Draft Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2019

Alan Whitehead Excerpts

Monday 3rd February 2020 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Paisley. In one sense, the regulations look pretty simple: they add one new category of energy-intensive industries to the list drawn up in, I think, the Electricity Supplier Obligations (Amendment and Excluded Electricity) (Amendment) Regulations 2017, following the 2015 regulations that first established the scheme. The 2017 regulations changed the way of rewarding energy-intensive companies from what was originally, in effect, a grant system to an exemption system. That change came in during 2017, with an 85% exemption. At that time, some companies were excluded from the arrangements.

The Minister mentioned that part of the regulations deal with companies in difficulty, which were not eligible for the exemption given to other companies through the 2017 regulations. However, in these regulations, the definition of a company in difficulty remains as a negative; that is to say a company “not in difficulty” is referred to in relation to the European Commission’s guidelines on state aid for rescuing and restructuring non-financial undertakings in difficulty. Now, of course, we no longer have to have regard to state aid concerns—for the time being we have to, but for the purpose of legislating we do not have to. Assuming the Government continue to ensure that companies that are in difficulty are not eligible for the exemption, one assumes it would be necessary to produce an alternative definition of a company that is not in difficulty, or, alternatively, a definition of a company that is in difficulty, but that does not appear in the SI. All that appears is a definition according to the European Commission’s guidelines on state aid and a catch-all phrase that says that if we are not subject to state aid, it does not apply, but, logically, something else should apply. An ongoing problem arises because we have no definition of what a company in difficulty looks like in terms of eligibility for the exemptions, and apparently no method whereby the Government can easily, without being taken to court by somebody, define what it is about a company that puts it in such difficulties as to make it ineligible for these definitions, flour milling or otherwise—it is all the people who are within the definition of eligible companies. I would be grateful if the Minister could set out this afternoon the alternative definition of a company in difficulty, overcoming the state aid issue presently in the regulations.

A second point that needs clarification arises from that. In the 2017 regulations, an issue arose, which was clarified in those regulations, about the extent to which companies that were competitive with companies that had been placed in the exemption register could obtain the exemption because of the fact that, even though those companies were not in the register, the business that they did in the area of the company that was in the register was competitive to that company and therefore should have been included in an exemption. When the 2017 regulations were passed, it was stated that the Government very much wanted to include the companies that were in direct competition with companies that received the exemption, but did not receive the exemption because they had not been put on the register, within the ambit of the receipt of exemptions. Indeed, the Government put in an application to the EU at that time on that particular assumption, but the EU said, “No, this can only apply to companies that are strictly within the guidelines.” Therefore, in the 2017 regulations, the Government indicated that they were unable to extend applicability, because they had not succeeded in achieving such a position. Now, of course, we are in a position where the EU is presumably not going to tell us who should and should not get exemptions according to EU state aid regulations.

In the light of what the Government stated in the explanatory notes and in the 2017 regulations, have matters now substantially changed in terms of companies possibly receiving exemption contributions, even though they are not on the list because they are in direct competition? Now that there is no state aid provision to worry about, might those companies conceivably mount legal actions to put themselves inside the exemption status, because they are competitors in a way the Government felt sympathetic about previously but were unable to act on because of what the EU had said? Does the Minister intend to pursue the unsuccessful 2017 effort to include those companies? Does he think that, in the absence of state aid restrictions, those companies might have a case to be included in the exemptions—flour milling or otherwise—that now apply? That is the second area on which I would very much like some guidance as to the Minister’s thoughts and the direction the Government intend to take.

The third area on which I would like some clarification relates to the fact that the regulations were written and announced quite a long time ago, but have not come before us until today, which is why they are the Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2019. Part of the regulations, as they apply now, provides for the more efficient metering of companies that can receive money under the exemptions. There is certainly a suggestion, because of the extended period during which the regulations were not brought before us, that those companies might have received allowances and remuneration under the exemptions in a way that they would not have, had the regulations been introduced earlier. Does the Minister have a handle on whether that is the case and whether some renumeration might have been sent out without entirely accurate methods of determining what it was? Could some of that money have been recovered had the regulations been introduced earlier?

The final point on which I seek the Minister’s thoughts is one that he raised in his introductory remarks. These regulations introduce a new actor in the eligibility criteria in the regulations that first came forward in 2015. Indeed, they not only introduce a new actor, but they quantify—the explanatory notes certainly do—the cost to the bill payer of this new inclusion in the exemptions. They suggest there will be a further effect on customer bills of 20p per year for domestic customers and £600 per year for medium energy users—that is not a tiny amount, although it perhaps does not look substantial in terms of the total amount added to the exemptions. However, the Government said a while ago that they did intend any further impositions on bill payers as a result of levies, and this inclusion is, effectively, a further levy on bill payers. It is not a large levy, but it is a levy nevertheless.

Can the Minister say whether the Government have introduced a new policy of further levies on customers as a result of policy changes, or does he stand by the original statement made a while ago that it is the end of levies, and that this is perhaps an exception to the general rule that will not be repeated? If I get some reasonable assurances on all those issues, the Opposition will be happy not to take the statutory instrument to a vote, and we will not oppose it. We see, in principle, the general sense of the regulations, but a number of points need to be clarified before we can reach that stage. It may be that if we cannot get to that point completely and the Minister agrees to write to me on several of those matters, we will be happy, nevertheless, not to take this to a vote.

--- Later in debate ---

[Nadhim Zahawi]

Not quite, because obviously the baseload is still needed. We have been able through efficient and safe operation to mitigate the delay, but obviously we do not want further delay.

[Dr Whitehead]

How dispatchable and flexible does the Minister think nuclear power in the future will be, bearing in mind that that is what we particularly will need, in terms of baseload, for the future variability of the majority of our energy supply? Does he think nuclear power can provide that dispatchability and flexibility to ensure that the system works as well as he hopes it will?

[Nadhim Zahawi]

It needs to be part of the mix—that is my very strong view. We will, quite rightly, have a portfolio tilted heavily towards renewables, and leaning into offshore wind even more than we have done to achieve the 36% that we have achieved; but it is certainly worth our continuing to make the investment. The technology is moving fast—whether that is fusion, in 10 or 20 years’ time, or AMRs or SMRs, which we are also very excited about. It absolutely needs to be part of the portfolio mix.

I want to return briefly to the points that the hon. Member for Kilmarnock and Loudoun made. The reason for the 2023 review date is that it is aligned with the Commission’s review of the energy and environmental aid guidelines in 2022. As to his question about the grain mill sector, it submitted sufficient evidence that satisfied our trade in electricity intensity criteria. We consulted businesses in a robust and open way, and published the Government’s response on 17 October. I made the point about nuclear earlier.

The shadow Minister asked a number of important questions about state aid and an alternative definition. Of course, state aid will be very much part of the free trade agreement negotiations, when they begin, and will be included in the level playing field position paper that the Government will publish soon. As the hon. Gentleman will know better than most, during the implementation period the UK will be bound by EU law, including state aid law, until the end of 2020.

[Dr Whitehead]

We are legislating this afternoon and presumably need to consider the circumstances under which state aid will not be applicable, because we will be bound by EU law only temporarily. Is the Minister saying that in the long-term future, we will continue to act as if the state aid rules are unchanged? Alternatively, is he saying that we will not do that and that we will need new legislation at the end of the transition period to effect that position?

[Nadhim Zahawi]

Let me be clear: during the implementation period, we have to follow EU state aid rules. The legislation that we are considering today will continue to apply under EU state aid rules. Therefore, the EU definition will continue to apply. We will issue guidance around that test. I cannot say to the hon. Gentleman today what the negotiations will produce, other than that we will deliver a position paper on the issue. That is what he must assume the decision he is making today is based upon.

[Dr Whitehead]

We still do not know what constitutes a company in difficulty.

[Nadhim Zahawi]

So let me come to the hon. Gentleman’s second point around whether we can include companies that do not pass the direct exemption, although it can be indirect because part of their business may come into competition with those companies that are exempt. Again, that will depend on the UK’s future subsidy regime. During the transition period, EU state law will continue to apply. I hope that offers him clarification.

On the hon. Gentleman’s final point about whether this is a further levy, it is not a new levy. It is a redistribution of the existing CfD levy. As he rightly pointed out, the amendment will mean a 20p addition to annual household bills.

I thank you, Mr Paisley, and hon. Members for their valuable contributions to the debate. The regulations will extend and improve the existing scheme that exempts eligible energy-intensive businesses from a proportion of the cost of funding renewable electricity. It is worth remembering that it is only a proportion of the cost, not the full cost. That will support the competitiveness of our energy-intensive manufacturing industries in the UK.

Alongside the regulations, we will support our manufacturing industries to become more energy and resource efficient and reduce their greenhouse gas emissions through several programmes, including the industrial energy transformation fund, which offers £315 million of additional support; a low carbon hydrogen production fund, which offers £100 million of further support; and the transforming foundation industries industrial strategy challenge fund, which is £166 million.

The Government are serious about delivering their net zero commitment by 2050 and leading the world. That is not just good for the environment, but good business, which I know is dear to your heart, Mr Paisley, and the hearts of your constituents. Therefore, I commend the regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2019.