However, as I said, it is better than having no statement at all, and it provides for some useful new processes such as Ofgem reporting annually on how it is meeting the requirement to have regard to the Government’s strategic objectives. For that reason, and because of the fact that we finally have a strategic policy statement, we will not be voting against the measure this morning.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Ms Rees. The hon. Member for Bolsover has encouraged me to be brief, and I will see what I can do. There is such a good turnout on the Government Benches that I think they would want a proper debate on this. I apologise for how I will go through this; there are no paragraph numbers in the draft strategy and policy statement, which I find quite frustrating, as it means I am trying to make cross-references. Can I request that in the future there are paragraph numbers and references?

Starting with the fourth paragraph on page 7, the statement says that the Government

“expects private sector investment of around £100 billion in the energy sector in the period to 2030”.

It would be good to know what level of Government expenditure is expected. Do they intend to lever in that £100 billion? Also on page 7—the hon. Member for Southampton, Test mentioned this—the statement says that the Government

“plan to reflect how best to cover NESO in its substantive role once it is established.”

That basically confirms that this document does not set out proper duties for NESO because NESO still has to be up and running. In many ways, that suggests that this policy statement was too early. It would make sense to introduce it once NESO is established, so that its substantive role could be echoed throughout the document.

That brings us to the question of how this is going to work. NESO is going to be critical for helping to deliver energy strategy, but a paragraph on page 8 details the fact that the independent system operator and planner, meaning NESO, has a duty to notify the Secretary of State if, at any time,

“it thinks that a policy outcome in the SPS is not…achievable.”

What are the interim arrangements for the period until NESO is up and running if it is deemed that there are policies that are not achievable? As you know, Ms Rees, I am a glass-half-full type of guy, but there are policies in this document that I do not think are achievable.

The nuclear plan is never going to achieve a 24 GW deployment by 2050, and it is really unlikely that the planned deployment of 50 GW of offshore wind will happen. The emission reduction targets for 2030 are unlikely to be achieved, the sixth carbon budget is behind schedule, and the plan for 600,000 heat pump installations by 2038 ain’t gonna happen on the current trajectory. The planned energy efficiency upgrade of ensuring that all properties achieve a rating of band C by 2030 is not practical, and that is not going to happen, either. What interim arrangements can be flagged up to the Government, and will the Government then review those, respond and take action?

Page 11 says that

“Ofgem is…accountable to Parliament”.

That is true, but would the Minister explain how Ofgem is accountable to Parliament and whether that is set out anywhere? I was previously a member of the Business, Energy and Industrial Strategy Committee. It conducted an inquiry, and Ofgem gave evidence. It was kind of set that Ofgem was effectively accountable to the BEIS Committee, and that that was a parliamentary scrutiny process. That came as news to everyone on the Committee, and I am sure it would come as news to a lot of Members in Parliament. Having a clear process that sets out how Ofgem is accountable to Parliament would be useful to all Members across the House. Should there be something in the document about that, or should it be set out clearly somewhere else?

Page 11 confirms that it is now a duty for Ofgem

“to consider consumers’ interests in the Secretary of State’s compliance with the net zero targets”.

Going forward, it also confirms that Ofgem should

“have regard to the desirability of promoting economic growth when carrying out its core regulatory functions.”

It is quite possible that to balance consumer needs and economic growth means different decisions or recommendations. What should take precedence for Ofgem, and how will that work? What does that mean going forward? I have long said about the contracts for difference process that the Government have not put enough emphasis on local supply content and building up a UK-based supply chain. That would actually deliver economic growth, instead of CFD being based solely on the lowest price, which has offshored a lot of the manufacturing. Contracts for difference has been a missed opportunity. Going forward, it can still deliver economic growth, but is it going to be left for Ofgem to decide the options, or for the Government to decide the parameters?

Page 17 confirms the target of 600,000 heat pumps per year by 2028. Can the Minister explain what level of deployment we are getting at the moment, and what plans the Government have to get it up to 600,000 per year? Pages 23 to 25 detail nuclear policy, which is one of my favourite Government policies that exists. On page 24, we are told that nuclear is “providing reliable, safe electricity”. However, the reality is that each nuclear reactor is down on average for a quarter of the year. That has been every year for the past 10 years; I established that through parliamentary questions.

What does happen when nuclear is down for a quarter of the year and the sun is not shining and the wind is not blowing? That is the scenario that we are always told that nuclear is needed for. I wonder what back-up plans the Government have to deal with that.

I am going to be slightly facetious. There is a paragraph that talks about the

“approach to the delivery of new nuclear projects beyond Sizewell C, giving industry and investors the confidence necessary to deliver projects at pace”.

What is it that is happening now that will allow projects to be delivered at pace? We know that Hinkley Point C is years behind schedule. Sizewell C has taken years to even get to the final investment decision. Even if Sizewell C continues “at pace” during construction, it is going to be a further 10 to 15 years. Can we have a definition of what “at pace” means?

On the technology selection process for small modular reactors, can the Minister confirm that there is not a single approved design at the moment? They are only now approving the design. Therefore, even if the Government select a winner in the technology selection process, that winner still has to go through the approval process with the Office for Nuclear Regulation, which takes years. That will take us beyond the 2029 point.

There is a section on low-income, vulnerable and fuel-poor households. That talks about upgrading all homes in England to band C by 2030, “as reasonably practicable”. Can the Minster define what “as reasonably practicable” means, in terms of what is a reasonable cost or a reasonable level of disruption? That has got to be understood, because it will be a clear exemption that the Government will rely on, going forward. Given that after 14 years of Tory Government the number of properties in band C is sitting at 50%, that means the other 50% of properties have got to upgrade in the next six years. What are the Government doing to make it possible to do that?

If we are looking at low-income, vulnerable and fuel-poor households, a social energy tariff is not mentioned here. A consultation on a social energy tariff was supposed to be one of the Government’s pledges before, so what has actually happened? What is the thought process about a social energy tariff?

I welcome the fact that on page 32 it lists among the Government’s policy outcomes:

“By 2024, an appropriate policy to enable investment in large-scale long-duration electricity storage consistent with cost-effective decarbonisation.”

But clearly we are in 2024. I know that a consultation is ongoing about a framework carbon floor mechanism, but when will that be concluded and implemented? I have raised this several times, but we really need to get pumped storage hydro schemes on the go. I am thinking particularly of Coire Glas and the Cruachan Dam extension.

Finally—people will be glad to hear—the document finishes with the EU-UK trade and co-operation agreement. Energy UK has confirmed that as part of the current trade and co-operation agreement we are spending £1 billion extra a year on trading arrangements; that is added directly to our energy bills. When will the Government change or renegotiate that and save us £1 billion on our energy bills during this cost of living crisis?

I look forward to hearing the ministerial response.

--- Later in debate ---

[Amanda Solloway]

I thank all right hon. and hon. Members for what have been, in all cases, heartfelt contributions. I also thank them for their scrutiny of the draft of the document. Some of the issues in hand fall outside my portfolio but within the Department. If there is anything I am unable to answer in this speech, I will respond in more detail to right hon. and hon. Members in writing.

I am confident that the strategic prices and policy outcomes in the SPS clearly establish what the Government are trying to achieve in the sector and why that is important. It demonstrates how smaller policy outcomes contribute to broader priorities, so stakeholders can be reassured about how their role fits into the bigger picture. I also hope the SPS sets out a clear description of the roles, responsibilities and remit of Government, Ofgem and particularly NESO in delivering the objectives. We have tried to provide enough information on NESO’s remit to give confidence in its role when established, while also recognising that its responsibilities will evolve over time.

As well as reaffirming our ambitions, the SPS will give encouragement to Ofgem to utilise the full range of its powers to ensure that those ambitions are realised, and that stability and confidence are restored across the sector. I am pleased that most right hon. and hon. Members welcome the SPS. I want to go into further detail in response to some of the questions posed today.

The hon. Member for Kilmarnock and Loudoun asked when NESO would be operational. Our aim is for it to be operational later this year, depending on a few factors, including agreeing timelines with key parties. We continue to work closely with National Grid plc, National Gas and other stakeholders to enable efficient transition while maintaining the safety and ability of the operation of the energy systems.

In response to the hon. Member’s question on Scotland’s net zero targets, I should say that the SPS notes that Scotland and Wales have established their own net zero targets. Then, on a further point, Ofgem is established as a non-ministerial Government Department so, like other Government Departments, it is accountable to Parliament. I will write to the hon. Member if I have failed to address any other queries.

[Alan Brown]

I would just like a wee bit more detail on what “accountable to Parliament” really means and what that looks like overall, in terms of Ofgem and its responsibilities.

[Amanda Solloway]

The hon. Member will understand the parliamentary protocol around how regulatory bodies operate. Ofgem is set up as a Government body. On the scrutiny, he will know that a Select Committee, for example, would be able to talk to Ofgem.

My right hon. Friend the Member for Chipping Barnet asked how the SPS will focus on the switch to renewables. The SPS is clear that driving a net zero transition by achieving Government targets for renewable and low-carbon deployment is a strategic priority for Government.

I turn to the questions from the hon. Member for Southampton, Test. NESO will take time to reach full maturity as a new organisation, so we have kept references to NESO at a high level in the SPS. NESO is being brought into existence and its roles are still in development, including spatial energy and regional system planning. We instead plan to reflect how best to cover NESO in its substantive role once it is established. The Government have the power to review and revise the SPS in preparation for or in connection with NESO’s designation and will therefore consider the future when it is appropriate to do so.

I thank my right hon. Friend the Member for Suffolk Coastal (Dr Coffey) for our previous conversations on what I know is an important issue. The SPS does not create new policy, but reaffirms Government’s existing priorities and sets out the roles of Government, Ofgem and NESO in delivering them. It is Ofgem’s role as the independent regulator, and NESO’s role as an independent system operator and planner, to decide how to go about achieving strategic priorities contained within the SPS. Their approach should be balanced in line with their duties.

In total, we received 140 unique responses to the SPS public consultation. The document summarising the responses, which was laid in the House alongside the SPS, details how we responded to that feedback. The SPS was cleared by the Home Affairs Committee and the parliamentary business committee before it was laid in Parliament on 21 February, and it is not a national policy statement for energy. The national policy statement for energy was published on 22 November 2023 and came into force on 17 January 2024.

With regard to the strategic spatial energy plan, we believe NESO has a key role to play in strategic planning for the energy system. The expertise of an independent NESO will be invaluable in creating the SSEP, but it is important that the plan is underpinned by proper democratic accountability. It will be produced through close working between the UK Government, the ESO, NESO—once established—and Ofgem. We will set out the full and clear expectations on governance and arrangements for each stage of the process in our commission to NESO.

Ultimately, we anticipate that the SSEP will cover the whole energy system, land and sea, across Great Britain. However, producing a comprehensive, multi-vector plan that effectively meets our future energy needs will naturally take time to get right. We are therefore commissioning the ESO, ahead of becoming NESO, to produce the first iteration of the SSEP, covering infrastructure for electricity generation and storage, including relevant hydrogen assets. That will foster a more efficient electric system design, promoting anticipatory network investments to enable the reduction of the waiting times for generation and storage projects to connect to the grid.

We also recognise the importance of protecting our environment and will ensure that any decisions on scale and location of infrastructure consider possible effects on the environment. The SSEP will go through an onshore and offshore strategic environmental assessment or an equivalent assessment under the environment outcomes report system, once it is in force. We also intend the SSEP to carry out a plan-level habitats regulations assessment. Planning policy will continue to take full account of legislation to protect the environment and habitats. As I said earlier, I will write to my right hon. Friend on other points she has raised.

In response to my hon. Friend the Member for Kettering, given Ofgem’s new roles, legislated for in the Energy Act 2023, and the establishment of NESO, now is the right time to publish the SPS. The SPS will give further guidance to the energy sector and support strategic alignment between Government, Ofgem, NESO and industry by reaffirming our priorities and commitments. Ofgem and NESO have a statutory duty to have regard for strategic priorities set out in the SPS, which makes it different from previous Government strategies.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Strategy and Policy Statement for Energy Policy in Great Britain.