Draft Strategy and Policy Statement for Energy Policy in Great Britain

Debate between Alan Brown and Alan Whitehead

Tuesday 19th March 2024 General Committees

[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.

Energy Bill [ Lords ] (Eighteenth sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Thursday 29th June 2023 Public Bill Committees

[Dr Whitehead]

I have no further comments to make, other than to thank the Minister for his comments. There are indeed consultations under way through Ofgem, and I look forward to seeing what those have to say. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 90

Objections by planning authorities to applications for consent under section 36 or 37 of the Electricity Act 1989

“(1) Schedule 8 to the Electricity Act 1989 is amended as follows.

(2) Omit paragraph 2.

(3) In the cross-heading before paragraph 3, omit ‘by other persons’.

(4) In paragraph 3, omit sub-sub-paragraph (2)(a).”—(Alan Brown.)

This new clause would remove the ability of a local planning authority automatically to cause a public inquiry to be held by objecting to an application to the Secretary of State for consent under section 36 or 37 of the Electricity Act 1989, instead leaving Ministers to decide whether a public inquiry should be held.

Brought up, and read the First time.

[Alan Brown]

I beg to move, That the clause be read a Second time.

--- Later in debate ---

[Dr Whitehead]

I also have a 3,000-word speech, but I will not give it today. The Government amendments and clauses are wholly unexceptional, and are essential for the speed of the Bill. I have nothing further to add to what the Minister said.

[Alan Brown]

I will be brief. Amendment 114 is about getting the consent of Scottish Ministers before the passing of regulations. I could have tabled it to any number of previous clauses, but this is the most appropriate clause for it to relate to, because it relates to the regulations made under the whole Bill.

There has been talk of collegiate working—the two Governments working together—and the Minister said that he wants to find a different process, but there remain concerns that unless there is a firmed-up process, there is a risk that, somewhere down the line, policies and regulations will be proposed against the consent of Scottish Ministers.

The Scottish Government support the Bill; we are working together in these policy areas. It is not about trying to give the Scottish Government some sort of veto but about working together and ensuring that processes are in place that allow for not just consultation but taking the advice and wishes of the Scottish Government on board.

I know that the word “consent” always makes the Westminster Government very nervous, because they think it gives too much power to the Scottish Parliament, but it is not about that. It is not about political fights; it is about working together and ensuring that the wishes of the Scottish Government in respect of energy matters and considerations are taken on board.

Energy Bill [ Lords ] (Twelfth sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Tuesday 20th June 2023 Public Bill Committees

[Andrew Bowie]

That is a good question. In fact, I was just coming to the process. The GDF siting process is a consent-based approach that requires a willing community to be a partner in the project’s development. The siting process is already under way. Four areas have entered the process: three areas in Cumberland—in Copeland and Allerdale—and one in East Lindsey in Lincolnshire.

Government amendment 120 removes superfluous wording in new section 3A of the Nuclear Installations Act 1965. A licensed disposal site, as defined for the purposes of the new section, is not a nuclear installation within the meaning given by section 26(1) of the Act, so does not need to be mentioned explicitly in subsection (3). The amendment therefore removes it from the clause to correct this error. Amendment 121 is consequential on amendment 120 and removes the unnecessary definition of a licensed disposal site from new section 3A of the Nuclear Installations Act 1965.

The UK’s nuclear decommissioning programme is accelerating as older nuclear sites approach the end of their life cycle. As the first major nuclear sites will reach their final stages of decommissioning in the 2030s, it is essential that our nuclear legal framework is fit for purpose, while continuing to ensure an absolute focus on safety and security as the key priority. The Nuclear Installations Act 1965, which provides such a framework for nuclear safety and nuclear third-party liability, was written before serious consideration was given to decommissioning.

Clause 257 will amend the procedures for exiting nuclear third-party liability. Currently, the 1965 Act has the effect of requiring nuclear sites to remain subject to nuclear third-party liability for longer than is required by internationally agreed standards. The clause implements an alternative route based on internationally agreed recommendations and will apply to nuclear installations in the process of being decommissioned. It adopts a simpler and equally safe route out of the NTPL regime for non-nuclear parts of the nuclear site, such as laboratories, workshops, offices, car parks and land.

Clause 257 changes procedures for ending nuclear licences and regulation by the Office for Nuclear Regulation. It will require the licensee to apply to the ONR to end the licence and will require the ONR to consult the Health and Safety Executive before accepting an application. The ONR will accept an application when it considers that all nuclear safety matters have been resolved. Once the licence has ended, the ONR’s regulation of the site will cease. HSE will pick up responsibility for regulating the health and safety of work activities, while the relevant environmental agency will continue to regulate environmental matters for years or even decades after the end of the nuclear licence.

The clause has the effect of removing a barrier to the on-site disposal of suitable low or very low-level radioactive waste and avoiding the unnecessary excavation and transport of this material. Demolition work results in the creation of large amounts of rubble and waste, a small percentage of which may be lightly contaminated with radioactivity. Excavating that material can create radioactive dust, which is a hazard for workers. Transporting waste to disposal facilities can have noise and traffic impacts for local residents.

The existing environmental legislation, which the clause does not modify, was developed with land remediation in mind. It allows the operator to apply to the relevant environmental agency for a permit to dispose of suitable low or very low-level radioactive waste on site. Applications are subject to robust analysis, and an environmental permit would be granted only if disposing of the waste on site would be a safer and more sustainable option than excavating it and transporting it to disposal facilities elsewhere.

Finally, the clause will allow operators to apply to the ONR to exclude those disposal facilities for nuclear waste that do not require a nuclear licence from the nuclear licensed site boundary. To be clear, the clause does not constitute a relaxation in the standards for public protection. It aligns with UK radiological protection law, international standards and UK Health Security Agency guidance.

Clause 258 will bring an international agreement on nuclear third-party liability into UK law. Its aim is to lower the financial and regulatory burden on low-risk radioactive waste disposal facilities. Sites that meet the criteria will be exempted from the requirement to make provision for third-party claims. Injuries or damages will instead be covered by ordinary civil law, which is robust, proportionate and established. The clause allows the Secretary of State to set out by regulation the conditions that must be met to be excluded from nuclear third-party liability under the OECD Nuclear Energy Agency’s criteria.

The clause includes limits for radioactivity concentration that disposal facilities must meet. Only facilities with sufficiently low concentrations of radioactivity and negligible nuclear risk will be exempted from the requirement to hold nuclear third-party liability. The measures will help to ensure that the UK has sufficient disposal facilities for low and very low-level waste as the decommissioning of the UK’s legacy facilities accelerates and new nuclear projects are developed.

Clause 259 gives effect to schedule 20, which amends the Nuclear Installations Act 1965 to enable UK accession to a second international nuclear third-party liability treaty called the convention on supplementary compensation for nuclear damage. Nuclear third-party liability regimes aim to ensure that victims of a nuclear incident have access to adequate compensation. They also support investor and supply chain confidence by channelling liability to the nuclear operator and placing limits on their liability. The UK already has a robust nuclear third-party liability regime, being party to the Paris and Brussels agreements. The schedule 20 amendments to the 1965 Act that enable UK accession to the CSC will enhance the existing UK regime. Accession to the CSC enhances several of the benefits of our current nuclear third-party liability regime.

Government amendments 124, 125, 126, 127, 128, 129 and 132 make minor and consequential changes to schedule 20 to ensure the accurate implementation of the CSC. They will ensure that, following accession to the CSC, the UK does not inadvertently close off routes to compensation for nuclear damage. That applies to countries and victims that are currently able to claim under our existing nuclear third-party liability regime. To establish that, they seek to remove unnecessary consequential amendments as a result of the further amendments tabled. The changes also ensure that victims from a non-nuclear CSC state can claim under the appropriate conventions.

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

It is a pleasure to serve under your chairmanship again, Dr Huq. It is also a pleasure to hear the Minister rattle through the Government amendments at really high speed. As he identified, this part of the Bill is about civil nuclear sites. Among other things, it is about the repository that we do not have at the moment—in other words, we have not yet found a repository. It would be helpful if the Minister were able to tell us where we are in that search. Does he think the clauses take that process further forward? Or do they impede or lengthen that search?

I am sure the Minister recalls that, some while ago, his party indicated that no new nuclear development would be signed off and authorised until a repository had been located and established. Now, of course, two civil nuclear sites are under active development. Hinkley C is under active development—the reactor core is in place and connected works are under way. I visited the site a little while ago and it really is in a very advanced state, so we can anticipate that nuclear power will come on stream in, I guess, about 2026. I have been guessing that it will come on stream every year since 2017, but we hope that will happen.

Advance discussions and some initial site works have been done for Sizewell C. The reactor that is going in is essentially the twin of the Hinkley C reactor, and a lot of the site works are being replicated to speed up that process a bit. I have not visited Sizewell C yet because—rather like in the story I told a while ago about the underground cable—there is not a great to deal to see at the minute, but we can anticipate that we will have four new nuclear reactors onstream by the early 2030s. All that is taking place alongside a process for a nuclear repository—a final solution for the issue of long-term nuclear waste.

[Alan Brown]

Does the hon. Gentleman agree that there is a real paradox here? Allegedly the site rate for Hinkley Point C already has built into it the decommissioning costs for the storage of nuclear waste at the end? We are told that the estimates for Sizewell C will include all the costs of decommissioning and disposal up front, but how can EDF properly allow for those costs when it does not even have the new geological disposal facility that it needs to access?

[Dr Whitehead]

The hon. Member makes a good point. I would think that it is very difficult under the present circumstances. I was about to talk about that briefly. On both those sites the question arises, as he alluded to, of what we do with the nuclear waste from their operation, and what plans are in place for their eventual decommissioning at the end of their lifetime. Having served on various Bill Committees with me, the hon. Member will recall that in a recent nuclear Bill the question was raised of ensuring that a reasonably accurate built-in planning arrangement for decommissioning would be in the programmes that are agreed for nuclear power plants. The plans both for decommissioning and for what happens to nuclear waste as we go along are rather important to get right, given that there is no geological repository either under way, unlike the new nuclear power stations, or finally identified.

We could say that the provisions apply to something that is not really there. It may be there in a little while, or it may not be there for quite a while. Meanwhile, the two nuclear power stations are getting under way and being build. We know that quite a lot of the nuclear waste that has arisen from activities around Sellafield is stored in ponds, which are open to the surface and are safe to the extent that the nuclear waste is firmly stored underwater and there is no risk of it spilling out, except if someone planted a bomb in the pond. The pond would then disperse its contents, but obviously a geological facility is proofed against that occurring. The question is about what sort of planning the new nuclear power stations are likely to undertake for the storage of nuclear waste during their operation, and for its storage and disposal when they are eventually decommissioned.

Energy Bill [ Lords ] (Eighth sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Tuesday 13th June 2023 Public Bill Committees

[Dr Whitehead]

We have now moved smoothly and efficiently to the question of energy smart appliances and load control; I will have something to say about load control later. The arrangements for energy smart appliances are important, given the increasing range of activities that appliances can now undertake. The specified purposes set out in clause 193—refrigeration; “cleaning tableware”, or dishwashing; “washing or drying textiles”, or using washing machines; and energy storage—are all circumstances in which things can be added to devices to allow them to operate independently, to operate at particular times and to respond to dynamic demand requests. For example, a chip can be put in a refrigerator to allow the appliance to respond to signals from outside saying, “Switch yourself off between 3 am and 4 am,” which will save some power or regulate the power in a better way.

Appliances increasingly have the potential to operate as mini-computers in their own right: they have IP addresses and various other things. It is possible to capture a series of washing machines that are smart-enabled and use them as locks under certain circumstances. Indeed, I think there was a recent prosecution of some young men who had done just that; I am not quite sure for what purpose, but they secured a number of smart devices in order to operate them in concert. It is important that we have energy smart regulations that enable us to deal with such circumstances and get them in hand. Of course, this is potentially a subset of the debate about AI and the extent to which our devices in the home may be subject to the control of other authorities entirely.

From the customer’s point of view, it is important that they know that they are in control of their own devices. Smart appliances offer various exciting advantages such as allowing people to change central heating controls before they get home, by pressing a button when they are 50 miles away, but the principle behind the security arrangements should be that the customer—the person in the home—is the eventual arbiter of how those things work. Does the Minister think that the way the clause is drafted will ensure that the customer—the person who is operating those smart systems, or who thinks they are—actually has eventual control, and particularly the consent for the operation of those smart devices in the way that we have described?

[Alan Brown]

I realise that this is an introductory clause and the Minister was doing some scene setting. The clause mentions load control signals and digital communications. I draw the Minister’s attention to my written parliamentary question No. 186867, submitted following a meeting I had with representatives of the Energy Networks Association. They tell me that to take forward a proper smart grid, the energy network companies need additional radio spectrum access. The Government need not just to put in place regulations, but to facilitate that radio spectrum access.

In response to my question, the Minister for Energy Security and Net Zero, the right hon. Member for Beverley and Holderness (Graham Stuart), said that the Government are moving forward on the issue with a study and a calculation of costs. I know that the Under-Secretary cannot write a blank cheque, but the reality is that radio spectrum access will be needed. I just put that on his radar.

Energy Bill [ Lords ] (Sixth sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Thursday 8th June 2023 Public Bill Committees

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

I know that the shadow Minister said he did not want to speak to amendment 91, but for pure indulgence I would like to say a few things. The shadow Minister admitted that the amendment is not quite factually correct. It is clear that it was actually more on message for the Government than the Government are themselves in terms of heat pump installations. If it had been moved, I would have supported the amendment because it would set a much more ambitious target for the installation of heat pumps: at least 600,000 per year by 2025, instead of the Government’s target of 2028, which is completely out of kilter with the recommendations of the Climate Change Committee. I urge the Government to reconsider that and adopt a more ambitious programme.

Will the Minister say how many heat pumps were installed in 2022? What is the plan to get up to the Government’s target of 600,000 heat pump installations a year? This is an important Bill but it also shows the need for the Government to think in the round in terms of legislation. The clause and the amendment are all about heat pump installations. We are still awaiting the future homes standard. Will the Minister outline what will happen with that? Last year more than 200,000 houses were built in the UK—the largest number completed since the 2008 housing crash—and the majority of them are going to be connected to the gas grid and will not have heat pumps installed. Year in, year out, the number of houses that will need to be retrofitted with heat pumps will increase until the Government bring forward the future homes standard. I would like more clarity from the Minister on that, and about targets the Government are looking to set to drive it forward.

[Dr Whitehead]

The clause relates to the question of the installation of heat pumps, as the hon. Member for Kilmarnock and Loudoun correctly drew attention to. The intention of the amendment, had it been moved, was to place the Government’s own targets in the legislation. There is a question about the difference between those targets and what has actually happened so far with the boiler upgrade scheme, for example, with 30,000 heat pumps per year being underwritten for a three-year period, leaving a difference between the target and the number of heat pumps likely to be installed under that scheme of more than 500,000.

There is a considerable difference between Government targets, how many heat pumps have already been installed and how many heat pumps are likely to be installed over the next few years. One of the purposes of the amendment, which was not moved, was to stiffen the Government’s resolve in that respect by placing those targets on the face of the Bill, so that the question of how the gap is made up is rather more focused in the minds of the Government now and, indeed, any future Government.

It is important that we start the process of filling in the gap between target and actuality. I would be grateful if the Minister could give us a few brief views on how that might be done, and what he intends to do, possibly on the basis of this legislation, to make that gap clearly reachable and incorporate it into the progress that has already been made with heat pump installations.

[Andrew Bowie]

To answer the hon. Gentleman’s substantive point on why we are not incorporating the Government’s own target of 600,000 heat pumps per year by 2028, there are compelling reasons why we believe it would be unwise to set any particular target in the enabling powers in the Bill. The setting of scheme targets is best suited to the making of regulations. That is in part because that is when the best assessment of the relevant market conditions can be made, so that targets do not exceed what is viable and result in unintended consequences, which we would be worried about had we put the target on the face of the Bill.

--- Later in debate ---

[Dr Whitehead]

We come to a section of the Bill that I heartily approve of. I have long championed the idea that we set up an independent system operator in this country. It is really important in our next phase and where we go in renewing our infrastructure, and ensuring there are delivery mechanisms to cope with the renewable energy that we hope will be the mainstay of our carbon production. It is important not only that those systems are in place, but that they are in place as soon as possible. There will be discussions in this section about the best way of ensuring that the ISOP is set up in such a way that it can perform that function.

As the Minister will know, the independent system operator has been in gestation for a while, in terms of the separating of National Grid ESO from the National Grid itself. National Grid ESO now performs something of the function I have started to describe, but without the remit to do so. What we need over the next period is not just National Grid ESO, nor something with a different name from National Grid ESO, but something that is much closer to a system architect in upgrading our systems for renewable purposes. That is how I see the development of the ISOP. It is important that in our first go at what the ISOP does, as it were, we get the best combination of things it is responsible for and that we get right its ISOP set-up.

In the development of the grid so far, certainly as far as renewable energy connections are concerned, there is no real distinction between the high-level grid, which was the historic purview of National Grid and ISOP, and the lower-level grid, which is still pretty powerful but is in the hands of the distributed network organisations. Sometimes a false distinction is made between what is happening at National Grid level and what is happening at a more regional or local level. There is no real distinction now, because renewable sources, in particular, are seeking to substantially connect to 123 kV cables to a far greater extent than they are seeking to connect to high-level grid 440 kV cables. Consequently, some of the biggest backlogs in connection dates are not just in the high-level grid.

The Minister will be aware—we have discussed this previously in the House—that a number of large wind farms are getting connection dates to bring ashore and distribute the electricity they are producing not just a few years away, but in 2036. As I have mentioned previously in the House, that is one year away from when the Government have indicated they wish to see a predominantly renewable energy system in place. We may well have the tools to have the low-carbon energy system in place, but if we cannot deliver the electricity from those tools to anybody, we do not have a low-carbon energy system in place in the end. It is important that we get the system properly in place, so that it can deliver the connections and the offshore re-cabling. That way we will have a decent grid highway with anticipatory investment.

[Alan Brown]

On the hon. Member’s comments about offshore green infrastructure, does he share my concern that offshore developers in Scotland are now being told that they need to connect to the grid in Blyth because the connections are not available in Scotland? It just seems counterproductive and clearly adds additional costs to these projects.

Energy Bill [ Lords ] (Seventh sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Thursday 8th June 2023 Public Bill Committees

[Dr Whitehead]

This debate enables us to count off a few clauses—clauses that are all good stuff. They clarify and facilitate the role, function and activity of ISOP. We have indicated that we would like ISOP’s remit to be widened as far as possible. On the high-level objectives in clause 121, an objective on net zero could shape the widening of ISOP’s responsibilities, because obviously that is what we are all about now, as far as the grid and various other things are considered. A wider remit for ISOP in facilitating net zero is clearly to be desired; that may be a basis on which to build on ISOP’s powers and activities in future.

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

As I said earlier, I support the principle behind ISOP, and I support clauses 121 to 123, and will not vote against them. I want to explore a point with the Minister. The explanatory notes on the clauses highlight possible conflicts and tensions between the role of ISOP and the impact of Government policy—of what the Government do. For example, paragraph 345 of the explanatory notes outlines that there is

“a duty on the ISOP to carry out its functions in a way that it considers is best calculated to promote…net zero”.

It also acknowledges that while ISOP is not making decisions on generation mixes, it should still be

“proactively identifying and creating opportunities to facilitate the transition”

to net zero.

Paragraph 347 to the explanatory notes confirms the imposition of a duty on ISOP

“to carry out its functions in a way that it considers best calculated to promote a coordinated electricity and gas”

grid in the interests of the efficiency and economic operation of the grid. Paragraph 352 says:

“The ISOP will take a whole-system approach to coordinating and planning Great Britain’s energy system”.

That is all very logical, and I agree with the principles set out there—they are certainly the most important functions of ISOP in many ways—but how does the Government regulator allow for that, and how do the Government take into account the ISOP’s recommendations?

The Minister rightly pointed out the differences between what the ISOP is looking at and the fact that policy and implementation is the role of Government. To give an example, the National Grid Electricity System Operator already predicts that there will be less nuclear in the grid in any future scenarios compared with what the Government are promising about new nuclear, and that in 2024-25 a quarter of electricity generation will be from nuclear. The reality is that that will not happen. The National Grid ESO does not allow for that in future scenarios, yet the Government still tell us that that is their policy. That is already a clear conflict before the ISOP is up and running.

What if the ISOP says to the Government that instead of spending £35 billion to £40 billion on a new nuclear station at Sizewell C it could much better balance the system by recommending extra energy efficiency measures, battery storage, pumped-storage hydro or a smarter grid, which we keep hearing about in the plan going forward? What if the ISOP says that we should upgrade the grid urgently between Scotland and England, which would help to better balance the system and deploy renewables better, and get rid of the £4.6 billion in constraint payments that National Grid ESO paid last year to turn windfarms off because there was not sufficient grid capacity? How do the Government deal with the recommendations of the ISOP? Some of the suggestions that I have outlined would meet the aims outlined in clauses 121 and 122 and in the explanatory notes.

We are still to come to clause 131, but in this context it puts a duty on the ISOP to monitor and review developments, including technological changes and Government policies. It seems to me that the Government can make policies that undermine the ISOP’s recommendations; then the ISOP has the responsibility to review Government policy and start all over again. That does not seem very efficient, so the Minister needs to give a bit more clarity on that.

Clause 123 is on the strategy and policy statement, which is long overdue from the Government. On 30 March, in answer to a written question that I submitted, I was advised:

“The Government has consulted Scottish and Welsh Ministers on a draft SPS and taken their comments into account. The Government intends to publicly consult on an updated draft soon.”

When will we get that draft, given that clause 123 reiterates the responsibility of the Government to provide that strategy and policy statement?

Energy Bill [ Lords ] (Third sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Thursday 25th May 2023 Public Bill Committees

[Dr Whitehead]

As the Minister says, these clauses are important in establishing reporting requirements relating to carbon capture and storage strategy and policy statements, and the requirement to report how the policy is going and what the problems are. It is important that we establish proper mechanisms for ensuring that the report is properly brought before Parliament. Given the interest of Members in the progress of CCUS, they may well want to debate the report in the House, and to have the Minister answer questions on it.

Clause 41(7) states:

“The Secretary of State must”—

it is nice that the provision has the word “must” in it—

“lay a copy of each annual T&S report before each House of Parliament”.

As the Minister will know, the phrase “lay before” has a lot of possible interpretations, just as “publication” does; we discussed the general question of publication in a previous sitting. Just laying a report before each House of Parliament has, potentially, a number of problems attached to it. Is it likely to be flagged up in any way that the report has been laid before Parliament? Is the onus on every Member of Parliament to find out whether that has happened? Do the Government intend to be proactive about laying reports before Parliament, and in offering opportunities to debate the report, or at least answer questions on it? Those are all extensions of the idea of laying a report before the House.

I do not want to say that the wording is inadequate, because it is the general wording on laying reports before the House, but the Minister will appreciate and understand that some legislation enters into greater detail on how a report is to come before Parliament. It would be helpful if the Minister gave his interpretation of the provision and said how he intends to transfer or convey the policy report from the regulator to the Floor of the House.

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

It is a pleasure to serve under your chairmanship, Dr Huq. I will make only a few comments. I will not object to these clauses, which I realise are important, but I share the concerns expressed by the hon. Member for Southampton, Test. It is critical that we have confidence in proper parliamentary oversight, and in Parliament being able to hold the regulator and particularly the Secretary of State to account. I am slightly concerned that the clauses give the regulator too much power to decide what they report on, how they report and what information they bring forward. As the Minister described, it is up to the regulator to explain why they have not brought forward a statement, for example. We need more than that. It should not be at the whim of the regulator whether to bring forward a statement; if they do not bring one forward, they should say why. It is for the Secretary of State to make sure that these things happen, obviously with parliamentary oversight.

Subsection (2) says:

“That description must include the objectives of each relevant project.”

Clearly, we need a lot more than just the objectives; we need to know how the objectives are being met. I know that the Minister will not want to make the Bill too prescriptive about what goes in the report, but we need that to include, for example, details of the efficiency of the project. Cynics say that carbon capture does not capture enough of the emissions, whereas obviously the industry says that we can capture 95% of them. I want to see how efficient projects are, and how they contribute to meeting net zero.

There are concerns that carbon capture might lead to the burning of more fossil fuels, so we need to understand the level of extraction of fossil fuels, what the inputs and outputs are, the emissions from any extractions of fossil fuels, and where the fossil fuels come from, including whether they come from other countries; we need to know that when it comes to meeting that wider net zero objective. Those are the things that I would want set out, so that I could question the Secretary of State in Parliament on them and make sure that we have confidence in how these objectives will be met.

Energy Bill [ Lords ] (Second sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Tuesday 23rd May 2023 Public Bill Committees

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

I do not have anything much to say about clause 7 standing part. I will have some things to say about some of the clauses that follow, but the power to grant licences is pretty unexceptional, and we do not have anything to add or take away from the clause.

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

Unusually, I will speak for longer than the hon. Gentleman—I say that just as everybody was getting excited. I understand that clause 7 and subsequent clauses on granting licences and the economic models are critical to getting carbon capture up and running. Obviously, I want these provisions in place, but I ask the Minister for a bit more detail.

Clause 7 is all about the grant of licences, which is to be undertaken by the regulator. That will be Ofgem, as was said earlier in response to an intervention. The Minister assures us that it has the expertise and resource to do all the additional licensing work, but we discover in the explanatory notes for clause 7 that under clause 16, for an interim period, it is actually the Secretary of State who has responsibility for granting licences. Why is that? Why have the interim period? What expertise is available to the Secretary of State in-house when they are granting these licences? Who will oversee that? How long does the interim period last? From what I can see in schedule 1, it lasts until the Secretary of State passes regulations to end the interim period. I would like a bit more clarity on how long the interim period will last.

Is the interim period and the granting of licences by the Secretary of State a mechanism to speed up the grant of licences for track 1 projects that have already been selected by the Government? Does that not potentially give them an unfair financial advantage? The Minister touched, in his opening remarks, on competition for licensing and keeping everything competitive. How does he square these two things?

When does the Minister envisage the first licences being granted by the Secretary of State, and when does he envisage them being granted by the regulator? How will the licences that are issued in the interim period be compliant with clause 12, which is still to come and is all about standardisation? That helps to keep things competitive and transparent.

--- Later in debate ---

[Dr Whitehead]

The clause itself is brief, but refers to schedule 1 and to the interim power of the Secretary to State to grant licences. As the Minister said, that power will come to an end on a date to be determined at a point when the industry is well established and the Secretary of State therefore no longer has to exercise the interim power. Who decides when the industry is well established? If that is the Secretary of State, is it not a rather circular way of bringing to an end the power of the Secretary of State to grant licences on an interim basis? If the Secretary of State decides that the industry is not that well established, he or she will presumably continue to grant interim licences forever.

Presumably, we want to reach a point when the Secretary of State does not grant licences in his or her own right and Ofgem or the economic regulator does, but we do not appear to have any mechanism in the Bill, other than something to be determined at a particular date, whereby the Secretary of State switches off his or her own power and switches on an Ofgem power. It would be helpful if the Minister could clarify that. There may be something in the legislation that I have not noticed, but it appears from schedule 1 and the clause that there is not a clear switch-off mechanism, other than the intention to do so when the market is mature.

[Alan Brown]

To follow on from that point, and the point that I made earlier, I know that the Minister said that he would write to us, but I am interested in how he envisages the sequencing and the interim period coming to an end. Although he said that in terms of value for money it is up to Parliament, and us as parliamentarians, to hold the Government to account, if the interim period goes on for a long while and individual licences are granted effectively on an ad hoc basis, it will be almost impossible for parliamentarians to hold the Secretary of State to account. We will continually be told that the information is commercially sensitive, so we will be unable to access it. I want a bit more clarity on how this will all come together in a more transparent manner.

Draft Nuclear Regulated Asset Base Model (Revenue Collection) Regulations 2023

Debate between Alan Brown and Alan Whitehead

Monday 6th February 2023 General Committees

[Dr Whitehead]

Well, just two years ago we thought it was highly unlikely that the LCCC would be giving away £1.4 billion with CfDs, so there we are.

On the subject of the LCCC, we have observed something that the Minister did not really give prominence to: we are actually talking about two levies. There is a support levy and an operational cost levy, both of which are separate—they are calculated as separate—but collected by the LCCC.

The interesting thing about the operational levy is that it is effectively collected by the LCCC to pay itself. The pay under the operational levy is by no means minimal; indeed, the impact assessment puts it as rising to about £700 million a year by 2024-25. That is an LCCC estimate, but it is the cost that the LCCC will recover through the operational levy, which the company itself sets.

There appears to be a bit of solipsism at work. The LCCC seems to be responsible for deciding what it will collect, for collecting it, and then for deciding on the next levy and so on. What regulation will be in place to ensure that the operational levy is collected in a reasonable manner, providing for reasonable operational costs, rather than being a subjective levy on the basis of what the LCCC thinks it is going to do?

[Alan Brown]

The shadow Minister is right to highlight the strange position that has been established. Was he as surprised as I was that the estimated payroll costs for this financial year—2022-23—are £400,000, with a total spend of £560,000, as we debate these regulations today in February 2023?

[Dr Whitehead]

I thank the hon. Gentleman for that intervention; he is quite right to be a little surprised about that. This might be what is called anticipatory investment—the LCCC giving itself a lot of expenditure and, indeed, collecting it back, in advance of determining what its work will actually consist of. I understand that, of course, it has to gear itself up, staff itself and so on. It is interesting to see the figures for the considerable staff cost for the LCCC, which is what most of the levy will go towards. I, too, am a little surprised that it starts from quite a high point and runs up to a rather higher point, rather than starts from nothing much and then goes up from there.

I asked in an intervention what the Minister means by a holistic appraisal, which is a particularly unfortunate way to describe what the Department proposes to do in terms of appraisal, particularly regarding vulnerable people. I hope that the Government will better spell out, in the not-too-distant future, what that holistic appraisal will consist of and how it is going to work.

Finally, paragraph 14.5 of the explanatory memorandum talks about the monitoring and evaluation of the system. It is suggested that this will be a matter for review in 2025. For the Committee’s convenience, let me read out the statement from the Secretary of State about the fact that this instrument does not include a statutory review clause. He says:

“It is not considered appropriate to include a statutory review clause for policy reasons—in order to retain confidence in the stability of the revenue stream.”

I see what he means: if there was a statutory review clause, the investors who are going to pour in to support Sizewell C might think that the rug could be pulled from under them, so there should not be one.

However, the Secretary of State also says in his statement:

“There are existing review plans for the operational costs levy rates to be next reviewed in 2025, and internal plans to monitor and evaluate the effectiveness of the RAB policy as necessary or appropriate.”

There will, then, be a review, even though there is no review under the instrument as it stands. Is it the Minister’s intention that that non-review review, which will apparently take place in 2025, should be public, on the record and published in some form, so that we are all party to how the RAB performs and to whether anything needs to be done to it as it goes through its life?

Energy Prices Bill

Debate between Alan Brown and Alan Whitehead

Committee stage
Monday 17th October 2022 Commons Chamber

[Dr Whitehead]

We think that most of what is new clause 18 is unexceptionable as far as information that is required. We do not think that all this has to be or should be resolved within one month, as is proposed; getting all that information on the table about the profits and turnover of companies over the next two years is a better way to do this.

[Alan Brown]

New clause 18 is about extending support, because the Government today withdrew that support. It was supposed to be a two-year support package but as of today consumers are receiving support for only six months, not two years. Surely the hon. Gentleman should support consumers getting additional support. On the analysis of fuel poverty levels and protecting the most vulnerable, why does Labour not want to vote to protect these people and make the Government have to come to this House to report on what their policies are doing to fuel poverty?

[Dr Whitehead]

We want to get everything on the table that will be germane to decisions that may have to be made after six months about what to do, particularly about windfall levies and various other such things. That is what new clause 8 concentrates on.

Nuclear Energy (Financing) Bill (Sixth sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Thursday 25th November 2021 Public Bill Committees

[Greg Hands]

I thank hon. Members for their speeches for and against amendment 18. I remind the Committee that a relevant licensee nuclear company, or RLNC, is one that has had its licence modified under part 1, clause 6(1) of the Bill and has entered into a revenue collection contract. An RLNC administration order is made by the court in relation to an RLNC and directs that, while it is in force, the company is to be managed by a person appointed by the court. That is defined in part 3, clause 31(1), which we have just debated.

Amendment 18 addresses the course of action that the Government must take if an RLNC administration order is in force, but an RLNC cannot be rescued or a transfer envisaged by clause 32(4) effected, namely a transfer of the undertaking of the RLNC to a subsidiary that results in a going concern. The amendment seeks to ensure that, in this scenario, the plant will commence or continue electricity generation under public ownership. The amendment would require the Secretary of State to move the assets, liabilities and undertakings of the RLNC to a Government-owned company, even if a transfer envisaged by clause 32(3) to one or more companies would achieve the objective of the administration order. The amendment would put in place a new process. Although the amendment does not address who must make the assessment that the objective cannot be achieved by the means specified, it appears to limit the available options before the power plant is moved into public ownership.

First, obviously, I thank the hon. Members for Southampton, Test, and for Greenwich and Woolwich for their clear desire to ensure that a nuclear power station will commence or continue the generation of electricity—on the face of it, that seems a very reasonable objective—and for recognising that the special administration provisions add a valuable layer of protection in this area. Ultimately, that is why they are in the Bill. However, I do not consider it necessary to place a statutory requirement on the Government to take ownership of a plant in the unlikely event that a special administration fails in its objectives, because the provisions for the energy transfer scheme, applied by clause 33, already serve this purpose. The amendment may even inadvertently lengthen the period of an RLNC administration order, as one assumes that the Government-owned company would, for example, need to apply for a new nuclear site licence.

In the unlikely circumstance where rescue cannot be achieved and it is unnecessary for the administration order to remain in place, the Secretary of State—or the authority, Ofgem, with the consent of the Secretary of State—may apply to bring the administration order to an end. Once the administration has ended, the Secretary of State may prepare a nuclear transfer scheme, which would bring the plant under the control of a public body, or, for example, the Nuclear Decommissioning Authority. In such a scenario, it is envisaged that the plant would then be decommissioned and cleaned up. However, the Government would still retain the option to move the power plant into public ownership and, if deemed in the best interests of consumers and taxpayers, commence or continue the operation of the plant.

Let me say in response to comments made by the hon. Member for Kilmarnock and Loudoun that there may be circumstances in which discontinuing the project and having it safely decommissioned is in the best interests of both consumers and taxpayers. That will ultimately be down to a value-for-money process that asks: what is the best deal here for consumers and taxpayers? The Office for Nuclear Regulation may have shut down the plant for safety reasons; there may have been an environmental or security incident, or maybe something else happened that meant that trying to make that plant commence or continue to generate electricity was not in the interests of consumers or taxpayers. It is important, then, that the Secretary of State retains discretion to act in whatever way will achieve the best outcome for consumers and taxpayers during the insolvency of a relevant licensee nuclear company.

I stress to the Committee that the likelihood of those scenarios is, of course, very remote, as indeed is the likelihood of a nuclear administrator ever being appointed. I thank the Opposition for their forward thinking and consideration of what would happen in such a scenario, but I hope that I have assured the Committee that it would not be sensible to tie the hands of the Government in such a way that they had to commit further taxpayer money to a project without being able to balance that against the merits of doing so. The amendment would create an automatic process, but the Bill provides sufficient flexibility to allow the Government to pursue the option that the amendment provides for if they consider such a decision to be in the best interests of consumers and taxpayers. I therefore ask the hon. Member for Southampton, Test, to withdraw the amendment.

[Dr Whitehead]

I thank the Minister for his consideration of the processes by which a power plant might need to be rescued and/or decommissioned and/or discontinued. I think he will recognise, however, that the circumstances in which he says ministerial discretion would need to be exercised are an unlikely part of an unlikely scenario of an unlikely future.

The Minister gave the example of an accident, or something else, closing the plant down, so that it would have to be decommissioned and could no longer produce power. That would need to be done anyway, even if the company was placed in Government hands, so I do not think that those circumstances affect the path I have set out relating to Government interest in a plant that could not be bought out of administration because it was a going concern, or because it had been sold to another company—unless the Minister has it in mind that the sale of a nuclear company to another company would be done on a peppercorn basis, in which case the nuclear plant would lose all the value that the bill payer had invested in it.

In any event—this is what concerns me about the intervention by the hon. Member for Kilmarnock and Loudoun—the whole purpose of the RAB model is to produce a working nuclear plant that was invested in up front by members of the public and bill payers. That plant would then produce power as a reward for that up-front investment. If we easily closed a plant down because it was insolvent, we would be overthrowing the whole purpose of the RAB scheme, which is for the public to get something back, and we would be back to the instance that we talked about early on in Committee.

[Alan Brown]

The hon. Gentleman is right about the purpose of the RAB model, but would the unlikely event of insolvency not just confirm the failure of the RAB scheme? We should not keep throwing good money after bad in the event of such a failure.

[Dr Whitehead]

The hon. Member is right that in the event of an utter catastrophe, where the nuclear core does not work, the concrete casings are seriously deficient and the whole thing has to be closed down, we are in a scenario—this was sort of suggested by the Minister—where it would not be viable to continue the project. However, where it is in principle possible, electric power production in the plant should continue, because billions of pounds of customer payments will have been invested in the plant.

--- Later in debate ---

[Greg Hands]

On a point of order, Mr Gray. I would like to thank you and Ms Fovargue for your excellent chairing of the Committee, getting us through this important process efficiently and effectively. This has been a very interesting debate on a very interesting Bill on a very interesting topic, which attracted broad interest across the House. I have to confess that this has none the less been a relatively uneventful Committee, but for connoisseurs of the topic, it will provide many future years of reading as to how nuclear financing was scrutinised by the House of Commons so effectively and in significant detail.

I thank the excellent witnesses whom we heard from last week and all members of the Committee for their constructive debate. That has allowed the Bill to go through significant scrutiny, and facilitated important discussions. I also thank the Whips—the Whips must always be thanked—on both sides for their efforts and their effective management of the time. I offer my thanks to the Clerks, the Hansard reporters, the Doorkeepers and, indeed, all the parliamentary staff, and to my excellent team of Department for Business, Energy and Industrial Strategy officials, for the smooth proceedings and ensuring that we have all been well looked after and have finished with the Bill well scrutinised, but in good time. I look forward to the next stages of proceedings on the Bill and the continued insight from colleagues across the House.

[Dr Whitehead]

Further to that point of order, Mr Gray. I would like to associate myself with the Minister’s remarks about the passage of the Bill and with the thanks that are due to the many people who took part in its processes, from witnesses to hon. Members here today. A number of them were, I know, somewhat tested on occasion by the detail into which some amendments went. But overall, we have had good scrutiny of the Bill, facilitated by the courteous way in which the proceedings were conducted. I thank the Minister for those courtesies in how our debates proceeded, and I thank you, Mr Gray, for your excellent chairing of our proceedings.

[Alan Brown]

Further to that point of order, Mr Gray. In a similar vein, I thank yourself and Ms Fovargue for chairing the Committee. I especially thank the Clerks for all they have done, and for the assistance they have provided with drafting amendments and new clauses. I must admit, although the Minister has said that some were not relevant, I trust the Clerks’ judgment more than I trust the Minister. I do not mean that to be facetious.

Nuclear Energy (Financing) Bill (Fifth sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Tuesday 23rd November 2021 Public Bill Committees

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

It is a pleasure to serve under your chairmanship, Ms Fovargue. Like the Minister, I would like to spend a moment announcing, as it were, this part of the Bill, which I hope we can get through in an orderly and suitably speedy fashion. It is however important to share an understanding of what we think this part is about. As the Minister said, it concerns the setting-up of revenue collection contracts; the setting-up of a counterparty to hold the revenue collected from suppliers to underpin action by the nuclear company in terms of construction; and, importantly, as he said—he seemed a little concerned when I mentioned this in our previous sitting—revenue collection and distribution during both the construction and production phases of a nuclear project.

My understanding is that during the production phase, the nature of the revenue collection changes. During the construction phase, within the overall allowable costs architecture, the nuclear company is likely to absorb whatever comes its way from the counterparty for the purposes of underpinning the construction costs of the nuclear plant. Obviously, there are debates to be held on that and further regulations to be put in place concerning how the revenue stream for a nuclear company is carried out and the requirements of the construction at various phases.

We have debated to some extent the instance whereby the allowable costs ceiling is breached because of rising costs, particularly during production; whether the regulator would have the opportunity to revisit the allowable costs ceiling; and what effect that would have on the run through the regulated asset base process to customer bills as a result of those recalculations. However, there are issues with what revenue stream goes into the nuclear company, and at what stage during construction, but that is within the overall costs ceiling, or should be, in the first instance.

During the production phase of a nuclear plant, the relationship between collection, distribution and re-disbursement becomes a little more complicated. I would be obliged if the Minister could shed a little light on some of the things that happen during the production process, which are still slightly unclear. That is important because, in the production process, the receipt of funding under the RAB process becomes a comparative issue. The company is making money and producing electricity, and one would expect that, as a result of the RAB model, the money that is being made by the company would sit within the parameters of what has been agreed for the regulated rate of return under the RAB model. If the company is making more money from its production of electricity than is allowed within the overall model’s parameters, that money starts coming back to the counterparty or, at least indirectly, through to customers.

Conversely, if the company is making less money from its production than is allowed within the RAB model for production purposes, money continues to come in under the allowable costs ceiling. The best explanation is given on page 21 of the consultation document on a RAB model for nuclear, which suggests:

“Suppliers could pass the cost of the payment obligation onto their consumers, as they do with other regulated costs and could likewise reimburse their consumers (as happens under a CfD) in periods where suppliers receive payments from the project company (e.g. when the Allowed Revenue is lower than the project company’s revenue from power sales). The design process would need to consider how these charges could be made in more detail, in consultation with suppliers and consumer representatives.”

That is essentially the model during the production phase: it is potentially a two-way process.

That issue reflects, at least to some extent, the amendments that we wish to discuss this afternoon —an understanding of how the money goes into the counterparty, what the counterparty does with the money, what the counterparty does when the money is held, and what the counterparty does if that money may not be needed, or money has been paid back into it by the nuclear company during the production phase. Consideration of how that happens, where that money goes and what sort of requirements one should place on that process are at the heart of some of our amendments.

I thought it important to check whether we have a shared understanding with the Minister of how the process works. Assuming that we do, we can discuss the amendments on the basis of that shared understanding of what this part of the Bill sets out to do. That is essentially a contribution to the clause stand part debate, but I hope that it clarifies how we will proceed with part 2 as a whole, and that it will be helpful to the Committee.

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

It is a pleasure to serve under your chairmanship again, Ms Fovargue. It was interesting that the hon. Member for Southampton, Test spoke about a shared understanding. I wish I had one; I do not think that the Bill is good enough to have any shared understanding of what it is about. Part 1 is clearly all about the definition of designating a nuclear company, and then a blank cheque in terms of defining costs. It seems to me that part 2 is all about how the blank cheque moneys are recouped in revenue collection.

I have one point to put to the Minister. Explanatory note 119 states:

“The terms of a revenue collection contract will be bilaterally negotiated between the Secretary of State and an eligible nuclear company to be designated under Part 1.”

Would he enlighten me on what expertise the Secretary of State has in negotiating a revenue collection contract for a new nuclear power station, how that will be undertaken in a transparent manner, and what options are available for scrutiny of that?

--- Later in debate ---

[Dr Whitehead]

I beg to move amendment 15, in clause 19, page 16, line 11, at end insert—

“(4A) Revenue regulations may make provision to prevent electricity suppliers from recovering the costs of paying a revenue collection counterparty from customers who qualify for the Warm Home Discount Scheme.”

This amendment would mean that electricity bill payers who qualify for the Warm Homes Discount scheme would not be liable for levies on their bills that pay into the RAB revenue collection fund.

Amendment 15 relates to the latter end of clause 19. Hon. Members will see that the clause suggests that revenue regulations may make provision for electricity suppliers to pay a revenue collection counterparty for a number of purposes, including

“to hold sums in reserve; to cover losses in the case of insolvency or default of an electricity supplier.”

According to our shared understanding of how the RAB would work, the regulations would require electricity suppliers to pay into a revenue collection counterparty for those purposes. Thereby, as the RAB consultation makes clear, if that company has been required to pay into the revenue collection counterparty, the company could make restitution for the money it had paid into the revenue collection counterparty by adjusting its bills to reflect that fact.

We are in exactly the same territory as contracts for difference, where there is a levy on customers and the supply company recovers the money that it has paid into the levy fund by passing that levy on to customers in their bills. We have a problem with placing additional levies on already sky-high bills, but that is how this arrangement will work. We question how that process will work. As hon. Members will also know, we currently have within our electricity supply arrangements a warm home discount scheme, which provides for a number of bill payers to get £140 off their bills each year if they qualify. There are some issues about the size of the company relating to that obligation but, in principle, pretty much all customers on a low income or a guaranteed credit element of pension credit will, or should, receive that warm home discount.

The energy company has to supply that discount to its customers. It may socialise the costs through its overall bills as a sort of secondary levy, but it gives a proportion of electricity customers a permanent reduction in their bills due to their particular circumstances, such as—as the discount suggests—particular fuel poverty-type issues in heating their homes and meeting their fuel bills.

The effect of a levy—in this instance, quite a substantial levy—to customers under these circumstances, particularly during the construction phase of a regulated asset base operation, would be to put, say, an extra £10 on the bill of someone who is already receiving a warm home discount, so that their fuel bills go up. A number of people would be placed in fuel poverty as a result of that difference, and therefore, ironically, it is quite possible that more people would be eligible for the warm home discount as a result.

When and if this levy comes on stream, we do not think that the process should include the supply company passing on that increase to those people who are already paying their bills but have a warm home discount. Those companies should not be able to recover the cost of payment into the revenue collection counterparty by passing it to those people receiving warm home discount. This would mean a socialisation of that cost to other bill payers, but the warm home discount would nevertheless remain at the right proportion of the bill, not diminish in value because that person was required to pay that levy to the energy company so that it could recoup its costs related to the revenue collection counterparty.

This is quite a simple amendment to try to return that warm home discount to the position that it would have been in before that levy was introduced. I would suggest that it is in line with what the Government intended for that warm home discount in the first place. Although other customers may pay a little more on their bills, it would maintain the relative billing position for the poorest and most vulnerable customers, including those in receipt of a guaranteed credit element of pension credit, helping those who have considerable difficulties in paying bills and are perhaps in fuel poverty as a result. We would like this power to ensure that energy companies do not incorporate those customers into the arrangements for collection and distribution of money coming into the revenue collection counterparty.

[Alan Brown]

I will just say a couple of things. I was listening to the arguments and if the amendment goes to a vote, I will be happy to support it and do anything I can to try to support the most vulnerable and not create any more fuel poverty. Listening to the arguments, they seem to confirm that the concept as a whole is a costly burden on consumers. As the shadow Minister said, it creates a levy that will put more people into fuel poverty. The levy will not just last for a few years; it starts with a construction period of 10 to 15 years in all likelihood and then a 60-year contract. Rather than tinkering at the edges, protecting some people and pushing other people into fuel poverty, the heart of the matter is that this is a costly white elephant exercise. That said, I would still support the amendment for what it aims to do.

--- Later in debate ---

[Dr Whitehead]

The hon. Member is absolutely right. I am sure that we could do some back-of-a-fag-packet calculations about what we are going to need from the warm home discount, given the rises that are likely to occur under the fuel price cap in the coming spring and over the next six months, but it will certainly be rather more than £10.

[Alan Brown]

Does the hon. Gentleman agree that another odd aspect of the Minister’s argument is that raising the warm home discount to £150—an extra £10—is really significant and helps people, but an extra £10 on their bill is okay and something we do not need to worry about? The two cannot both be right.

[Dr Whitehead]

The hon. Member makes a very interesting point, which I was rather slower than him to get to. He is quite right: if this is going to be £1 a month during the construction phase, therefore adding only £10 to £12 to the bill per year, it is contradictory to say that one is insignificant while the other is very significant.

There is also the fact that £12 a year, or £10 a year or whatever, will affect different people’s bills in different ways, because the bill for a large family, or someone with a large house, will be higher in total, and the £12 nuclear levy will be a smaller proportion of it than for someone who is eligible for the warm home discount—perhaps a single pensioner living in a small house, with a lower bill but nevertheless without the wherewithal to pay it. That £12 would be a higher imposition on their bill than it would on other people’s bills.

I think we all agree that the warm home discount is an important actor in combating fuel poverty and ensuring that the most vulnerable people in our society as far as energy costs are concerned do not have it even worse than they do at the moment and are given some assistance with their bills. We all ought to be very mindful of that when we put levies on people’s bills. What the Minister says about who we do and do not put into fuel poverty when we change levies on fuel bills is true, but that is an argument for better indexation, not for continuing with the warm home discount in the way that we are.

I am sorry to say that we will have to divide the Committee, because we think that this is an important principle that ought to be upheld. We do not want to the effects of the levies, which of course may be much more than £12, depending on how the allowable costs ceiling goes, to directly affect the warm home discount, which we think is a very important part of the energy landscape and the battle to combat fuel poverty. We would like it to be on the record that we did not simply allow this to be brushed under the carpet, and therefore wish to vote on the amendment.

Question put, That the amendment be made.

--- Later in debate ---

[Dr Whitehead]

I am very sympathetic to the amendment, although I do not think that it will do exactly what the hon. Member for Kilmarnock and Loudoun would like. It would be helpful to have some clarification from the Minister as to exactly how the payments will be organised by the revenue counterparty body.

Although those payments are up front, in that the electricity supply companies would be required to make a payment on behalf of the customer into the counterparty before the power station had been built, that does not mean that the payment would all be up front. It means that the payment would be staggered over a period, which might be the whole of the production period of the nuclear power plant, according to what was required at particular times of the construction, so that the counterparty had sufficient funds to meet those calls from its revenues at any one time, but did not have a large surplus against calls. The counterparty would therefore have to modulate and regulate its calls on the energy supply companies as the process of construction continued.

Presumably, then, a company’s health would not be set against an overall up-front payment in that instance. All companies would be required to pay into that levy arrangement regularly, so there would not be a greater demand on one company than another or a large amount of money demanded in one go. That is my understanding of how the system would work, but I appreciate what the hon. Member for Kilmarnock and Loudoun said about the 23 companies that have gone bust recently. As the energy market stabilises, I think there will not be many companies to take a levy from in the first place. Those companies that are able to pay a levy will by and large be those that were in sufficiently robust health in the first instance to weather the storm of high gas prices and high energy costs—there are a number of other reasons why companies may or may not be reasonably robust but that is a debate for another day.

Overall, I do not think that the amendment does exactly what it is intended to do.

[Alan Brown]

I think I understand the point that the hon. Gentleman is making, but subsection (4) says:

“Revenue regulations may make provision to require electricity suppliers to provide financial collateral to a revenue collection counterparty (whether in cash, securities or any other form).”

I still read that as meaning that cash could be asked for to be paid up front.

[Dr Whitehead]

Indeed, and that is why we need better clarification from the Minister. Is there a distinction between cash up front in general—that is, one pays before getting any result from a nuclear plant that is being built—or cash up front in the sense of taking all the stuff in the agreed revenue allowance? Would that be taken either mostly up front, all in one go, or at level that an energy company would find unaffordable during particular elements of the process? There is still some uncertainty about exactly how that process would work.

I have a lot of sympathy with the argument of the hon. Member for Kilmarnock and Loudon. If the revenue counterparty decided that it was going to take a very large amount of levy early in the process to have lots of money in the bank and to be able to cover any eventualities connected with the construction process, that would be a pretty unreasonable imposition on energy companies, particularly in the present circumstances. However, I think there are least implied elements of regulation in the Bill that would prevent that from easily happening, and I would be interested to hear whether the Minister thinks that is the case. If he does, where in the Bill is that, and which arrangements would be preferrable in terms of the revenue collection counterparty operating on a more equitable basis as the construction period progressed?

[Greg Hands]

I thank the hon. Members for Kilmarnock and Loudoun and for Aberdeen North for tabling their amendment. Of course the Government welcome all Opposition parties tabling amendments; that does not necessarily mean that we will agree with the aforementioned amendments, but it is a useful process to test and probe the Bill, and I think our publics would like to see a process whereby all Opposition parties tabled amendments to test the Government’s proposition. I fully buy into that process, but I do not happen to agree with this amendment.

The amendment addresses how the interests of suppliers and their customers should be considered when making provision in regulations for the supplier to pay the revenue collection counterparty. It would also require the Secretary of State to have regard to the other liabilities of electricity suppliers—the hon. Member for Kilmarnock and Loudoun talked with topicality about that—as well as to the impact that collateral requirements will have on a supplier’s operation. I thank the hon. Gentleman and the hon. Lady for ensuring that the Government consider the impact on suppliers and consumers when establishing the RAB revenue stream.

I reassure Members that the Government intend to act in a way that effectively manages the payment obligations on suppliers and, through them, consumers. We do not believe, however, that the amendment is the best way of ensuring that. First, the provision of collateral by electricity suppliers is a form of security that has been administered very successfully in the contract for difference regime. As I said on clause 15, the regime seeks to replicate that tried-and-tested regime, which has functioned effectively to bring investment into new energy projects for the last eight years.

We have been clear that in designing the RAB revenue stream we are seeking to replicate many of the provisions of contracts for difference to help to provide a familiar and workable framework for suppliers, but it is not just about supporting investment. We will protect suppliers from paying unreasonable amounts of collateral and ensure that overpayment of collateral is returned to suppliers.

Nuclear Energy (Financing) Bill (Third sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Thursday 18th November 2021 Public Bill Committees

[Alan Brown]

It is a pleasure to serve under your chairwomanship, Ms Fovargue. In my intervention, I wondered if the amendments would technically preclude EDF under the RAB scheme. I hoped that the amendments were a stalking horse for Labour to come round to our way of thinking regarding a new nuclear power station, but unfortunately, that does not seem to be the case.

That said, I support the amendments. It is crazy that decisions have not been made before now about excluding China General Nuclear from critical infrastructure. The UK Government probably acted on the back of the United States’s actions to remove Huawei from critical telecoms infrastructure, so it makes no sense that a Chinese state-operated nuclear company is allowed to participate and invest in and possibly, if it gets its way, construct a new power station at Bradwell. That makes no sense. I would like to hear what the Minister has say about that. In principle, I support the amendments, although, ideally, I would rather we were not doing new nuclear.

[Dr Whitehead]

Continuing briefly from my initial remarks, I want to make it clear that the amendments—and all our other amendments—are based on the idea that the Bill should be strengthened, not subverted in any way. I can assure the Committee that the hon. Member for Kilmarnock and Loudoun’s hope that these two amendments are a stalking horse to remove EDF from the project is certainly not the intention. The intention is precisely to ensure that the nuclear programme in this country is sound, robust and integral to our security in all senses of the word.

We do not think the amendments will do anything other than put us in a much better position to ensure that the financing of nuclear is done on a clearer footing and on the basis that we know who is putting money into the project, in this instance Sizewell C. I concur with my hon. Friend the Member for Greenwich and Woolwich that effectively the Bill is pretty much about how Sizewell C gets going, comes to financial closure and gets into its construction period so that it produces electricity in good time for the grid.

It is important that the Committee thinks carefully right at the beginning of its proceedings about how we want to framework that nuclear financing; how we want to framework the arrangements which, after all, will be the umbrella under which we have all our other discussions in Committee. The framework that we have at the moment, particularly for Sizewell C, as my hon. Friend has set out, is a sequence of memorandums and a number of things further to memorandums, which appear to lock our nuclear development into an arrangement with the Chinese General Nuclear Power Corporation, which is very much an instrument of the Chinese state. Although companies have been set up—set up for the purpose of engaging in Hinkley—with one nominated director, given who those nominated directors are and how they go back to China it is very clear that those companies are centrally state-controlled, and are state-controlled vehicles for investment—just as we have stated in our amendment—for the promotion of that particular foreign power’s interests, in this instance in nuclear power.

Given those interests in nuclear power, it is important that we do not lose sight of the overall scheme of things in considering investment or otherwise in Sizewell C. It is important to understand that the deals, as it were, that were made between 2013 and 2016 were very much about that sequence of events leading from investment in a power station with a minority stake, with a reactor that would be built in France, within a framework of a company controlling that, that is a private company but has substantial state connections, but nevertheless is a very different model from what we are faced with regarding the CGN investment.

So there has been a sequence of events that starts with Hinkley C, with a minority stake, a French reactor and a French company with its own investment in the majority of the plant, and then a contract for difference at the end of it for production, moving to the second event in the sequence, which was envisaged at that time to be Sizewell C, with an undefined arrangement at the time for investment elsewhere in the plant, but a clear stake in that plant, beyond financial closure, of the Chinese General Nuclear Power Corporation, coming to 20%. And then would come the prize at the end of the sequence—certainly the prize for the Chinese Government—of the entry into European nuclear development for the first time of a Chinese reactor, the Hualong One. That would be the basis of a Bradwell nuclear plant. That reactor would separately go through a generic commissioning process; the initial moves towards that are being made. That reactor would then be at the core of the Bradwell plant, and Bradwell would be majority-owned, run, controlled and operated by the Chinese state nuclear corporation.

So, leading down the path of that sequence, Sizewell C being a stopping-post in that sequence and the end of it being Bradwell, is obviously the nuclear project that we are discussing at the moment. Therefore, the part-ownership of the nuclear company must be seen as integral to that overall process and that overall agreement; and if we do nothing and say nothing about that involvement, we are effectively condoning that whole sequence of agreements.

Those agreements were initially made in the form of a memorandum of understanding on civil nuclear collaboration in 2013, and effectively those stakes that I mentioned were set out then. George Osborne, the then Chancellor, stated that Chinese companies were taking a stake, including potential future majority stakes, in the development of the next generation of British nuclear power. So, it was pretty explicit, certainly from the UK Government side, what they thought that sequence was going to be about, and it was actually pretty similar to the idea that the Chinese had, as far as their involvement in nuclear was concerned.

That was followed, during Chinese President Xi Jinping’s state visit to the UK in 2015, by a “Statement of Cooperation in the Field of Civil Nuclear Energy”, which welcomed the minority investment and the proposal for a Chinese-led project at Bradwell B in Essex. What is less well known is that that was followed by a very lengthy document, “Secretary of State Investor Agreement”, which was primarily about investment by a number of parties, including CGN, in Hinkley but which also related to the whole sequence. It is arguable, therefore, that there is a substantial lock-on of Chinese involvement not just in 20% of Sizewell but in the whole sequence, as laid out in the various memorandums of understanding and the investment agreements undertaken between 2013 and 2016.

The question is: what are we going to do about it? The proposal is for a RAB scheme to cover the project’s investment costs. A decision will have to be made about how the RAB scheme will work and we will discuss the detail later, including how Ofgem will set out the allowable costs that form the backbone of a RAB agreement. Ofgem will have to assess the overall allowable ceiling for the project costs, particularly in its construction phase but also during its production phase. That will form the basis on which the money to meet those costs will be taken in from the general bill-paying public. The ceiling for those allowable costs will be determined to a considerable extent by how much investment is likely to be required and, therefore, how much of it will have to be underpinned by the RAB arrangement at the Sizewell plant. If a substantial part of the plant is to be financed by the China General Nuclear Power Corporation, then logically the allowable costs would relate to the rest of the required investment, rather than all of it. Crucially, the decisions and discussions that this Committee is going to enter into will be determined by what that 20% consists of.

The Red Book offers a tantalising clue as to what that might be. As my hon. Friend the Member for Greenwich and Woolwich said, a total of three lines focus on the £1.7 billion of new direct Government funding being made available, essentially for the Sizewell C project. He said that the Red Book is possibly wilfully obscure; it is certainly obscure, and for a number of reasons. All the Budget and spending review document has to say about the £1.7 billion Government funding is that it is being provided

“to take a final investment decision this Parliament, subject to value for money and approvals.”

--- Later in debate ---

[Alan Brown]

I understand where the hon. Gentleman is going, but where is the fall-back?. The Secretary of State is desperate to get a nuclear deal signed off, so he just signs it off: “Yes, I am of the opinion that this project will be completed.” Ten years down the line, it all falls apart and the project cannot be completed, a bit like the Californian example. What protection would the amendment introduce? It seems that the Secretary of State can just sign this off based on his opinion. If there are repercussions down the line, they do not come back on that Secretary of State.

[Dr Whitehead]

The hon. Member makes an important point, at least part of which we will discuss when we come to the procedures under which a potentially failed project might be rescued or transferred to other undertakings so that it can be delivered and completed, or if already operating, can continue to operate.

[Dr Whitehead]

It is quite possible that the Secretary of State could deem the first two criteria on the basis of work that the company had done to approach designation. However, unless the Secretary of State has in mind the whole picture at the point of designation—in the previous group of amendments, we touched on some of the things concerning the whole picture—it would be possible for him to conclude that, yes, on the basis of the work done so far, the particular mechanisms looked like they might produce, say, value-for-money electricity at a rate per kilowatt-hour that was compatible with market levels of electricity at that point or in the future or with value for money as far as other electricity production is concerned, but he might still not have a handle on whether the undertaking that the nuclear company was about to engage in was sound in the overall, as far as completion was concerned.

The hon. Member for Kilmarnock and Loudoun touched on an important lesson in that respect, which ought to be put before the Committee. He mentioned a case in California—it was not quite in California; it was a little way a way, although it began with the same letter. I am talking about the experience of a nuclear power plant in South Carolina in the United States. When I say the experience of a nuclear power plant in South Carolina, I do not mean that—because there is no nuclear plant in South Carolina; there are a bunch of a concrete foundings, walls and various other things that look like a nuclear power station, but it does not operate, it has never produced a single kilowatt of electricity and it remains abandoned.

More significantly, that project not only was abandoned but was commissioned precisely on the sort of criteria that are contained in the Bill. All those things were gone through by the South Carolina legislature, which put in place something remarkably similar to a RAB. Indeed, the bill payers of South Carolina were required to stump up money for the project as it progressed, and I am sure hon. Members will be interested to know just how much money went from the bill payers of South Carolina to that project and how much they got out of it as a result of introducing a RAB model in South Carolina. The answer is nothing. Some £9 billion of customers’ money went into the project, and they will continue to pay for that lump of concrete for the next 20 years in their bills because of the way in which the thing was constructed, all on the basis of agreements that looked pretty similar to what is in the Bill.

What South Carolina did not do was ask serious questions about the resilience of the various partners and companies involved in the project in the light of changing circumstances in terms of the construction of the project and the health of the companies involved. Among other things, costs went through the roof, the timescale increased substantially and one of the companies that was in charge of the project effectively went bust—it called for chapter 11 protection and was therefore unable to continue with the project. All those things could have been foreseen by the South Carolina legislature, but were not. The project went ahead, with the customers footing the bill, as various reviews subsequent to the collapse of the nuclear programme said, on the basis of something that was extremely unlikely to ever come to fruition as a nuclear power plant, not only because of the dodgy nature of the financing of the project but because it had completely unrealistic timescales—those involved expected to produce electricity within six years from the start of production and so on, none of which was properly overseen.

[Alan Brown]

I appreciate the hon. Gentleman giving way once more; I am starting to feel like I am on a mission to annoy each contributor—apologies. He makes valid points, and I understand his concerns and what he is trying to do, but I still do not understand how the amendment would preclude such a scenario. Surely, as well as the amendment, the Secretary of State would need to look at a list of criteria, with their sign-off verifying what factors have been considered to reach the opinion that the project is viable. Otherwise, the Secretary of State could just say, “I think this project will be completed—let’s move on.”

[Dr Whitehead]

Yes, indeed. The hon. Gentleman is right, to the extent that the amendment does not actually guarantee the success of a project as a result of its placement in the designation clauses. Of course, it is not possible to do that, because changing circumstances can mean that projects cannot come to fruition. The difference the amendment would make is that the Secretary of State would be required to look at all those sorts of things in the overall scheme of things as far as the company and the prospects for success of a particular project are concerned, in such a way that he could form an opinion, which he would undoubtedly have to publish, that he was as satisfied as he could be, having done all that work, that the project had a very high prospect of being completed, and he would have to underwrite that.

One thing I did not say about the South Carolina project is that a lot of it is now the subject of legal action, and various state officials are being hauled up before the courts for their lack of diligence in actually looking at the overall circumstances of the project when they gave the go-ahead on a similar basis to that which we are discussing. If the Secretary of State had to sign off, on the basis of the amendment being in the Bill, that it was all okay and could go ahead, and it turned out that it was not okay and could not go ahead, under circumstances that could have been foreseen, he would then be liable. That is potentially quite an important concentration of the mind, ensuring that the work had been done, as much as it could be done—I accept that it would not be a perfect operation—to ensure that there was a reasonable or good prospect that the company involved could complete the project. That is all the amendment says. It would be an important addition to the designation process.

We need to be clear that, as much as we can do the work, we have done the work in getting the designation clearly marked on the basis that the company really can deliver a nuclear plant and produce electricity for customers. As I have said, we are engaged in a RAB process, which ultimately lands on the customers. We absolutely do not want to ever land the customers of the United Kingdom in the same position that the customers of South Carolina are in today, so far as a nuclear power plant is concerned.

Ordered, That the debate be now adjourned.—(Mark Fletcher.)

Nuclear Energy (Financing) Bill (Fourth sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Thursday 18th November 2021 Public Bill Committees

[Dr Whitehead]

I beg to move amendment 9, in clause 6, page 5, line 13, at end insert—

“(ba) the interests of existing and future consumers of electricity in relation to their prospects of recouping their contribution at the conclusion of the construction phase of the project;”.

This amendment requires the Secretary of State to have regard to the interests of electricity consumers in recovering the value of their contribution to the construction of a nuclear power plant.

We have now reached the point where we have the first consideration of the consumer in the Bill, in clause 6(4)(b), dealing with the licence modification arrangements. Hon. Members will note in subsection (4) the things that the Secretary of State must have regard to when exercising the power under subsection (1), subject to what we have just discussed about subsection (2) in terms of the design, construction, commissioning and operation of nuclear energy generation projects.

Subsection (4)(b) says that the Secretary of State must have regard to

“the interests of existing and future consumers of electricity, including their interests in relation to the cost and security of supply of electricity”.

I understand that to mean that the Secretary of State, in modifying licences, particularly in respect of a RAB agreement, must look at the interests of consumers with respect to the cost of electricity and the extent to which it may be produced at a better price as production develops in the years following the adoption of a RAB, and the extent to which security of supply to customers can be maintained.

What is lacking in that list of things that the Secretary of State must have regard to—along with many other things—as far as the consumer is concerned is a recognition that the consumer has an active interest as well as a passive interest in this process. If we are setting out to produce a RAB arrangement that effectively requires a levy on customers at all stages of the process—during development, construction and production—then the consumer surely has rather more of an interest in that process than just the passive interest in price and security that is suggested in subsection (4)(b).

For example, the consumer has a considerable interest in making sure that the cost to them is reasonable at all stages of the process, and that it does not simply set out to milk the consumer for the purpose of sorting out the project regardless of its vicissitudes. The consumer has a particular interest not only in the way that the RAB contract talks about the price of electricity, but in how it addresses the extent to which the consumer’s investment may be recouped as the RAB process comes to its conclusion and goes down its path.

Of course, in that context, the RAB arrangements that we are discussing have, during their latter stages, a two-way process. If the production of electricity goes above the ceiling of the allowable costs limit, then it is expected that the company producing the electricity, because the model is regulated, will restore money to the consumer in one way or another. If its production is under that allowable costs ceiling, however, it will take money from the consumer to allow that process to continue smoothly. Indeed, in the RAB consultation, we had a rather optimistic, smooth little curve down as the process comes to its end. I do not think that will quite be the reality as the RAB process goes on, but it is important.

[Alan Brown]

I share the hon. Gentleman’s concerns about protecting consumers from costs and so on. That is actually why we are against large-scale new nuclear. Can he explain a wee bit more about recouping costs? Recouping costs sounds like getting money back in terms of the asset, which does not make sense. The amendment also mentions recouping contributions

“at the conclusion of the construction phase of the project”.

That is effectively rent on a 60-year contract for the RAB, so I am not sure why it would be at the conclusion of the construction stage.

[Dr Whitehead]

It is at the conclusion of the construction stage because the construction stage gives way to a production stage. That is the point at which electricity is produced, when the customer—I am assuming we can describe the consumer and customer as an entity—or those acting on behalf of the customer can start to think about the extent to which some of that money may come back as a result of the way that production is carried out within the ceiling set for overall RAB programme costs.

There could be circumstances under which, as the RAB process comes to an end, the customer recoups—in lower bills, dividends and so on—a lot of the money that was put in. There will always be excessive production over the allowed costs level, so money will come back to the customer. We will see later in the Bill the methods by which that money might be restored to the customer. Yes, there is a real interest, post the construction phase, in recouping those costs.

A second issue for the consumer is the eventual outcome of the ownership of the plant at the end of the RAB period, as it goes into production. As it is a regulated asset base, by the end of the RAB period, the company that has undertaken the construction and run the production of the plant will have received all the money it should have received through the regulated asset base arrangement, and will have worked successfully as a result of the support that the RAB process provides.

Depending on how many years are set out for the RAB process to take place, if it reaches its end within the working life of the nuclear plant, the question then arises of who owns the nuclear plant at the end of that period. Does the consumer own it at the end of that period? If they do, that is a little bit like a mobile phone contract, whereby the consumer would expect the charges to reduce substantially after paying off the cost of the phone in their contract. Clearly, it is in the interests of customers to have an active involvement not just in spending their money wisely, but in recouping or changing it into a different form as the RAB process sets its course. Indeed, under those circumstances, the Secretary of State might need to consider the length of the RAB contract, and how far it goes into the operating life of the nuclear power station, to carry out the terms of the contract and to consider what arrangements might be made for life at the end of that contract.

I suggest that those are all things that the Secretary of State ought to have regard to over and above the passive involvement of consumers that is set out in subsection (4). That is why we tabled the amendment, which states that the Bill should take account of

“the interests of existing and future consumers of electricity in relation to their prospects of recouping their contribution at the conclusion of the construction phase of the project”.

That is an active consideration in the management of customers’ contracts, not just a passive one where the customer stands by and waits for the money to be deducted from their account to pay for these projects forever. The Secretary of State should have an active view on that in terms of how to get the best value for the customer from the project overall, over and above the best value for the project itself.

--- Later in debate ---

[Dr Whitehead]

We would be in a sorry place, but that is effectively what the clause appears to state. It is all about the fact that it could produce energy, not that it does produce energy. Those are two potentially different things. The hon. Gentleman is right about the industry standards that set it all up to make sure that energy can be produced. I merely think it might be a good idea if we found out if it did produce that energy.

[Alan Brown]

I do not want to go on for too long but, further to the previous intervention, is it not the case that it can easily be argued that the EPR reactors currently being built are capable of generating electricity, but not one of the two EPRs under construction in Europe have started generating electricity for the grid? They are actually 10 years late, which underlines the point made by the hon. Member for Southampton, Test.

--- Later in debate ---

[Greg Hands]

The financing cap will be set out at the beginning of the project by the Secretary of State. It will be available to be scrutinised. The purpose of the power in the clause relates to what happens in the event that we approach the financing cap.

The clause would have relevance in the very unlikely situation that, during construction, the project is likely to breach its financing cap under a RAB. The financing cap is the point at which investors are no longer required to put money into the project. What happens then? The cap is set at a remote overrun threshold. This means that before committing to a company having a RAB, the Secretary of State should be confident that the prospect of costs hitting that threshold is really very unlikely. Under the RAB licence, mechanics will be in place to incentivise investors to minimise costs and schedule overruns, such as overrun penalties. That will ensure that the breach of the financing cap is a remote risk.

When deciding whether to exercise the powers, subsection (3) means that the Secretary of State will need to have regard to the achievement of carbon targets and the interests of consumers, and whether the company is able to finance its activities. Those are the same considerations as when deciding whether to amend the company’s licence to insert the RAB conditions in clause 6. Given the strategic importance of a new nuclear plant, and the wider considerations, such as our need to secure resilient low-carbon energy, it is more appropriate that such a decision is made by the Secretary of State in this instance.

The Secretary of State is also the most appropriate person to balance the interests of consumers, taxpayers and investors. It is not about putting additional burdens on consumers. The RAB is designed to protect consumers by giving them a more cost-effective nuclear power plant, as shown by the steps that we have taken in the Bill. That includes robust due diligence before the final investment decision to be confident that the project will be effectively managed, incentives on the project in construction, penalties for investors in any overrun scenario, and the option for the Government to step in if the project hits extreme overruns.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8

Procedure etc relating to modifications under section 6 or 7

[Dr Whitehead]

I beg to move amendment 13, in clause 8, page 8, line 11, leave out from “power” to end of line.

This amendment strengthens the requirement on the Secretary of State to publish details of license modifications.

Ms Fovargue, as there are no amendments or objections to the clauses from this one to the end of part 1, I suggest that it might be possible to dispose of them collectively to get to the end of part 1 this afternoon. The Opposition would have no objection to that.

I will be brief. Amendment 13 simply says that if the Secretary of State is going to publish something, they should get on and publish it. As it stands, the clause states:

“The Secretary of State must publish details of any modifications made under a relevant power as soon as reasonably practicable after they are made.”

That is a weaselly dilution of the “must” at the start of the line—if the Secretary of State must publish details, they should just get on with it. Hon. Members will see that the following subsection states:

“If…the Secretary of State makes a modification…the Authority must…publish the modification.”

That does not have the little weasel phrase at the end, so why is that weasel phrase in subsection (5) and not subsection (6)?

[Alan Brown]

I do not want to be a pain, but does not deleting

“as soon as reasonably practicable after they are made”

make the timescale for the Secretary of State to publish open-ended? In a way, the amendment is not tightening the timescale but leaving it more open-ended.

[Dr Whitehead]

My concern in this clause is that the phrase

“as soon as reasonably practicable”

gives the opportunity for almost limitless delay to publication. If the Secretary of State must publish details of any modifications, he must, and if he does not, he can be called up under the terms of the Bill. If that weasel phrase is in it, however, the delay could last for a long time. I suggest that the amendment tightens it up by saying that it should be published and that is it.

[Alan Brown]

I realise that we are arguing over semantics, but perhaps it should be amended to be “must publish details of any modifications made under a relevant power once that modification has been made” to try to bring absolute clarity that it needs to be published right away.

[Dr Whitehead]

Yes, that might have been a good idea, but unfortunately it is not on the amendment paper this afternoon. My amendment is, so I hope the Minister will consider ensuring that subsections (5) and (6) are consistent, so that both modifications made under both are required to be published, full stop.

Nuclear Energy (Financing) Bill (First sitting)

Debate between Alan Brown and Alan Whitehead

Committee stage
Tuesday 16th November 2021 Public Bill Committees

[Dr Whitehead]

Q Is it your view that the present workforce in Hinkley understand that possible process, and that they have, in principle, a willingness to relocate should that sort of model go ahead in the development of Sizewell C?

Simon Coop: The UK workforce are absolutely flexible and they are highly skilled. In construction, the same key workers with the key skills have moved to projects. I do not see that being a major problem in future construction projects. As a result of talking to the company, there are already plans to transfer the operational skills at Hinkley Point B to Hinkley Point C. Those operational skills are currently transferring and people are keen to move on and use those skills at the Hinkley Point C project. There should be no difference in terms of transfer to future construction projects.

[Alan Brown]

Q My question is to Ms Childs. I got a letter from GMB Scotland asking me as a Scottish Member of Parliament to support new nuclear projects because of the jobs that they create. I certainly understand the value of jobs because I come from a constituency where we welcome new jobs, but does the £20 billion for Sizewell C give a good enough return on the jobs created? I would argue that that money could be used to create a manufacturing process or more jobs around the UK rather than that £20 billion being spent at one location. Have those types of discussions happened within the union?

Charlotte Childs: We are a member of that organisation, so the letter you received and the policy that we have set is based on a wide-ranging discussion with our members. In response to your suggestion about investment in manufacturing, it is not a this or that situation, is it? Scotland in particular has benefited greatly from the current nuclear civil generation, and the zero carbon generated by Torness and Hunterston B have contributed to southern Scotland consistently hitting the 2030 target, working alongside other renewables like wind to provide green energy. Without heavy investment in new nuclear projects we will not reach our net zero targets, and Scotland has set itself an even more ambitious target of 2045 to reach net zero. That simply will not be possible without having a consistent and reliable baseload that is net zero in its production of energy.

Nuclear Fuel Manufacturing

Debate between Alan Brown and Alan Whitehead

Tuesday 7th September 2021 Westminster Hall

[Dr Whitehead]

I congratulate the hon. Member on securing what is an important debate, not just for the future of the plant in his constituency, which we are talking about this afternoon, but for the wider question of our strategic future, when we look at the future of nuclear at all.

I do not want to be a party pooper, but this debate is about Springfields nuclear fuels. There is a lot I could say about all sorts of things, such as the role of hydrogen in the economy and whether, when the wind does not blow very well, other forms of thermal power may be needed. However, we need to concentrate our minds not on the future of our entire nuclear programme, but on Springfields nuclear fuels. What is unique about Springfields nuclear fuels is that it has single-handedly held up the entire UK nuclear programme for four or five decades now. It has provided pretty much all the fuel for the Magnox systems. It now provides the fuel for advanced gas-cooled reactors, and it should hopefully be able to provide the fuel for the new nuclear power stations coming on stream.

The role of fuel is usually unsung, but it is crucial to the whole process of nuclear power. There is a popular perception, which I am sure is not shared among hon. Members here, that using nuclear fuels means finding some uranium, enriching it a bit and sticking it in a pot to make the energy. That is very far from the truth. It is a highly skilled operation, requiring intensely developed engineering skills, which are involved in making the rods and the pellets, which must have the right specification and order for the particular form of nuclear reactor for which they are being made.

There is also a whole load of ancillary activities, some of which have been mentioned, such as the reprocessing of uranium to go back into the rods. That is another very highly skilled enterprise, far from the perception of this being a pretty simple journeyman activity that anyone can do. No, not anyone can do it. In the case of the UK, there is only one company that can do it—Springfields nuclear fuels. We need to see Springfields nuclear fuels not just as part of the nuclear landscape generally, but as a vital national strategically important component of whatever our nuclear programme was and whatever it will be.

It should be a cause of enormous alarm for hon. Members if there are suggestions that somehow this strategically important national asset will either be downgraded or lost in the not too distant future. There is a very real prospect of that because, as hon. Members have said, despite its crucial and honourable history backing up the nuclear industry in the way that it has, it is finding it difficult to get contracts for the continuation of its excellent production activities. I think there was some work recently for the Norwegian nuclear corporations, but there is a real gap in what is coming up—what we know will be an important requirement, particularly of Hinkley C and certainly of Sizewell C when they eventually come on stream. There is a substantial gap between that time and now. There is a real prospect, therefore, of that company—which is owned by Westinghouse, a private US company with no great feeling for UK national strategic interests—dying, not for lack of praise but for lack of an immediate future between new nuclear and modular nuclear reactors coming on and where we stand now.

[Alan Brown]

What kind of timescale does the hon. Gentleman envisage for small modular reactors or even Sizewell C coming on stream?

[Dr Whitehead]

The hon. Gentleman himself mentioned that Hinkley C is coming on stream in 2026—maybe even later than that. I will come to the arrival of Sizewell C in a moment, which is probably at the heart of his questions, should we develop modular nuclear reactors that are even further off.

Exiting the European Union (Energy Conservation)

Debate between Alan Brown and Alan Whitehead

Wednesday 18th November 2020 Commons Chamber

[Dr Whitehead]

I agree that the public are concerned about that, and we in this House should be concerned about it, because in a number of instances we can see that the period between the lapsing of the EU regulation and its replacement by UK-based provisions has been used, either accidentally or purposefully, to lose some of the protections in transition. Part of our job today is to make sure that what was there for our protection prior to EU exit remains there and continues for future purposes. On this occasion, I think—this SI is 118 pages long, so it is quite a read—

[Alan Brown]

It is 116 pages.

[Dr Whitehead]

The hon. Member quite rightly corrects me; it is substantially shorter than I thought.

The provisions appear to be consistent with what was there before and what is there for the future, but that does not cover all the issues, important though it is that we get that right. It was not just a question of checking that the original SI had done the job of making the transition safely into UK law. There was a period during which we were effectively bound to EU law, and a number of changes took place that were to be implemented during that period between the passing of the first SI and this SI being introduced. This SI therefore had to do a number of additional things, to incorporate those changes into UK law for future purposes.

In so doing, a number of issues have arisen, particularly in relation to Northern Ireland. The Northern Ireland protocol comes into question as far as those changes are concerned, as well as how Northern Ireland and Great Britain would be incorporated into the changes for exit on 1 January. The two things that have happened in the intervening period seem to throw up some difficulties, and I would be grateful if the Minister could comment on them.

The first is that the question of the status of the regulations has arisen as far as Northern Ireland is concerned, because Northern Ireland will now continue to be in the EU regulatory system for the purposes of the two directives and will continue to eco-label on EU badging. That appears to present a problem for the marketing of Northern Ireland-manufactured products in Great Britain. In the SI, those products have effectively been given leave to market in GB on EU labelling and efficiency bases, but with a clear marking of their origin, which is tracked into GB.

That issue may well have been resolved by this SI, but there also arises a problem the other way round. If goods are being marketed from Northern Ireland with EU eco-labelling on it and are subject to ecodesign regulations, it is important that those labels and the ecodesign standards are compatible within the UK. The UK Government have effectively provided an internal solution to that problem by ensuring that the new regulations on UK eco-labelling apply only to GB and not to Northern Ireland, and what comes in from Northern Ireland can be marketed in Great Britain without further additional labelling.

However, what about the marketing of Great Britain-manufactured and labelled goods into Northern Ireland? The SI mentions a possible solution to this, which I would like the Minister to comment on. It has been agreed that there should be a mark on the GB certification to allow those goods to be sold in Northern Ireland. I am not clear what that mark is, how it will be distinguished for the purpose of selling in Northern Ireland and how it will differentiate goods that are being sold from the EU in Northern Ireland, as opposed to being sold from Britain. That is particularly important because of goods from the Irish Republic.

As for the marketing of UK-manufactured goods in the EU, I expect that the UK will have to produce separate agreements on conforming to EU standards to market, and that the existence of a UK mark will not be sufficient to secure marketing arrangements. Can the Minister clarify that position and say whether the eco-labelling UK label will be sufficient for goods that are manufactured in the UK, but marketed in the EU, if those arrangements are in parallel? Would that be acceptable for marketing purposes, or will UK companies have to agree on an additional EU label, over and above the UK label, to secure those marketing opportunities? That is the first additional problem with which we must get to grips.

In addition, some of the changes in the directives issued between March and January are not due to be implemented until 2021. Although those measures should have passed into UK law between March and January, the UK Government opted not to include them in this SI, because they are not due to be implemented before we have left the EU. We may ask whether that is of any significance. Indeed, there is a question mark in my mind about whether or not it is significant, because one change that was made in the regulations prior to this period, and which therefore should have been implemented but will not come in until 2021, relates to lighting standards. It looks as if those who manufacture lighting products in Northern Ireland will have to apply further changes in lighting standards and eco-labelling in 2021, which will set Northern Ireland at odds with GB standards. As far as the UK is concerned, in Great Britain that element of EU law will not yet have been passed on at all, and it may or may not be in the future.

What plans does the Minister have subsequently to incorporate those changes into UK law, so that those standards will be the same? He will agree that this is not an academic point. There could be divergence between Northern Ireland and Great Britain on those standards, and that might take us further away from the simple question of putting on a mark, or providing a way leave.

Climate Change: Extreme Weather Events

Debate between Alan Brown and Alan Whitehead

Tuesday 13th November 2018 Westminster Hall

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

I congratulate my hon. Friend the Member for Bristol North West (Darren Jones) on taking the initiative of writing to the Backbench Business Committee to suggest we have this debate. I congratulate him not only on persuading the Committee to allow it but on putting the case this morning that his achievement in bringing this debate reflects the non-achievement of the House as a whole in putting the issue firmly on the Floor of the House. The fact that we are debating this matter here this morning with the cream of the usual suspects indicates that we are still a very long way from getting the issue debated with the importance and urgency it deserves. I therefore fully back and support the suggestion from my hon. Friend the Member for Bristol North West that the IPCC report should have been debated fully on the Floor of the House. Indeed, the developments from that report should be debated regularly on the Floor of the House from now.

The subject of this debate is extreme weather and climate change, which has been debated in this House previously. Climate change deniers have come to the Floor here and indicated that this extreme weather stuff is nothing to do with climate change; that it is all a bit of a hoax and we should just accept the fact that the weather changes, as I think a certain President of the United States recently opined, and we should not worry too much about it. Well, I think that has been comprehensively demonstrated to be not only a completely false conclusion but an alarming and complacent conclusion, because we know what action we will have to take on climate change over the next period.

The IPCC report, as hon. Members have mentioned this morning, is not just a wake-up call but a blueprint. As the hon. Member for Richmond Park (Zac Goldsmith) said, if we do not tackle the speed at which temperatures are rising and how much they are rising across the world, we will inevitably face a very difficult future. The extreme weather events that we are seeing at the moment are simply a signpost of the long-term enormous effects, as the hon. Gentleman set out, on the world’s economy and the livelihoods and lives of millions of people across the planet, and on the liveability, as my hon. Friend the Member for Bristol North West set out, of large parts of the planet in future. So the extreme weather events that we increasingly see are a harbinger of much wider effects in future—harbingers that we ignore at our extreme peril.

Hon. Members have drawn attention to a recent report by the Met Office on the changing nature of the climate in the UK. The report demonstrates to me that the issue is not only about hurricanes in the United States, flooding in south-east Asia or forests catching fire in northern Sweden but is very much here at home now and is the future that we will face to some considerable extent if we do nothing about it. The Met Office report is a stark reminder of how much and how rapidly things are changing. The creep of red across the map of the UK over the past 50 years shows the daily maximum temperatures of hot summer days and dry spells. Conversely, the creep of white across the country shows how icy days and daily minimum temperatures in winter change across the country. So we can see a clear change in climate.

As the hon. Member for Richmond Park has rightly said, we cannot attribute particular weather events to the effects of climate change, but elementary physics teaches us that—I speak as the proud possessor of a relatively good grade in O-level physics, so I am at the elementary level—if the temperature of water increases, as we know is happening, the water expands. It is not just a question of global icecaps and various other things melting that adds to sea level increases across the world; it is just the fact that water expands as it gets warmer.

As water expands as it gets warmer, the air above it is affected and becomes more turbulent. It absorbs more energy and takes up more water vapour, resulting in more precipitation, exacerbating the effects on the weather. It is not the case that climate change causes tidal surges or hurricanes in the southern United States, but it exacerbates them and changes them. They are longer in duration, more severe and more frequent, and are the consequences of the physics of climate change, as I have described.

So we know what our future holds if we do not take urgent action not only to mitigate climate change but to adapt to it. My hon. Friend the Member for Plymouth, Sutton and Devonport (Luke Pollard) set out clearly what is in store for our own country’s infrastructure as a result of the changes. Indeed, I have observed the substantial effects of tidal surges and extreme tidal weather; a vital part of communication infrastructure has been severed. To a much lesser extent, I have had a small attempt in my constituency area to get much greater attention paid to flood defences for the Itchen valley. For certain, that valley will be flooded to an increasingly frequent extent as a result of tidal surges and changes.

Southampton put together a scheme for dealing with tidal surges and possible flooding. It obtained some funding through the local enterprise partnership to assist with flood relief, but the funding was then taken away on the instructions of the Government and placed into a road scheme. Unless we take the issue seriously, get our priorities right and adapt our country for what we know will be a future of far greater extreme weather events, with all the consequences that that will have on infrastructure and our daily lives, we will surely pay the price. Likewise, if we do not take seriously what the IPCC says about the global scale, we will pay the price.

I am worried about the extent to which past performance is prayed in aid for not doing as much on climate change and global warming as we might do. It is true that the UK has performed better than many other countries in taking action on climate change, but the sheer scale of the task facing us means that one country’s performance cannot be set against another’s.

The hon. Member for Richmond Park indicated that our clean growth plan is good in many ways. It has many good things in it, and includes many good responses to the requirements of the fourth and fifth carbon budgets from the Committee on Climate Change. However, the clean growth plan itself acknowledges that it will not get us to the terms of the fourth and fifth carbon budgets. Indeed, it states that it will fall short by about 5% in terms of emissions by the time of the fifth carbon budget. The failure between the fourth and fifth carbon budgets is much worse; the clean growth plan gets us only about 50% of the distance between them.

Given what we know about the difference between 1.5° C and 2° C, as the hon. Member for Richmond Park mentioned, we have to do so much more. I was therefore dismayed that when the Government wrote to the Committee on Climate Change to ask what it thought about a 1.5° C, net-zero target on climate change they specifically excluded action to change the terms of the requirements of the fourth and fifth carbon budgets. We are looking at what we can do about a world increase of 1.5° C, with the enormous differences that the hon. Member for Richmond Park says would result from 2° C. Yet we are proposing no change at all in the current carbon budgets, which, even by the Government’s own plans, we will not reach anyway.

A theme of this morning’s debate is that far more needs to be done and we have, as the IPCC report tells us, a very limited amount of time in which to get it done. We therefore need at the very least to express that urgency in the House, to ensure that the debate is shared among all Members. The urgency, effort and additional activities that are needed to combat climate change, and to adapt, must be properly brought before the whole House. As a result of this morning’s debate that call might be heard.

[Alan Brown]

In terms of parliamentary scrutiny, does the hon. Gentleman agree that the Government sent out the wrong signal when they abolished the Department of Energy and Climate Change and subsumed it into the much bigger Department for Business, Energy and Industrial Strategy, where these issues get lost among all the other stuff that the Government are looking at?

Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Alan Brown and Alan Whitehead

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

[Dr Whitehead]

The hon. Lady is, I think, under the impression that the new clause seeks to introduce a relative price cap. It does not seek to do that at all, or indeed during the period when an absolute price cap is in place. When the absolute price cap has come to an end, which could happen on various dates, there should be a mechanism in place to ensure that tariff differentiation is within certain bounds—I mentioned having a piece of elastic on tariffs—so that companies cannot return to the practice that unfortunately exists today whereby they can take people on board on one particular tariff, and even introduce a discount tariff for a certain period to entice people on to it, and then place people on one of their highest tariffs when that one comes to an end. It is a long piece of elastic in that case. That disadvantages the customer and is not what they thought would happen when they first went on to that tariff, and it seems thoroughly laudable to prevent that.

We need to ensure that market mechanisms are in place to prevent us from returning to where we are at present and to the situation that got us into this position in the first place. We believe that the mechanism for a relative tariff differential has a different function entirely from the relative price cap being suggested in some quarters. I think we would all agree that a relative tariff differential is not a price cap in its own right, as the Select Committee concluded strongly, but a strong mechanism for ensuring that the market works better in future.

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

One concern about a relative cap is that there could be a bit of floor-raising, with some of the cheaper tariffs disappearing. Although there might not be a cap in future, what is to stop the same thing happening with a relative tariff system, where we lose the bottom tariffs in the market?

[Dr Whitehead]

The hon. Gentleman makes an important point about the possibility that within a relative tariff range arrangement, a company could put forward a very high tariff as a starting point and then put customers on an even higher tariff subsequently, if that tariff is within the piece of elastic keeping the tariffs within reach of each other. If an energy company were to do that outside a price cap, it would be a sure way of losing a large number of customers, because it would have put its initial tariff way above that of any competitors. If it was agreed that market circumstances were such that those sorts of arrangements should be able to return, companies would have to be kamikaze-inclined to pursue that way of doing things.

[Alan Brown]

I appreciate what the hon. Gentleman is saying, but is that not why we are introducing an energy tariff Bill in the first place—because people have been on standard variable tariffs that are too expensive, but they are not moving? It is the same with a relative tariff differential; people will not necessarily move, and that is what we really need to sort out in the market.

[Dr Whitehead]

We have to bear in mind that people will be introduced to a new tariff. Indeed, we hope that by the time the market returns, the issue of people remaining on SVTs for years and not switching will be a thing of the past and there will not be SVTs in the system, but also that there will be other tariff arrangements that effectively prevent SVTs from playing the role they have played before.

Domestic Gas and Electricity (Tariff Cap) Bill (Third sitting)

Debate between Alan Brown and Alan Whitehead

Committee Debate: 3rd sitting: House of Commons
Thursday 15th March 2018 Public Bill Committees

[Alan Brown]

The Minister finished as she started, by talking about binding future Governments. I suggest that most legislation, in one form or another, binds future Governments. It is for future Governments to make changes to the legislation if it does not suit their policy at the time. Binding future Governments is not a reason not to table an amendment or to withdraw an amendment.

Again, the amendment is not about making the cap permanent. It acknowledges that the cap is temporary, but if, for whatever reason, we get to 2023 and we still do not think that there is effective competition in the marketplace, it puts a duty on the Secretary of State to explain what the Government will do to address that, including possibly introducing new legislation.

On what “good” looks like in the future, if the Government had accepted an amendment setting out the criteria for what effective competition will look like—such as the Labour amendment that suggested a whole list of criteria that should be considered to determine and measure that—we would know what “good” looks like in the future. That might also help to generate the effective competition that we are discussing.

That said, to go back to my original point, I am not trying to say that the cap should not be temporary. Following my comments to the Minister, I do not see any point in pressing the amendment to a vote, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment 11, in clause 8, page 5, line 36, at end insert—

“(3A) In the case that the tariff cap is extended to have effect for the year 2023, the Secretary of State must publish a report before the end of that calendar year on further measures that can be taken to ensure that conditions are in place for effective competition for domestic supply contracts.

(3B) The report under subsection (3A) must include, but is not limited to—

(a) the merits of establishing pooled trading arrangements which matches energy sellers and buyers on the day-ahead and near-term markets; and

(b) the potential impact of such an arrangement on competition for domestic supply contracts.”

It is a pleasure to serve under your chairmanship, Sir Edward. Before I proceed, I ought to say two things. First, I congratulate the right hon. Member for Devizes on her elevation to the Privy Council. In terms of nomenclature, I am not entirely clear whether I should refer to her as the Minister or the right hon. Minister in the future.

--- Later in debate ---

[Alan Brown]

I welcome what the Minister said about ensuring that ECO is rolled out and that people who live in rural areas are prioritised. I realise that a cap in itself is not a means to an end in terms of ensuring effective competition and particularly helping people in rural areas, and that other Government policies are required to do that. Although, as the Minister said, the regulator needs to have due concern for all consumers, the new clause was intended to re-press the need for the Government and the regulator always to remember the disadvantages that people in rural areas face. It is clear that the Minister is well aware of those issues from her own constituency. For that reason, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 3

Assessment of extension of the tariff cap to small businesses

“(1) Within three months of the passing of this Act, the Secretary of State shall lay a report before each House of Parliament assessing the merits of extending the tariff cap to small business customers.”—(Dr Whitehead.)

Brought up, and read the First time.

[Dr Whitehead]

I beg to move, That the clause be read a Second time.

This is a simple and brief new clause that would require the Secretary of State, immediately after the passage of the Bill, to lay a report before both Houses assessing the merits of extending the tariff cap to small business customers. I do not think I need to emphasise that the Bill’s title gives the game away about what the tariff cap will cover: the Domestic Gas and Electricity (Tariff Cap) Bill applies to domestic customers and to no one else. That rather gainsays the idea that, in many instances, small businesses have far more similarities with domestic customers than with large companies, which may have wholly different arrangements for dealing with their electricity supply—they may engage in private wires or bilateral long-term contracts, or have their own generating plant—from small businesses, which in effect hug pretty closely to the principles for domestic customers.

It seems a little invidious that the cut-off point for the price cap is the end of the domestic customer level. I am sure no hon. Member present is in this position, but it is quite possible for a very large house with multiple activities going on in it to consume a lot more electricity than a high street retailer or a small business. A number of small businesses will find that their electricity bills are not capped even though, to all intents and purposes, they are indistinguishable from domestic customers as far as their patterns of use, means of purchase and so on are concerned.

The new clause would require the Secretary of State, shortly after the Bill’s passage, to think about whether it might be appropriate to bring small businesses under the cap as it progresses, with a proper definition of which small businesses are in and which small businesses—those at the larger end—are out, so that the cap’s benefits can be extended to that particularly hard-pressed sector of the UK economy, and so that a proper relationship can be established between who is doing what so far as their energy purchases are concerned and who should benefit from a cap as a result of doing those things.

This is a simple, straightforward amendment, which I hope the Minister will consider carefully.

--- Later in debate ---

[Dr Whitehead]

Like the Minister, I thank everyone who has taken part in this stage of the Bill’s passage. We have had a genuinely constructive debate, in which we have all been facing in the right direction. I particularly thank the Clerks for their assiduous work and for their help with tabling Opposition amendments; unfortunately we do not have an entire civil service on our side, so we must seek other help, but we have not been failed.

I hope that the Bill will now progress to its remaining stages with consensus that the tariff will be an absolute cap, and with good support from all sides of the House for the result that we all want.

[Alan Brown]

Without going on for too long, may I, too, thank the Clerks and the Chair? I thank the Minister for listening—I hope—and congratulate her on her appointment to the Privy Council. Like the hon. Member for Southampton, Test, I look forward to seeing the tariff cap in place, competition in the marketplace and consumers being saved money.

Domestic Gas and Electricity (Tariff Cap) Bill (First sitting)

Debate between Alan Brown and Alan Whitehead

Committee Debate: 1st sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[Alan Brown]

Q I was going to ask whether it was okay if Hayden could give an answer. Greg was saying that he favours an absolute cap with a relative cap underneath it, combining the two options. I just wonder whether Hayden had a view on that.

Hayden Wood: We think that the top priority is the absolute cap. As I have mentioned before, there is a risk that homes will not get relief from the cap if that is not in. The idea of a relative cap underneath the absolute cap sounds fine to us, too. I think more price competition in the energy market is a great thing.

The third point I would mention on these extraordinary powers that Ofgem would have under this new set-up to set prices is that those powers need to come with more transparency. The formula and methodology for calculating what the absolute cap would be should be published so that there are no surprises for suppliers and we can plan. We also think there should be more transparency around the contributions that Ofgem receives from suppliers and the meetings that they hold with them, in order to ensure that there is more transparency.

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

Q I want to pursue the question of the absolute and relative cap. The way the relative cap has been talked about, it does not look like a cap to my mind. In fact, as Greg mentioned, it is a process of narrowing the range between possible tariffs that are offered, in order, I would have thought, to regulate the market subsequent to an absolute cap. Is it your view that that is the role that might be played by what is called a relative price cap? Or is it something that ought to be done in parallel with an absolute cap? That is, is it a market solution for the future or is it a cap solution for now?

Greg Jackson: You are quite right that the phrase “relative price cap” is not necessarily the most helpful name. It is a simple restriction—a simple limit—on the difference between the highest and lowest price from a single supplier. There is no reason at all why that would not operate underneath an absolute cap. In fact, there is no reason at all why it would not be defined at the same time as the pricing rules of an absolute cap.

If we did that, it would simultaneously attack the loyalty penalty, which is one of the biggest topics currently being looked at in pricing in consumer markets where you pay by direct debit. The real issue is that in consumer markets where you pay by direct debit—running an account—you do not know what you are being charged. If you do not know what you are being charged, companies essentially can have these enormous false differentials, and the opportunity, alongside this absolute cap, to bring the differential down is sitting there today. That would turbocharge competition because it would mean that, if a company wants to win new customers, it would have to bring prices down for its existing ones. But not only that: if it wanted to hang on to its existing customers, it would have to bring prices down.

We saw that British Gas provided a useful case study during the period when they were having to sit in front of Select Committees. They reduced their differential to basically zero for that period, and they lost 823,000 accounts in four months, I think, leading to a 12.5% drop in share price and a 20-year share price low. That demonstrates that companies that try not to offer good value in a world of a relative price cap will lose customers, market share and share price.

Therefore, we think that bringing that alongside the absolute cap, sitting underneath it, is the best way to use the force of competition to drive prices down for everyone. When you remove the protection of the absolute price cap, you will actually have a competitive market.

--- Later in debate ---

[Dr Whitehead]

Q Pete Moorey, your submission to the pre-legislative scrutiny of the BEIS Select Committee raised issues about the extent to which the remedies put forward by the CMA as far as market restitution was concerned were not, in your view, sufficient. Bearing in mind that it is going to be down to Ofgem to declare that the market is now functioning reasonably well and that the cap can now be taken off, what sort of remedies, in addition to those suggested by the CMA, might you have in mind to get the market working again? Do you think those should be introduced during the price cap or after it? Should they run after the price cap is over or concurrent with it?

Pete Moorey: We supported many of the remedies of the CMA, so while we did not believe that they would take us far enough to deliver effective competition, it was absolutely right that the CMA recommended that we would be testing and trialling new ways of engaging people in the energy market. We were disappointed that the energy industry did not respond effectively enough to that. We said to the industry immediately after the CMA inquiry, “Start getting on with it. Test and trial new ways of engaging particularly the most disengaged people with the energy market.” I think that a lot of that work should continue. The good news from Dermot Nolan this morning, and from other statements Ofgem have made over time, is that they are going to continue to do work on that, which is welcome.

We are not necessarily suggesting that there are other remedies such as that that could be trialled. It is more that we should be spending time considering what transformational changes can be made to the market along the lines that Dermot Nolan was talking about, particularly in his responses to James Heappey, to ensure that we have much more innovation in the market through new suppliers who can be tapping into the benefits that smart and other changes in the energy market will make. That is likely to be the transformation that will lead to a new kind of energy market where consumers are more engaged. That is the critical element, alongside all the key factors around switching levels—particularly engagement of more vulnerable consumers, energy satisfaction, trust in the market and so on—that we should be looking at.

As I say, simply removing the cap in 2023, and the market looking effectively as it is now, will not, I think, be the kind of change that we all want to see in the energy industry, and certainly will not deliver the kind of change that consumers need.

[Alan Brown]

Q Are there any improvements needed to the Bill? I have a couple of suggestions and considerations. We have already heard the merits of trying to introduce what is called a relative cap to work underneath the absolute cap, and we have spoken about vulnerable customers. Are there any improvements that could be made to the Bill to protect vulnerable and disabled customers?

Peter Smith: I will try to be a bit more concise than I was earlier. Clause 2 needs to be amended specifically to ensure that the safeguard tariff is considered when setting the SVT-wide cap, and Ofgem needs to have a duty to consider that. In clauses 7 and 8, we need to include customer engagement, particularly vulnerable customer engagement, as part of that overall assessment of competition and of whether it is working effectively.

I could give you a couple of examples, but perhaps they are best fleshed out in some further written evidence. They would include online access. For instance, we know that households that are offline do not benefit from the considerable discounts for online deals and from paperless billing discounts, and they do not get to apply to the warm home discount scheme. Cumulatively that could be up to £300. Things like that need to be considered when we make that overall assessment.

Rich Hall: From our perspective, we are broadly comfortable with the Bill in its current form. In the area of providing enhanced assurance that vulnerable customers’ circumstances are being improved, we think that is something that should be captured within the annual assessment by Ofgem and by the Secretary of State. We are reasonably comfortable that that is implicitly delivered through the Bill, but I can understand that there are arguments that there might be benefits in it being explicitly delivered on the face of the Bill.

In terms of there potentially being a relative cap underneath the absolute cap, I have some similar views to Dermot on that, in that it is an idea that has been floated only really in the last few days and weeks, possibly by people who would prefer a relative cap and who are now trying to use absolute plus relative as an alternative vehicle to reintroduce that approach.

We have some concerns about the relative cap approach. Because the large incumbents have so many sticky customers, in comparison with the relatively small number of customers they could pick up through any promotional campaign, if they were to seek to hold their line on their acquisition prices, that would make the cost of acquiring new customers punitively expensive. Because of that, we think it is more likely that the large incumbents would simply exit the acquisition market, which would neither help their SVT customers, who would continue to pay the same prices, nor improve pressure in that market. There is a risk that a relative price cap could backfire and be worse than the status quo, so we see the decision on absolute versus relative as not simply a choice between a good model and an excellent model, but as a choice between a good model and an unworkable model.

Pete Moorey: I would not add anything to what Rich said, but in terms of other changes to the Bill, there could be some changes to ensure there is more transparency and accountability of Ofgem, in terms of setting the cap. We would like to see changes so that Ofgem are required to set out clear criteria for monitoring and evaluating the success of the cap. We wanted to see a requirement to review the price cap every six months. It may well be that the evidence you have just heard from Dermot Nolan suggests that they will be reviewing it anyway every six months and that the bar could be set lower. It may well be that that is unnecessary in the Bill itself, given that it seems likely from what he said this morning that we will have a consultation on that as well. I think Ofgem should be required to publish reports on the impact of the cap on a regular basis and on how they would take any action if the cap was having any negative impacts.

Domestic Gas and Electricity (Tariff Cap) Bill (Second sitting)

Debate between Alan Brown and Alan Whitehead

Committee Debate: 2nd sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[Dr Whitehead]

I do not think the amendment would allow energy companies to get round what we seek to achieve, although I accept the analysis that it may produce more work for Ofgem. I based amendment 4 on what the Prime Minister said. One could argue that she was being overly prescriptive—I do not know.

[Alan Brown]

I am glad the hon. Gentleman has explained that the £100 is not arbitrary, but a figure from the Prime Minister. Equally, I assume the Prime Minister’s £100 was arbitrary as well, so I must admit that I have concerns about stipulating a figure in the Bill. When I asked about it earlier, Ofgem said that there would be unintended consequences.

Presumably, concerns have been expressed about the big energy companies gaming in terms of exemptions and green tariffs. I am concerned that they will use this as a way to do gaming, so that they provide savings on paper by dodging and changing rates before the legislation kicks in. Could he address that?

[Dr Whitehead]

The hon. Gentleman makes an important point about what could happen prior to the cap coming in. Energy companies could be gaming ahead of the game with their prices, so what would savings look like after that? I am not sure that we can do anything about that right now. As Ofgem mentioned, if energy companies are too blatant in their price rises over the next period, they will be in breach of their obligations to Ofgem anyway.

We have seen several instances of small price rises recently. We heard about one—a comparative gas price—this morning. Bulb, one of the witnesses this morning, put up its rate by £24 just a few weeks ago. That was for particular purposes, but one could argue that it was a gaming price rise ahead of the legislation. Bulb was very clear that it was not, and that it was for other purposes, but we clearly have to be alert to that possibility.

If that does happen, what anyone has said about what savings would result from this price cap would have to be taken relative to whatever that price was at the point when the price cap was introduced. It would be possible for consumers to say at that point, “Actually, we were promised a £100 price saving. It does not look like a £100 saving to me, because it is a saving against a price rise that will end up increasing my bills.” In wishing to place this in the legislation, I am indicating that we in this Committee do not wish to let the public down regarding what might happen with this price cap.

The Prime Minister has already said that there will be a £100 saving. Indeed, I do not know whether this applies to anyone present, but interestingly The Sun article states:

“Government insiders say the cap should save at least £100, potentially rising to £300 a year with increased competition and faster switching.”

Government insiders, whoever they are, are suggesting that the £100 is a minimum and it could be considerably more.

--- Later in debate ---

[Alan Brown]

Listening to the Minister, on one level I think that constraining Ofgem might not be such a bad thing if it constrains it in a way that we are happy with, because then we can have criteria that we as politicians, and consumers and suppliers, understand. On the other hand, I understand what the Minister says, in that the regulator has its own job to do. I am conscious that some of the submissions we received as part of this process express concern about the fact that nobody knows what these effective competition criteria will look like. I still have some slight concerns, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Dr Whitehead]

I beg to move amendment 7, in clause 7, page 4, line 39, leave out from “must” to end of line 40 and insert

“have regard to the extent to which—

(a) progress has been made in installing smart meters for use by domestic customers,

(b) incentives for holders of energy supply licences to improve their efficiency have been created,

(c) holders of energy supply licences are able to compete effectively for domestic supply contracts,

(d) incentives for domestic customers to switch to different supply contracts are in place,

(e) the barriers which prevent the customers from switching from different supply contracts quickly and easily are addressed,

(f) holders of supply licences who operate efficiently are able to finance activities authorised by the licence,

(g) holders of supply licences have eliminated practices that are to the detriment of customers in their tariff structures,

(h) District Network Operator costs and dividends are proportionate to expectations and the impact of that on domestic supply contracts, and

(i) vulnerable and disabled customers are adequately protected.”

I am afraid this may be the end of the Mr Nice Guy bit. Hon. Members must find that incredible, but it is true. This amendment is potentially very important for the integrity of the whole process of how the price cap is set up, how it works and the circumstances under which it can be brought to a close. There is no real difference between the amendment of the hon. Member for Kilmarnock and Loudoun and mine, except that his requires the Secretary of State to produce a statement to outline the criteria that shall be used by the authority in a review to assess whether conditions are in place for effective competition.

Our amendment seeks to identify what the conditions might look like. That is particularly important, because for this price cap to work clearly both ends of the cap have to be reasonably synchronised. As hon. Members will have observed when we debated an earlier clause, a number of conditions are put forward for the authority to digest when we move from the point of legislation to the point of actually putting the cap in place. There are a number of conditions in clause 1(6) to which the authority needs to have regard when it is putting the cap in place.

That is not so when the authority is considering whether to lift the cap. It is worthwhile considering for a moment what the mechanism for lifting the cap in the Bill actually is. The authority has to carry out a review—in the first instance, in 2020—to look at whether it considers that conditions are in place for effective competition for domestic supply contracts. Therefore, in principle, it can consider whether to bring the cap to an end. Once that review is carried out, roughly before halfway through 2020, the authority must produce a report on the outcome, which must include a recommendation about whether the authority considers that the tariff cap conditions should be extended and should have effect for the following year. When the report is produced, before 31 August 2020, we would expect to see a view from the authority about whether the cap should be continued. Obviously, subject to the sunset clause in the next clause, what the authority says effectively has a one-way view on what the Secretary of State should subsequently say about the cap. As laid out in clause 7(5), the Secretary of State, having received a report,

“must publish a statement setting out whether the Secretary of State considers that conditions are in place for effective competition for domestic supply contracts.”