Energy Costs in Wales

Alan Whitehead Excerpts

Tuesday 11th October 2022 Westminster Hall

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

I will try to spend the time I have addressing myself to the excellent speeches we have heard this afternoon. I congratulate my hon. Friend the Member for Cardiff North (Anna McMorrin) on securing the debate. It is about Wales and how Wales is affected by the runaway rises we are seeing in energy costs and by the actions the Government have taken in relation to them. Those price rises are having devastating effects across Wales, and hon. Members have paid considerable attention this afternoon to what is happening to individual constituents across Wales. Of course, price rises are having devastating effects across the whole UK, but two things stand out in the case of Wales.

The first is the particular demography of Wales. As the hon. Member for Ceredigion (Ben Lake) mentioned, Wales has a different profile in terms of its households and energy costs, particularly from England, and from the UK in general. One in five households in Wales is off the grid; fewer than one in six are off the grid across the whole UK, and for England that figure is about one in eight. Those off-grid properties in Wales have suffered to a far greater extent than households in England and Scotland and in the United Kingdom generally. That is, among other things, because the heating fuels needed for off-grid properties were never under the price cap. Those properties suffered price rises of, for example, 250% in two years for heating oil before the crisis came upon us. They are in the crisis now, with further enormous increases, but they were suffering for a long time before that.

It is therefore wholly appropriate and deserves congratulation that the Welsh Government have instituted an additional £200, on top of the funding available in the UK generally, to meet the specific circumstances in Wales. Considering their other financial problems, the fact that they are able to carve out that amount to support people in these circumstances is something we can only stand back and applaud, and I would be first to add my applause.

The immediate response—well, the rather less than immediate response—of the UK Government, through the energy price support scheme, has been relatively generous and goes some considerable way to removing the worst aspects of the energy price rises for the general public, and is to be tremendously welcomed for that reason. However, I have one or two points to make about what the UK Government have done and what it means for the future and what we all have to face. This energy price crisis will not go away in a year’s time, with prices going back to normal.

[The Minister for Climate (Graham Stuart)]

The hon. Gentleman rightly says that the crisis may not necessarily go away quickly, so why is it Labour party policy to intervene for six months? The Government have come in with family support—I am delighted to hear his recognition of the extent and power of that intervention—for two years.

[Dr Whitehead]

The support is for two years for domestic properties. For business and commercial properties, it is for six months. The proposal that the Government have put forward for two years’ support on price rises is completely unfunded. We might, for example, have introduced a windfall levy, to accurately reflect the difference between what is happening in the UK market and the reasons for the price increases, and the profits being made by the energy companies supplying the UK, particularly with gas. Those profits are not based on some amazing technical breakthrough in the delivery of gas to the UK; exactly the same companies are providing exactly the same service in bringing gas from the wholesale market to the retail market in the UK, but they are making nine times the profit they were previously, for no extra work at all. The idea that we should put forward a windfall levy to cover a good proportion of the cost of those arrangements seems a complete no-brainer. I was quite astonished when the Government decided that they were not going to draw on that resource at all for the next phase of the support arrangements. Not only were they not going to introduce an immediate levy, but they were not going to introduce any sort of continuing levy arrangement to keep prices at a reasonable level.

The Labour proposal took into account what we do in the first instance with the windfall levy and what we do over the next period. I want to come to that in a moment, but it is important to recognise that the Prime Minister was bang on guilty of misleading the public in her recent conference speech, and other speeches, by saying that people would pay not more than—

[Mr Clive Betts (in the Chair)]

Order. I ask the hon. Member to be careful about the word “misleading”. Perhaps “unintentionally misleading” would be more helpful.

[Dr Whitehead]

Of course, the Prime Minister was unintentionally misleading the British public in this instance by saying that they would not pay more than £2,500 on their energy bills. She did correct herself later, but she gave the unintentionally misleading impression that we are all okay and will not pay more than £2,500 for bills—essentially, however much energy we use, it would not cost us more than £2,500. That is completely wrong. This is a support scheme based on units consumed. Therefore, households with very few resources but higher than average energy use will pay far more than £2,500 for their fuel this winter.

[Jonathan Edwards]

The hon. Gentleman mentioned the generosity of the UK Government’s support scheme, but they have to be slightly careful about that, do they not? It is partially a result of electricity prices in the UK being the second highest in Europe—only the Czech Republic has higher. For the last five years, electricity prices in the UK have been far higher. Within the UK, electricity prices in south Wales and north Wales are far higher than the UK average. There is something drastically wrong with the system, is there not?

[Dr Whitehead]

It is uncanny that the hon. Member has anticipated exactly what I was going to say next: one reason it was necessary for the UK Government to be relatively generous in their support is that the price rises in the UK are far higher than those across most of the rest of Europe. I will not go into the support that the French Government have put in place to support price rises, but French price rises are 4% or 5%. The rises are quite a considerable factor of how energy markets work in the UK as opposed to the arrangements elsewhere in Europe.

For a long time we had a Government pretty much asleep at the wheel on governing energy prices, thinking that an energy price cap would deal with the whole thing. But the energy price cap originally was supposed to deal with retail companies price gouging, not price rises coming from the wholesale market into the retail market in the UK as a whole. The fact is that UK energy prices are determined entirely by gas prices. We have done a lot over the years to start bringing renewable energy sources into the mix—indeed, 38% of our power is now supplied by renewable sources; if we take nuclear too, the majority of our energy supply is provided by low-carbon sources—but the UK retail market works as if it were supplied entirely by gas-fired power stations paying the price of gas to make electricity. That is because of the marginal effect of the way the UK energy market works, with auctions and how that all works. I do not think we will go into that this afternoon, but the fact is that the UK energy market is completely broken, in that it allows those really high prices to come through in a situation where we are—or should be—decreasingly reliant on gas.

Let me make a couple of suggestions. It is one thing to introduce price support for the immediate problem of energy price rises. By the way, that problem is not, as the right hon. Member for Vale of Glamorgan (Alun Cairns) said, exclusively about the Ukraine war. Prices were going through the roof well before the Russian invasion of Ukraine. They started increasing at a high and unsustainable rate from the middle of 2021. The Ukraine war has exacerbated that considerably, but it is by no means the only reason. One reason that prices increased considerably well before the Ukraine war started was the structure of energy markets in the UK, the extent to which they were completely prey to profiteering, and the fact that the UK Government were unable to do anything about the effect of increases in the international price of gas on the UK market.

If we have price support over the next period but we do nothing about that structural position, knowing that sky-high gas prices will be with us for probably—I am speculating—the next decade, or at least five to six years, and that the price will never come down to its level of three or four years ago, we will simply be here in two or three years’ time saying exactly the same thing under exactly the same circumstances. The price cap and the price support will have been and gone and we will be in exactly the same position as before.

Now is the time for the Government to fix the UK energy market rapidly, so that we do not find ourselves here again. That means getting us out of gas and on to renewables as quickly as possible. Without adding to what hon. Members have said, the Labour party’s commitment to a wholly renewable power system by 2030 is absolutely germane to ensuring we have an energy system that delivers us relatively low-priced energy that is not volatile, and is not subject to international power politics, with LPG vessels changing course halfway across the Atlantic because someone has bought their cargo at a higher price than they originally thought they were getting for it when they set out. All those issues would be resolved because the power would be UK-based and essentially free—once the capital cost of the renewables providing it had been taken away—and it would be entirely within the UK’s control to deal with prices in the UK. That is how to fix the particularly difficult energy market conditions.

By the way, a lot can be done in that direction before we get to that position by decoupling energy prices in the UK market from the gas market. That can be done by changing the way people receive their rewards, as far as energy is concerned, and renewable obligations and contracts for difference, as far as renewable energy is concerned. We could perhaps introduce a green power pool arrangement, whereby renewable power is traded in advance of gas, and the gas is placed on the margins without the ability to swamp the whole market. That means that we perhaps have to introduce a strategic reserve for gas-fired power stations outside the market as we move towards a wholly renewable energy market.

None of that will wait for the energy crisis to be over. If we do not do these things very quickly, we will just repeat ourselves. One of the key things—

[Mr Clive Betts (in the Chair)]

Order. I think we are getting to the point at which the Minister needs to come in.

[Dr Whitehead]

Yes, indeed.

The Opposition will look very closely at whether the Government are serious about moving our energy economy on to the sort of renewable basis that we have set out. One of the early indications that they are not is the recent shenanigans going on with solar farms and wind in this country. We will look on, and we hope the Government have success in moving the energy economy away from a reliance on gas. Certainly, introducing fracking and exploring more for gas in the North sea will not fix it; indeed, they will do the opposite. This is about getting renewables in place for our power system as soon as possible and ensuing we are proofed against crises in the future. That would be of great benefit for Wales and for UK customers as a whole, because their bills would assuredly come down in the future. It is a policy for the long term, not one just to fix the windows a bit while it is raining.

[Mr Clive Betts (in the Chair)]

I ask the Minister to leave a couple of minutes for the hon. Member for Cardiff North (Anna McMorrin) to sum up at the end.