DRAFT ELECTRICITY AND GAS ETC. (AMENDMENT) (EU EXIT) REGULATIONS 2020 DRAFT ELECTRICITY AND GAS (INTERNAL MARKETS AND NETWORK CODES) (AMENDMENT ETC.) (EU EXIT) REGULATIONS 2020

Alan Whitehead Excerpts

Monday 7th September 2020 General Committees

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

I rise to tell the Committee, in the first instance, that we do not think the proposals are particularly contentious and that we will, therefore, not seek to divide the Committee—although someone might say that, even if we did, we would not get very far, because of who is present. Having said that, I would like to seek a little elucidation from the Minister about certain aspects of the SIs, particularly so that it is on the record. That elucidation relates to slightly separate issues within the two SIs, so I will talk about them separately.

As the Minister said, one SI—the Electricity and Gas (Internal Markets and Network Codes) (Amendment etc.) (EU Exit) Regulations 2020—essentially deals with common standards for internal markets and network codes. In the event of no further agreement being reached between the UK and the EU on these matters—or, indeed, of agreements not extending to this area—amendments will be made to allow those common standards and common code arrangements to be effectively maintained, which is important. We have an intricate network of trading arrangements on energy with European Union member states, most notably through both gas and electric interconnectors, and it is important that there are common standards on both ends and that the codes by which that trade takes place are also compatible with each other over the period. This is not an insignificant thing that is happening in this SI as far as our future arrangements are concerned.

The Minister did not say what the future agreements are that could be reached before IP date that could avoid these regulations taking place. I must say I am a little puzzled, because the explanatory memorandum states:

“This instrument is one of several statutory instruments required to ensure that legislation governing the energy system in Great Britain (‘GB’) will function effectively if at the end of the implementation period…the UK does not reach a further agreement with the European Union…or if the agreement reached does not cover the relevant policy area.”

If we reach further agreement before the IP date, one might assume from that that the regulations that presently exist would effectively continue, or continue in similar form.

If, on the other hand, an agreement is not reached, it appears that what is being put forward in this SI are measures that will unilaterally do that anyway—that is, it will introduce measures for harmonisation of transfer arrangements and codes to allow that trade to continue. I am sure the Minister will be able to explain this to my satisfaction, but I am not sure whether the difference that there might be, in terms of what we are about to agree this afternoon in the event of no agreement being reached, is significant in terms of the possibility of agreement being reached, if we are able to find out exactly what agreement could be reached in order to continue with arrangements as they are at the moment.

Later on, the explanatory memorandum states that if these measures are not agreed, there could be problems and that this

“uncertainty could result in an increase in wholesale prices.”

I am not quite sure why an agreement that makes no great difference between what is there now if a deal is reached and what we are putting in place here to ensure harmonisation and the continuance of trade would increase wholesale prices. Is it simply because of the uncertainty that would arise if there is no final elucidation on these matters, or is there anything in the wording of any change that might cause those wholesale prices to rise? I am not clear. I do not have the answers to this—it is not a trick question, but a request for some elucidation about what the effect of doing nothing today would be if an agreement is either reached or, alternatively, not reached by IP date. Indeed, if no agreement is reached, would there, for example, be an imbalance in trading arrangements that would exacerbate arbitrage arrangements, with the result that wholesale prices might rise? If, on the other hand, we had an agreement that would not do that, or, alternatively, we had these measures in place, that additional arbitrage probably would not arise in the first place.

The second statutory instrument that we are looking at are the draft Electricity and Gas (Internal Markets and Network Codes) (Amendment etc.) (EU Exit) Regulations 2020. As the Minister has mentioned, it looks rather more straightforward than the first one, in that it essentially, for future reference, proofs legislation in the correct way—that is, it substitutes, in the main, the IP date for the exit date so far as the legislation is concerned. So far, so good. However, the SI does not, in the main, extend to Northern Ireland. Indeed, Northern Ireland is specifically left out. Again, our reliable explanatory notes tell us that this might be useful for the Northern Ireland Executive at a later date—if they do not organise things properly in Northern Ireland, they can refer to the SI in their domestic legislation in the future. That is significant because, unlike Great Britain, Northern Ireland has a grid system and an internal energy market system that are wholly integrated with the Republic of Ireland. It is therefore essential that there is harmonisation from day one, in order for what are essentially internal systems within the island of Ireland to work well.

I am slightly surprised that that section of the SI appears to have been left for possible measures at a later date. Given the importance of harmonisation from the start, I would have thought that it would be something that we should, in the first instance, look at here. I am somewhat persuaded in that view by information that is generally known: there are, in fact, two interconnectors between Great Britain and the island of Ireland. One goes to Larne in Northern Ireland; the other goes between Wales and the Republic. We could be faced with the possibility that what is essentially an internal interconnector within the UK is not harmonised, whereas an external interconnector between the UK and the Republic of Ireland is harmonised. That would, in turn, make a nonsense of the internal market and the single arrangements for the grid within the island of Ireland as a whole.

Does the Minister have any thoughts on those potential problems? Perhaps he does not consider them as potential problems at all and he can give me assurances that these matters have been thought out—that there is an agreement that will sort them out or that the legislation in front of us can fully take account of the issues to which I have given some consideration in this afternoon’s debate.

[The Chair]

There appear to be no other Members of the Committee wishing to take part in the debate, so I ask the Minister to respond.

[Kwasi Kwarteng]

I am very pleased to respond to the hon. Gentleman, whose diligence in these matters is always to be commended, but I feel that there is a slight misapprehension about the force of the two SIs. As I described in my opening remarks, the whole point of the first SI is that it amends SIs that were laid before the withdrawal agreement was signed. Those SIs reflected, or tried to describe, the arrangements in Northern Ireland. The hon. Gentleman will know, as will other Members of the Committee, that at least a third of the withdrawal agreement related to the Northern Ireland protocol. I know that, because I was the Minister on the relevant Bill, but I failed to get the Bill through, as you, Ms Elliott, will remember. As the withdrawal agreement has come through, the SIs that we laid before its agreement are essentially redundant.

The first SI that we are debating essentially amends those SIs in the light of the fact that we have a withdrawal agreement and that the agreement has a Northern Ireland protocol attached to it, which determines many of these issues in relation to Northern Ireland. The hon. Gentleman is quite right to say that the second SI does not deal directly with the Northern Ireland issue. However, what has happened since then is that we have got a Northern Ireland Government. We all know—this was an issue that we have talked about at length, and I think that he and I debated it—that the single electricity market, or SEM, is what largely determines these issues on the island of Ireland. The workings of the SEM have been the subject of other SIs, as both he and I know well.

To answer the hon. Gentleman’s first question, it is not true to say that if we do not legislate in this way and there is not an agreement, the status quo just carries on. It does not just carry on, because, as I have said, the SIs have been superseded by the withdrawal agreement. In a way, this measure is a sort of safety blanket. We fully expect that there will be a deal, and that when there is a deal, we will have to reflect the institutions and how the energy market works according to that future deal, whenever it arrives and whatever its details are, when they are fleshed out. This measure is essentially just a safety blanket. It is not true to say that if we do nothing, we can simply carry on as before.

[Dr Whitehead]

I accept, of course, that it would not just be a case of status quo. Nevertheless, there is a question, in my mind at least: within a wider and overall deal, what would a specific deal on energy markets and energy transmission consist of? Does the Minister have information on that, with which he can reassure us this afternoon?

[Kwasi Kwarteng]

It would be quite an extraordinary ask, given that the negotiations are ongoing, for me to be able to tell the hon. Gentleman exactly what the details of those negotiations are. He will understand—this is public knowledge—that we hope to be part of or have a stand-alone emissions trading scheme, which is related to the EU’s ETS. However, as I have said, that is exactly the meat of the negotiations that are taking place, and it would be extraordinary for me in this public forum to say what the outcome of those negotiations will be.

If I may, and without further ado, I will say a couple of words in conclusion. The Government are committed to achieving a smooth end to the transition period so that our energy system operates with continuity and certainty. We confidently believe that these regulations will help to accomplish that in the event—the regrettable event—of there being no further agreement. We think that there will be an agreement, but should there not be one, these SIs will be very useful, because they will ensure continuity for our energy system, they will remove outdated references to legislation that no longer exists and that is not relevant, given the passing of the withdrawal agreement, and, as a consequence, they will provide more certainty for market participants. On that basis, I am pleased to commend them to the Committee.

Question put and agreed to.

DRAFT ELECTRICITY AND GAS (INTERNAL MARKETS AND NETWORK CODES) (AMENDMENT ETC.) (EU EXIT) REGULATIONS 2020

Resolved,

That the Committee has considered the draft Electricity and Gas (Internal Markets and Network Codes) (Amendment etc.) (EU Exit) Regulations 2020.—(Kwasi Kwarteng.)