Draft Electricity and Gas etc. (Amendment Etc.) (EU Exit) Regulations 2019 Draft Electricity network codes and guidelines (Markets and trading) (Amendment) (EU Exit) Regulations 2019 Draft Electricity and gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019 Draft Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations 2019 Draft Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment Etc.) (EU Exit) Regulations 2019

Debate between Alan Whitehead and Claire Perry

Tuesday 26th February 2019 General Committees

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

It is a pleasure to serve under your chairmanship, Sir Graham; I am sure that you will have an interesting time chairing this debate on the five statutory instruments before the Committee. Perhaps I ought to say that I will not necessarily discuss the statutory instruments in the same order as the Minister, because I did not have any forewarning about the order that she would discuss them in. I am not criticising; I am merely saying that it may be difficult to establish the debate effectively, but I will do my best.

[Claire Perry]

Will the hon. Gentleman accept my apology for that omission? We have used the opportunity of many of our SI debates to have a very constructive conversation, so I apologise to him. I will take account of what he said, should we have the pleasure of doing this again.

[Dr Whitehead]

I thank the Minister very much for those comments. I sincerely hope that we will not have the pleasure of doing this again in a hurry because, among other things, I had to read all five SIs to get the sense of them. I have tried to place my concerns about them in descending order of importance. Therefore, I will not necessarily talk about them in the same sequence as the Minister, but I hope what I say will be reasonably intelligible.

Before proceeding, perhaps I ought to say that I appreciate the need to undertake code revision and to deal with the transmission code arrangements in such a way that they become properly operable within the UK on the day of a no-deal Brexit, which the Minister and I are both sincere in hoping will never come about. Nevertheless, we need to ensure that that is done, so far as is possible. This afternoon, I will talk not about that process itself, because it is necessary, but about some concerns over the nature of how it is being brought about in the SIs. The Opposition do not intend to oppose any of the SIs, but we do want to place on the record—and hopefully get the Minister’s comments on the record—our concerns over how the process has been brought about through the passage of the statutory instruments.

I will start with the draft Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment etc.) (EU Exit) Regulations 2019, which take the regulations that have set common standards for transmission system operations across member states and translate that arrangement into a UK arrangement—a new arrangement as far as TSOs are concerned. As the Minister alluded to, that will cover transmission system operations not only in England, Wales and Scotland, but in Northern Ireland, which has a different transmission system operations arrangement and, indeed, a different regulator. It nevertheless comes under the draft regulations for the purpose of the legislation that is required to bring all of this within a UK-wide ambit.

As the Minister said, Northern Ireland and the Republic of Ireland have separate regulatory systems, but the transmission system and the energy market are completely integrated. Indeed, the Minister referred to the System Operator for Northern Ireland—SONI. That is not one of the few Japanese companies that is retaining its investment in Great Britain, but the operator of the Northern Ireland system. That operator has to operate in very close collaboration, including code congruence, with the system operator in the Republic of Ireland. That is because, among other things, two regulators deal with one grid and there is one single market as far as wholesale is concerned. That means that it is absolutely necessary that the codes between those two system operators are as congruent as possible in order to make the operation of a single grid effective.

It is quite clear that those codes will not be congruent in the case of a hard Brexit. As the explanatory memorandum to the SI makes clear, the network codes—“connection codes”—which come from the EU regulations are in the process of being incorporated into existing national regulatory frameworks, in order to make them accessible and familiar to UK parties. The document states—glass half full:

“The process of incorporation has been largely completed”.

An alternative way of saying that is: “the process of incorporation has not been completed”.

The Department states that it is the intention that those codes not incorporated already into a system to make them coterminous,

“will be created in domestic law under the powers of the Electricity and Gas (Powers to Make Subordinate Legislation) (Amendment) (EU Exit) Regulations 2018 as soon as practicable after exit day.”

That means that legislation to make those codes congruent will not be in place by exit day, nor for quite a while afterwards, because it will be a question of getting a new piece of legislation through this House to carry out the rest of the code congruence work.

Strictly speaking, that means that the single grid will operate on convergent codes and not be legally watertight. The Minister has effectively said this afternoon that, in practice, good will between all people will ensure that electricity continues to flow and the market continues to operate. However, we need to be clear that will be done essentially on a good-will basis and not on a legal basis. Considerable risks are attached to the fact that those codes will not be congruent. If there are major issues about code compliance on both sides of the border, as far as the grid is concerned, there will be no easy way to remedy that if there is a hard Brexit. That is my strong concern about the regulations.

I turn to the draft Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019. As the hon. Member for Kilmarnock and Loudoun said, that covers the implementation and scope of REMIT regulations. REMIT is a very effective system. It came into UK legislation via regulation and is therefore not the subject of a separate raft of legislation. Nevertheless, it operates very effectively as far as the UK is concerned. It is a system that aims to prevent market manipulation and insider trading in energy markets. It does so through the registration of participants, the reporting of energy data and the publication of inside information that would have an impact on prices. That registration, reporting and publication is done through EU agencies. The purpose of this SI is to transfer that into UK arrangements, so that, as much as possible, UK reporting and transparency work as they did previously in the EU.

However, it is clear from this SI that not everything that is currently undertaken by REMIT will be incorporated into UK legislation. It is stated that the regime that is being legislated for will commence four weeks after Brexit day, but will apply only to registration, inside information and transparency data. Other forms of reporting, such as data relating to transactions in wholesale markets, will not start until the regulator has reviewed the market data requirements. It is suggested that if the regulator decides to implement full market data reporting, as currently required under REMIT, a further three months’ notice of commencement will be given.

That means that only a part of REMIT will indisputably come into UK operation on a guaranteed basis. The regulator will have the opportunity upon review to translate the rest of the REMIT regulations into UK operation, but it may decide that the further pieces of reporting and data transfer relating to transactions in the wholesale market will not be part of the UK reporting arrangements. If that happens, there seems to be nothing that we in this House can do about it. Perhaps the Minister will indicate that there is something we can do about it. Perhaps she will say that we have effective legislative control over bringing the whole of REMIT into UK concerns, and that we are not just hoping that the regulator, which presumably will have concerns about resources, procedures and various other things, will complete the transfer. It would have been a good idea to undertake the whole of the transfer in this SI. I am not sure why there is only a partial transfer. I would be grateful for the Minister’s comments and reassurances on that.

The draft Electricity and Gas etc. (Amendment etc.) (EU Exit) Regulations 2019—the titles are getting a little more ragged as we get through the process—relates to the licence conditions concerning transmission and interconnections, which arise from the Gas Act 1986, the Electricity Act 1989 and the Utilities Act 2000. Those Acts all contain substantial references to EU directives. That is fine, as far as England, Wales and Scotland go, but there is a problem, in terms of translation, with Northern Ireland. I have already said that Northern Ireland has a completely coterminous grids arrangement with southern Ireland, and that there is a single energy market.

The explanatory memorandum states that no changes have been made to the definition of a single energy market,

“due to a practical need for the definitions of the SEM in Ireland’s and Northern Ireland’s legislation to continue to align, (which they currently do).”

It continues:

“This course of action will better preserve the stability of the SEM”.

Again, practically, that will mean that, if there is a hard Brexit, there will be a different regime concerning licensing and collaboration on licensing in Northern Ireland and in the rest of the United Kingdom. For Northern Ireland, a number of references to relations with the EU concerning those licences will be left in, as will EU arbitration arrangements. As the Minister mentioned, it may well be the case that, through good will, this actually works in practice. However, we ought to be very clear that there will not be congruity between the licensing arrangements—not in this instance between Northern Ireland and southern Ireland, but between Northern Ireland and the rest of the UK. I would be interested to hear whether the Minister thinks that that may create particular issues or whether she is confident that can be overcome at an early stage.

The fourth statutory instrument, the draft Gas (Security of Supply and Network Codes) (Amendment) (EU Exit) Regulations 2019, provides for co-operation to safeguard security of gas supply between member states and for solidarity between groups when a member state finds itself unable to supply households or essential services. Again, that is included in existing UK legislation through an EU regulation. At present, should the UK have a problem with our gas supply, there is a solidarity arrangement that requires other member states to come to our aid. Equally, if someone gets their gas supply cut off by the Russians, we have a reciprocal obligation, where we can, to come to their aid. I appreciate that that is not perhaps a central issue—the Minister and I have had discussions on this previously. The security of UK gas supplies is not a particularly interconnector, grid-based, serious European issue. Nevertheless, this SI cuts off all those methods of collaboration and solidarity—necessarily, because we will no longer have a member state’s obligation to act in solidarity or to come to other member states’ aid. However, we need to remember that they are required to come to our aid as well. The current regulations also include regional assistance arrangements. Since we will not be in any region, we cannot be part of any regional assistance arrangements either.

Will the Minister clarify whether she thinks that that is the end of the matter and the end of co-operation and solidarity, and that by simply revoking these arrangements in this particular SI, nothing of the sort will happen in the future? One hopes, in terms of common sense and fairness between ourselves and EU member states, that some sort of gas interconnection solidarity arrangement might continue. Does the Minister have any intention to pursue by other means such an arrangement, which could be beneficial both for us and for EU member states in the future, just as this arrangement has been beneficial for us in the past?

Finally—Sir Graham, you will be delighted that I am coming to the word “finally”—the Minister mentioned the unfortunate episode concerning the capacity market. She knows that we are talking today about what would happen in the event of a no-deal Brexit and about all these arrangements that currently pertain because we are a member state. The arrangements concerning the capacity market, which arise from state aid permission by the European Union in the first instance, also arise from the fact that we are a member state. If we are not a member state on 1 April, we will not be bound by those arrangements. In the event of a no-deal Brexit, does the Minister intend to restore the operation of the capacity market in the UK immediately, given that she would not be beholden to any UK arrangements concerning the operation of the capacity market on that date? Or does she intend to review the operation of the UK capacity market on the basis of what was decided in the European courts, regardless of whether we are bound by the state aid arrangements that pertained previously within the EU? I would be interested in hearing from the Minister whether she has any plans in that direction, and if so what they are.

Draft Storage of Carbon Dioxide (Amendment and Power to Modify) (EU Exit) Regulations 2018

Debate between Alan Whitehead and Claire Perry

Monday 28th January 2019 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Bone. I cannot resist commenting on the interesting circumstances: with the extension of SIs, we are going into different Committee Rooms, and I am used to having a rather closer relationship with the Opposition Front Bench than I have this afternoon.

[Claire Perry]

With the Government Front Bench.

[Dr Whitehead]

Sorry, with the Government Front Bench—the Minister usually has a closer relationship with the Opposition Front Bench. That does not mean, of course, that we shall be particularly far away from each other on the proposals in the SI this afternoon.

Essentially, the SI transposes three sets of regulations that underpin different aspects of the UK’s regime for carbon dioxide storage, including the regulations that should be adhered to, the circumstances of termination of licences that should be adhered to and the access for infrastructure. Those matters are contained in different sets of regulations, all of which stem from the EU carbon capture and storage directive. Obviously, in the event of a no-deal Brexit, we would not be a member state as defined by the directive. Therefore, it is necessary to secure the effect of those regulations without referring to our being a member state. As the Minister said, it is very important that we do maintain the effect of the regulations.

I would like the Minister to confirm that in her opinion—this is certainly my opinion—the changes made in today’s SI merely serve that purpose and do not do anything to the substance of those three SIs. My understanding is that their substance remains exactly as it was.

[Claire Perry]

I am very happy to clarify that the hon. Gentleman’s understanding is correct: this is simply a transposition exercise.

[Dr Whitehead]

I suppose that I could be a little curmudgeonly by saying that it would be rather nice if we had some carbon capture and storage to put into those regulations. We do not at the moment, so in a sense nothing will actually change with the regulations coming on stream, inasmuch as there is nothing that will be regulated or licensed, or indeed terminated, by the transposition of the regulations. I hear what the Minister says about the intentions for carbon capture and storage in the future. I hope that it will indeed proceed rapidly, after its previous setbacks, and that the regulations will be necessary sooner rather than later.

I do not have any particular cavils or quibbles with either the intention or the practice of what is being done today. Indeed, I very much support the idea that we must have a good, solid carbon dioxide storage licensing and regulation regime. That is what there has been previously and what there should be in the future. The draft regulations will ensure that that is the case, so I am very happy to inform the Committee not only that we do not wish to divide the Committee, but that we support these changes.

Draft Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2018

Debate between Alan Whitehead and Claire Perry

Monday 14th January 2019 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Davies. The Minister has given a customarily comprehensive exposition of the draft regulations and of what the Government seek to achieve with them. She also acknowledged the reason for them, which is that the original 2015 regulations were based on the idea that landlords could uprate their properties for energy efficiency purposes through the green deal programme. The manifest failure of the green deal meant that those regulations, which came on the statute book a month or so before the deal went down, were completely inoperable pretty much from the word go.

I cannot let the debate pass without briefly recording the history of the 2015 regulations, which arose from the Energy Act 2011. It took four years for them to come on to the statute book, and the target at the time was that landlords letting out F and G-rated properties would not be able to do so after 2018, unless they had taken up the green deal proposal to upgrade their properties or they had received an exemption because they had spent up to the limit of the proposal and still could not get their properties up to that level.

After the 2015 regulations were demonstrated to be inoperable, it has taken another four years for these regulations to come forward. The date by which the energy efficiency of those landlords’ properties should be upgraded has also slipped as a result of the long delay in getting the 2015 regulations on to the statute book. We could say that these regulations are the housing and energy equivalent of the controversy about the appearance of Harper Lee’s novels: they have taken a great deal of time to emerge, and when they do emerge there is a great deal of time before the one that puts the previous one right emerges to take its place.

[Claire Perry]

Of course, when they do emerge, they are considered to be tours de force and best-sellers. The point I am making, rather facetiously, is that it is much better to do something right and that will have an impact—I refer to the smart export guarantee of last week, which, again, took a little longer than I intended. We have to ensure that these regulations are proportionate and balanced and can be delivered, rather than being just a bit of writing on a piece of paper.

[Dr Whitehead]

I take the Minister’s point, but it was widely thought that Harper Lee’s second novel was substantially inferior to the original, to which I cast my mind this afternoon. There are two key points on these regulations that hon. Members ought to consider carefully. First, as the Minister has said, following consultations on what to do about the fact that the green deal no longer gave a route for landlords to improve their properties—in theory, at no cost to themselves because of the way the green deal worked—the Government produced consultations on the uprated regulations, which initially suggested that the expenditure limit should be £2,500, after which the landlord should be exempt.

The consultations drew a substantial number of responses. Some 79% of respondents argued that the limit the Government suggested as an alternative to the green deal was far too low. Of those, 60% suggested that the limit should be at least £5,000, which is the figure used in the work that looks at what the uplift to those properties would be. The Minister has said that according to the research, should the limit be set at £3,500—it was the only figure substantively put forward in the consultation—something like 48% of properties could be improved. To put it another way, the majority of properties in F and G would not be covered by this measure and would be exempted forever under the terms of this amendment—they would be lettable without the landlord having to do any more work, because it would not be possible to uprate the property to that level.

On the other hand, the £5,000 figure, according to some of the impact assessments, suggests that some 73% of F and G properties could be successfully uprated to band E. With a little bit more expenditure, the substantial majority of those properties could be uprated to band E. That is important, as the Minister mentioned, in the light of the clean growth strategy’s ambition for the private rented sector in general up to 2035. The Minister, who I think wrote substantial parts of the revised clean growth strategy, will know that it proposes that properties in the private rented sector should be band C by 2030.

The clean growth strategy not only suggests that upward movement by 2030, but suggests that in the meantime, there should be mandatory levels up to band D in the private rented sector by 2025. The regulation effectively takes half the properties that could be uprated to band E by 2020 and, potentially, permanently exempts them, while at the same time, the clean growth strategy’s ambition is to revisit the issue in 2025. The landlords exempted from band E by 2020 would presumably be exempted in even greater numbers from 2025 to 2030. In other words, the proposal goes in precisely the opposite direction from the trajectory that the clean growth strategy suggests.

The Opposition think that it would have been more than prudent—rather, absolutely essential—for the Government to accept the overwhelming number of submissions to the consultation on the SI, and make the figure of £5,000 the limit above which exemptions would apply. I would argue that £5,000 would not be an enormous burden on landlords to ensure that they provide their properties in a lettable and saleable way. That is especially true given that, as the Minister has mentioned, a side effect of that work is that those properties increase in value by substantial amounts of money. She mentioned the figure of £8,500—even that is £3,500 more than the £5,000 figure.

We are concerned that after effectively eight years in the making, the regulations would uprate a frankly inadequate number of properties, and a pretty startling number of properties would be permanently exempt from that process. That is the first key point.

The second key point is about the overall definition in the 2011 Act of a private rented property, how that definition was incorporated in the 2015 regulations, and what one might have expected to have been incorporated in the regulations that we are considering. The 2011 Act, in the definition of private rented sector property and the measurements that should be undertaken for the purpose of complying with exemptions, raises the question of the property having an energy performance certificate. That arrangement is based on a European Union directive, so I wonder whether a statutory instrument is about to be introduced to redefine EPCs in the light of a possible early departure from the EU on a no-deal basis—we might see that in the not-too-distant future.

The EPCs, which were already in place and on which the whole of the legislation is based, only apply to properties that have been let as whole properties. Therefore, of the 4.3 million homes in the private rented sector, a substantial minority—houses in multiple occupation, where sections of the properties have been let at different times—are exempt from the requirements. Provided landlords rent out rooms within a building and not the whole building in one go, they are free—they do not have to do anything to their building as far as energy efficiency is concerned.

When the 2011 Act was passed, as I understand it from the Minister at the time—now Lord Barker—he was not aware that that huge exemption had been written into the legislation. Before the 2015 regulations were introduced, there were a number of indications that something ought to be done about that huge lacuna. One of the people indicating that something ought to be done was me. Indeed, I raised this issue in the House on 25 June 2014—I asked what should be done about the HMO sector and how the legislation might be uprated to get it right—so the Government cannot say that they were not told, that they did not know about it or that there were no ways to put it right. Indeed, as far as the 2011 Act is concerned, it should have been put right in primary legislation very shortly after the passage of that Act.

That is not an insignificant issue. My colleague representing the constituency next door to mine, the hon. Member for Southampton, Itchen, knows that Southampton is not only the private rented sector capital of the south coast, along with Brighton, but the HMO capital: 50% of the properties in the private rented sector in Southampton are houses in multiple occupation —so those HMO properties, many of which are in bad condition, will be completely exempt from the legislation.

When the 2015 regulations were introduced, given that the Government had been told about the problem, it was surprising that the guidance stated that

“there is no obligation to obtain an EPC on a letting of an individual non-self-contained unit within a property, such as a bedsit or a room in a house in multiple occupation”.

The Government actually told landlords at the time how to evade the arrangements. One might have expected, given that there were four years to get it right—tour de force though it may be—that that issue might have been put right in the regulations, but, on scanning them, there is nothing. The situation remains exactly the same as it has been since 2011. Many landlords will drive a coach and horses through the regulations and will not improve their properties simply because they will not let out all parts of their property at the same time.

The regulations are projected to make a substantial contribution to the clean growth strategy. They do not; they are a welcome uprating of landlords’ responsibility to their properties, but they fall far short of the ambition for the Bill when it was discussed in 2011. The Minister and I both served on the Bill Committee, and there has not been a happy outcome. What we thought would take place after the legislation was passed has not happened, and the outcome remains unsatisfactory.

Unless we have a statutory instrument that properly addresses, first, what contribution landlords should make to uprating their properties in line with the ambitions in the clean growth strategy, and, secondly, how many people can escape the obligation through the definition of their property—a particular sub-definition of “private rented” escapes completely—we will have a piece of legislation that just does not work. For that reason, we cannot support the regulations. Ideally, I would like the Minister to say that she will go away and come back with a statutory instrument that addresses those two points. We would all be able to support that because it would have an overall effect on the private rented sector and really would put us on the path to discharging our ambitions in the clean growth strategy.

[Claire Perry]

I am always grateful to the hon. Gentleman for his thoughtful and extensive contributions to our legislation. I am disappointed that, once again, the Opposition cannot support what most people outside this place feel to be sensible and proportionate changes, which will help the worst 6% of properties. I take his comments on board, but—as with the clean growth strategy, our ambitions on fuel poverty and the price cap Bill—it is a shame that he feels he is unable to support the changes. Let me try to answer some of his questions and see whether he will potentially review his position.

The hon. Gentleman is absolutely right—I pay tribute to his long-standing recognition of this issue—that houses in multiple occupation are covered by this minimum standard if they are required to have an EPC. Some do, and many do not. We are currently working with colleagues in the Ministry of Housing, Communities and Local Government to review the requirements. Although tenants can request energy efficiency measures, we do not want private rented properties to be reclassified into some sort of HMO bucket so there is another exemption.

We had a big call for evidence on EPCs—I hope the hon. Gentleman contributed to it—and this question came up in it. We will review the responses, and we will publish our response in the summer. This is a concern, but not one that should prevent this valuable contribution to alleviating the number of fuel-poor homes from being put on the statute book.

The hon. Gentleman raised the issue of delays and asked why this has taken so long. He will know that the original regulations set out that landlords needed to improve their properties or register an exemption by April 2020. With the consent of the Committee, we will put these regulations on to the statute book, and that will come into force. The 2018 limit applied only to new tenancies. He will ask me what the churn rate is in the tenancies; the answer is that I do not know, but I believe from the impact assessment that we are still capturing substantially the majority of properties in this sector.

I take the hon. Gentleman’s point about the level of a cap. To clarify slightly, 52% did not support the £5,000 cap. Although the majority of people thought it should be higher than £1,500, the majority did not support a £5,000 cap, for all the reasons that I set out: this cap is considered to be more proportionate. If he looks at the impact assessment he will see that the net present value of delivering at a £3,500 cap is substantially higher.

[Dr Whitehead]

Will the Minister clarify the distinction between the majority not supporting the £5,000 and those people in the consultation who supported the £2,500? If I add together those who supported the £2,500 and the rest of the consultees, I get to the figure of 52% who did not support it. However, the vast majority of people who did not support the £2,500 cap supported the £5,000 cap.

[Claire Perry]

Far be it from me to replay arguments about 48:52 in this lowly Committee—we could be here all day. We are not here to debate the calculations; the majority of people in the consultation did not support the £5,000 cap. They certainly agreed that the number should be higher than £1,500, as we do. The hon. Gentleman will notice that there are other amendments such as including VAT in the cap, removing the backward-looking grandfathering—stopping it in 2017, so that people are forced to continue to invest in those properties.

The hon. Gentleman asked about exemption length, suggesting that landlords will be let off forever. That is not true; all exemptions will expire after five years. Landlords will then be obligated to try again to improve the property, spending up to the level of the cap. Hopefully, with the continuing reduction in the cost of energy efficiency measures, people will be able to do more for less.

I am disappointed that the hon. Gentleman does not support the draft regulations, but they are the right thing to do. This is a proportionate set of measures: it is fair to landlords, most of whom are not large corporates but people who have invested in one or two properties, who want to do the right thing. He makes a good point about multiple occupancy and I would be happy to take that away and, as we often do, work in concert to take it forward, because that is an important additional change we could bring forward.

This statutory instrument is a good step forward; it has received widespread support and it means that the most inefficient homes will be improved, creating savings for tenants and capital value for those who own them. On that basis, I commend the draft regulations to the Committee.

Question put.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 8th January 2019 Commons Chamber

[Claire Perry]

I thank the right hon. Gentleman for recognising the incredible contribution that offshore wind can make, and I hope he will join me in wishing great success to our negotiating teams in bringing forward the vital sector deal. The point is, given that the price has tumbled since he was one of the people who designed the excellent auction structure, that we should be able to bring forward the amount of capacity we have said we need—1 GW to 2 GW—with that amount of subsidy. The system is working to get us to subsidy-free provision of this extremely important offshore wind energy.

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

The Minister will be aware that the recent EU Court judgment, which effectively freezes the capacity market in the UK, turned substantially on the lack of level playing field access to capacity market support for new low-carbon energy technologies such as demand-side response. Does she intend to respond positively to the judgment by recasting the capacity market to reflect remedies for this lack of equal access, or is she perhaps hoping that, after a decent interval—and a lot of damage to existing participants in the capacity market—normal service will be resumed?

[Claire Perry]

The hon. Gentleman raises an incredibly important point. We have been working on this issue closely with the industry for several months since the judgment came forward, and it is absolutely right that we reassure the industry and investors of our commitment to holding auctions in the near future to ensure electricity supply for next winter, and that we do all that we can to ensure that this market is put back on a legal and orderly basis. It does work—it is the envy of many countries around the world—and we are working closely with Ofgem and the industry to ensure that we can take that market capacity structure forward.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 20th November 2018 Commons Chamber

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

The Government say in their clean growth plan—indeed, the Minister has said it this morning—that they want to see more people investing in solar without Government support. I cannot think of a better way to discourage people who might be thinking of investing in solar than telling them that they will be expected to give away to the national grid half the electricity they generate from their investment. When we talk about the export tariff, we are not talking about a subsidy; we are talking about a payment for goods supplied. The Minister has elided the feed-in tariff and the export tariff. Can she just accept that she has messed things up on this occasion, call off talk of removing the export tariff and get on with using that tariff to support future subsidy-free solar investment?

[Claire Perry]

I am invited to say buongiorno to our visitor in the Gallery.

The hon. Gentleman and I are, as in many cases, in violent agreement. We signalled clearly several years ago the closure of this scheme. It is a very expensive scheme; it was going to cost £2 billion a year for decades to come to bring forward microgeneration. We now have much more energy-efficient and cost-effective ways of generating renewables. As I said, I absolutely agree that people who have gone through the installation process should not be captive takers, should someone want to buy their energy. I look forward to announcing further deliberations on this shortly.

Draft Electricity and Gas (Powers to Make Subordinate Legislation) (Amendment) (EU Exit) Regulations 2018

Debate between Alan Whitehead and Claire Perry

Thursday 1st November 2018 General Committees

[Claire Perry]

As most Members here voted to trigger article 50 and begin a process of—[Interruption.] Well, most of us voted to trigger it, and most of our constituents would have expected us to do so, as we live in a democracy. My point is that, in the process of bringing forward the Brexit that our country voted for, we must ensure that there is a smooth and orderly transposition of EU law—the acquis—into UK law so we can exercise proper scrutiny of the sorts of powers that we are referring to. I believe it is called taking back control and exercising parliamentary sovereignty.

I commend my officials in the Department for Business, Energy and Industrial Strategy, the Clerks and the Panel of Chairs, because we will all be troubling them a lot over the next few months as we do what people expect us to do—transfer the powers to ensure that there is absolutely no break in the continuity of activity. That is vital to ensure we have a smooth Brexit. In some cases, we will take contingency powers, in the very unlikely event that we have a disorderly Brexit, which would be deeply unpalatable.

Some of the speeches that have been made, including that of the hon. Member for Inverness, Nairn, Badenoch and Strathspey, encapsulated a whole other load of stuff relating to devolution and the transfer of additional powers to the UK Government. I have reminded him several times that his constituents, like all constituents in our very powerful united group of countries, have benefited from legislation such as the price cap Bill, and the enormous growth of the renewable industries in Scotland has happened with the help of subsidies brought about by the taxes and powers taken by this Government. I suspect it is in his constituents’ interests to have as much alignment as possible with the Westminster Parliament on energy matters.

I should preface my remarks by saying that we will clearly have to prepare for a number of fractious Committees ahead if, in the process of introducing the legislation we have committed to, which is an attempt to transfer smoothly some very technical powers on day one, we try to turn this into a rerun of the referendum on Scottish independence, which was thankfully rejected, and the EU referendum.

The concerns of my opposite number, the hon. Member for Southampton, Test, were, as always, valid. He raised a number of issues. The first was what happens if there is no deal? Are we effectively putting things in place that we would have to change in a no-deal scenario? The answer is no. The regulations would be needed in all scenarios. They do not prejudge the outcome of the negotiations. They are designed to target a very limited set of legislative powers, which are held by the European Commission and would otherwise be left behind. They are helpful to our industry. Of course, it is entirely within our remit, once we have left the EU, to decide to change them completely.

One of the most important issues is how we consider gas security—a vital matter for us. It is entirely within Parliament’s power to introduce additional legislation or regulations to create our own domestic view of what gas supply, and reporting and security measures, look like. Those are not Henry VIII powers; as is set out in these regulations, if we wanted to do something as broad as that, it would be for the Secretary of State to introduce it, and it would be subject to the normal legislative scrutiny. We have not had much chance to scrutinise the current regulations under the rather remote functioning of the European Commission.

If we enter into an implementation period, which I believe strongly is what we need, these transfer powers would not need to be exercised immediately, but they may still be needed after the implementation period. The hon. Gentleman referred to an Ofgem note; I hesitate to suggest that it was referring to a slightly different issue, but it was—it was referring to domestic licences that had been granted. It is quite proper for Ofgem to determine whether any amendments are needed for conditions of its licences, in both an EU exit scenario or any other scenario. That is a different issue from amending the EU’s network codes and guidelines, which are currently directly applicable in the EU legislation.

[Dr Whitehead]

I am afraid I handed my copy of the Ofgem letter to Hansard, but my understanding of that letter is that although it relates primarily to domestic licences, there is reference to the European codes and what they represent. That is not surprising inasmuch as the European codes are intended to underpin domestic licences in any event. Therefore, what Ofgem said about whether those changes would be necessary on exit day relates to what is half in and half out of the legislation and what is completely in the legislation. That has a bearing on whether those changes are made immediately or at the end of negotiations.

[Claire Perry]

Again, I think we should all take comfort from that Ofgem letter, which suggests that the markets will operate smoothly, even without these changes. It is a prudent Government who ensure that we transpose relevant codes, as we said we would, where we believe there is a potential threat. We do not want to trouble a Committee in future months to make those changes; a potential change might come up as a result of the governance gap once we leave the EU.

The hon. Gentleman raised an important point about the single energy market in Northern Ireland, which is a critical element of ensuring that we have a smooth-functioning energy system. The substance of the codes created after exit day will be the same; these amendments are needed only to reflect the life of the UK outside the EU. This statutory instrument does not directly relate to the single energy market.

It is the same point with interconnectors: they work under access agreements, as the hon. Gentleman knows. There are already potential changes in elements of the markets on both sides of the interconnector. The amendments we are bringing forward do not materially affect any of those interconnector contracts—as he knows, they are commercial decisions that essentially flow when the price signal is right, rather than Government decisions to bring forward supply.

[Dr Whitehead]

The Minister is right to distinguish interconnection from integrated market arrangements. Other than a brief response to an intervention, I did not mention the question of interconnectors in this context. In EirGrid, what is in place is the integration of what were previously interconnections into a single seamless grid. The question is not the relationship between interconnectors in Northern Ireland and the Republic of Ireland, but the status of an entirely integrated single grid system that is different from an internal energy market, which is another matter that presumably we need to deal with in a different way. There is a specific question here of an interconnection arrangement transformed into a single network, and the relationship with sets of codes on either side of what is not a border at all as far as EirGrid is concerned.

[Claire Perry]

Allow me to remind the hon. Gentleman that we are talking about the existing set of network codes being transposed, and making provision for codes that have already been announced and will come into place post our departure date, to ensure that we do not end up with a different set of codes. It will be our sovereign decision, should we wish to change any aspects of our energy market. We would expect to do that in proper and full negotiation with our EU friends and partners or companies involved in that process. In a way, we are talking about ensuring there is complete continuity, because we are talking about codes that are already announced.

[Dr Whitehead]

This SI repeals those part codes.

[Claire Perry]

No, it does not repeal the part codes; it essentially suggests that we will bring into force those codes that are announced but not yet in place on exit day.

I have set out that the instrument is one of a very large number of SIs that my Department will introduce to ensure that we have a smooth and orderly departure and that we are fully prepared in the event of a no-deal scenario. I hope that we scrutinise those instruments adequately. However, the hon. Member for Southampton, Test asked me why we are not setting out the full legislative programme that we would want to engage in were we to change any element of the legislation. I am not aware of any piece of legislation we go through where we ask how we would subsequently debate it were we to decide to amend it in the future. Frankly, that is probably an ask too far, given that the House voted to trigger article 50 and to start the process.

My No. 1 focus is ensuring that we have a very smooth EU exit for our energy system, to maintain security of supply and low prices and to ensure that the price cap Bill applies. I appreciate the hon. Gentleman’s frustration about being unable to amend the legislation, but if we are to re-run arguments about referendums and have arguments about how we might introduce future legislation when we are debating very technical and narrow changes to existing EU acquis being transposed into UK law, we are in for a very long and jolly autumn and winter. Of course, it would be a pleasure to share that with my friends on both sides of the House, but our constituents might not thank us for doing so. I commend the regulations to the House.

Question put.

Draft Electricity and Gas (Energy Company Obligation) Order 2018

Debate between Alan Whitehead and Claire Perry

Monday 22nd October 2018 General Committees

[Dr Whitehead]

The essential point about the overall aim of ECO is that it should be concerned with all those issues—with urban and rural fuel poverty and with bringing properties up to a decent level of energy efficiency to ensure that our properties are in a fit and good state with regard to climate change and energy use changes.

The concentration on fuel poverty could solve those wider issues to some extent, providing that the scheme is large enough to enable that to happen. We know that people living in fuel poverty are disproportionately concentrated in properties that have low energy efficiency. In the private rented sector in particular, a large proportion of properties are in bands E, F and G. A large proportion of people living in fuel poverty are in that tenure and in those property efficiency bands. In principle, concentrating on fuel poverty is a good way of targeting the wider issues, as long as enough other things are happening within the scheme. It all depends on the overall status of the scheme.

Several good things have happened between ECO2 and ECO3. I commend the Government’s decision to reduce the obligation threshold for suppliers. A large number of energy supply companies fall just below the current level of 250,000 accounts and are therefore not obliged to undertake any ECO measures. Problems also arise in respect of whether people who switch are eligible for certain schemes. Within a short period, the obligation threshold will be reduced from 250,000 accounts to 150,000, which is a Good Thing, with a capital G and a capital T. I thoroughly support it.

[Claire Perry]

I am craving support today. Does the hon. Gentleman support another measure, namely that which ensures that switching websites make it clear to people in receipt of discounts, such as the warm home discount, that they might lose them if they switch? We want to provide as much transparency in the system as possible, as well as to tackle supplier inflation. I hope that that is also a Good Thing.

[Dr Whitehead]

Indeed it is. As the Minister knows, I have been banging on about that problem for quite a while.

[Claire Perry]

And I have been listening.

[Dr Whitehead]

I also agree with increasing to 25% the proportion of the obligation that can be met through flexible eligibility. As the Minister mentioned, local authorities often know more than most about the whereabouts and construction of the property stock in their area, so involving them in that way is a very positive move. Does she think that such an arrangement could lead to area-based schemes being headed up by local authorities as part of the obligation? She will be aware that ECO has been criticised because its set-up means that energy companies go out to find individuals and treat their homes but do not capture those next door or down the road who are in the same position. Does she think that flexible eligibility arrangements could lead to a better system of area-based activity?

I am not too impressed with the reduction in solid wall treatments in the ECO scheme; that is not a progressive arrangement as far as ECO3 is concerned. We really have to get stuck in to solid wall insulation across the country. There are 8 million solid wall properties in the UK, and solid walls are one of the property elements least treated for energy efficiency, so reducing the target from 24,000 to 17,000 is a retrograde step.

As I mentioned, I support in principle the idea of increasing the concentration on fuel poverty. However, we have to note, at least in passing, that it is one thing to concentrate a scheme on fuel poverty, but if that happens at the expense of all other aspects of the scheme, which is what has happened on this occasion, I am not sure that we will get the whole picture as far as energy efficiency is concerned.

I give two cheers for placing greater emphasis on fuel poverty, but I am concerned about the overall aspects of ECO, which is where that concentrated effort on fuel poverty sits. The Committee on Fuel Poverty has indicated that even that concentration on fuel poverty will not be sufficient to reach current statutory fuel poverty targets. That is a reflection of the overall size of the scheme and its ambitions within its overall setting.

On that overall setting, we need to be clear on two things. First, as the Minister has said, this measure should be placed in the context of the clean growth strategy’s current ambition in respect of the energy efficiency of existing buildings. It is extremely important to note that some 80% of existing buildings will still be here in 2050, and their energy efficiency may need to be uprated so that they do not need to be treated again before then. We cannot get going with energy efficiency in properties simply by building more energy efficient homes; we need to deal with existing homes.

Indeed, the Government’s clean growth strategy document makes clear their ambitions in that respect, stating:

“To achieve this 2032 pathway, we will need to ensure existing buildings waste even less energy. This pathway could see a further six to nine million properties insulated, especially focusing on those in fuel poverty where we are aiming to have the 2.5 million fuel poor homes in England improved to energy efficiency rating C or better by 2030. More broadly, our aspiration is that as many homes as possible are improved to EPC Band C by 2035, where practical, cost-effective and affordable.”

It is salutary to consider that ambition in the context of what ECO was and what it has become. When it was first introduced in 2013, ECO represented a change from the previous Government’s programmes—namely the carbon emissions reduction target, the community energy saving programme and the Warm Front scheme—which had made a demonstrable difference to the standard assessment procedure ratings of properties. If we look at the SAP ratings in household condition surveys carried out on properties when those schemes were in place, we will see that they improved substantially.

By the time they came to an end, CERT, CESP and Warm Front came to a combined Government, taxpayers’ spend of about £1.6 billion a year. ECO is essentially a market-based scheme and is set against customer bills; it was not described as such, but energy companies basically recovered their obligation through customer bills.

The first ECO that came in reduced that overall ambition to £1.12 billion per annum. That was the only spending on energy efficiency in homes at that particular point in 2013, and that was reduced further when ECO 2 came in, to £0.87 billion per annum. Not surprisingly, that meant that over the period there has been something like a 50% to 60% reduction in overall spend on energy efficiency measures and, as the Association for the Conservation of Energy has pointed out, in the period from the early 2010s up to the present, there has been something like an 80% reduction in energy efficiency measures in homes. ECO has presided over not just a substantial reduction but a crash in energy efficiency measures over that period. ECO3 is coming forward, and the obligation figure—which is in the SI, so it is not an imagined figure—is £0.64 billion. That is a halving of overall energy efficiency measures since ECO was first introduced, and since the further reduction that took place when the schemes put in place by the previous Labour Government came to an end.

If we set that ambition—or, should I say, lack of ambition—against the aspirations in the clean growth plan, we can clearly see that even if ECO3 is extended to 2028, as the Government has said and the Minister mentioned, at the present level, it will fail miserably to get anywhere near those aspirations. Will the Minister explain why she is advocating an ECO programme that will signally fail to get anywhere near those ambitions, and whether she has a host of new schemes in her pocket that could help to meet them. If we go to 2022 with ECO at its present level, even with the changes that have been made, and then agree that ECO will continue at that level to 2028, we will get nowhere near those targets. Not only that, but we will miss our one chance to get properties uprated over the next period in line with what the fourth and fifth carbon budgets tell us about the number of properties that need to be uprated. We will fail to make the contribution to energy efficiency, decreasing fuel use and reducing fuel poverty that will help develop an economy in which energy production is both energy efficient and low in carbon.

I am afraid that the Opposition cannot support the scheme in its present form. We have been developing policies that seek to insulate and uprate the energy efficiency of approximately 4 million homes per Government term, for at least two terms over the next 10 to 12 years. That sort of level is necessary to get anywhere near our carbon budgets—and, by the way, our scheme will not be done on the basis of an obligation. As with previous CERT schemes, it has to be done on the basis of all of us putting money into those schemes, to achieve the public good of energy improvement in properties. I am afraid that the market-based arrangements in the instrument will not get us anywhere near our goal. As I say, it would be good if the Minister were able to comfort me somewhat by saying, “We have a load of stuff that we have not told you about yet, which is going to meet the aspirations we set out so eloquently in the clean growth strategy. ECO3 is going to be part of that.” If that were the case, I might be willing to take a slightly different view of the instrument, but my understanding is that as far as energy efficiency in homes is concerned, this is the only show in town. If that show were a theatre production, it would close after three performances.

I am afraid that the Minister will not have the support of the Opposition this afternoon, although she has my personal support on a number of the changes she has sought to make within the existing ECO envelope on how ECO works. Overall, the scheme is not good enough; it is not good enough now, and it certainly will not be good enough by 2028, which is only four years away from the 2032 target. Really, the Minister has to go away and think through a number of measures that can get us there and come back and tell us what they are, so that we can all sit down together and sort out how we are going to get to the goal we all want to reach on energy efficiency in buildings.

--- Later in debate ---

[Claire Perry]

I thank Members for their interesting set of points. I welcome the support of the hon. Member for Southampton, Test for some of the measures in the scheme. To answer his question about whether the area-based approach allows us to deal with more than one household at a time, the answer is yes, we are encouraging infill measures for certain installations.

The hon. Gentleman asked about solid walls, which links to some of the other points. As he will know, solid wall insulation is one of the most expensive measures, costing an average of £8,000 a household. Historically, ECO has not been as focused on fuel poverty. Indeed, I have been told that one of the criticisms of ECO was that it was buying LED lightbulbs for rich people, which is not something that Government or bill payers’ money should be in the business of doing. With solid wall insulation, many of the contributions have been topped up with householder contributions. Clearly the households we want to be helping with this scheme will not be able to do that.

That is why the number has been cut, but it is also why we have encouraged installers to think more creatively. Often the benefits from solid wall insulation can be achieved by under-floor insulation, using the amazing Q-Bot robot that the BEIS innovation money has funded, or by better loft insulation or improvements in windows. Rather than just having a one-size-fits-all proposal, the idea is that many other measures can be delivered.

I can tell by the way that Opposition Members are whipped that, regardless of what I say, the hon. Gentleman will press the order to a vote, but let me at least have a try. He will know, because he is a very intelligent man, that the challenge with these schemes is to balance the carbon reduction against the cost and whom it falls on, and the creation of a competitive advantage. The Government should direct funding—whether taxpayers’ money or, as in this case, bill payers’ money—in a way that creates better products by pushing a particular market. The challenge is that, while we have been rolling out ECO, there has been a precipitous decline in the cost of some energy-saving measures. The cost of LED lightbulbs is down 80%. That was nothing to do with ECO; somebody just figured out how to make them much more energy efficient. I imagine that most people in this room have fitted at least one LED lightbulb in their home, not because the Government have suggested that they should get money for doing so, but because it saves them money on their energy bills.

The missing piece in what the hon. Gentleman was saying—he said that this is nowhere near enough, and that we need to spend more just to do the same—is that there have been dramatic price falls for many products, but not for those that this scheme has supported. This scheme, in focusing in on tried-and-tested technologies such as cavity wall insulation, has led to very little innovation. Look at what is happening around the world. Thermal paint, for example, can help with the heating and cooling of a property, but we ain’t doing none of that in this country using ECO money or other forms of money.

We are directing £0.64 billion a year into these measures. We must focus that on innovation to ensure we develop new products. We could support products such as home thermostat systems. I am not allowed to mention brand names, but smart thermostats can make a dramatic improvement in a home’s energy efficiency and can lead to bill savings—we want people to save money, as well as have a warmer home. They have not been supported by the scheme, even though they can save people substantial amounts. The purpose behind the scheme is to do something to drive down the cost of those products so more people can buy them, benefit from the energy efficiency savings and potentially invest their own money in the scheme if they can afford it.

[Dr Whitehead]

Will the Minister reflect on whether the cost per treatment of the innovations she is talking about has overcome the more than 50% loss in funding for ECO schemes since they were first introduced?

[Claire Perry]

If the scheme can pivot away from extremely expensive, highly interventionist measures, and deliver many more measures that in aggregate have the same cost, that would be a good outcome. The hon. Gentleman says that the Labour party has all these grand plans, but I see no evidence, as always with the Labour party, about how they will be paid for and who will bear the burden. He and I spent many a happy hour debating the price cap Bill. We know that consumers want warm homes and the eradication of fuel poverty, but do not want to overpay for their electricity or gas. I have a sneaking suspicion that the Labour party’s uncosted plans would inevitably lead to whacked up consumer bills and taxes.

[Dr Whitehead]

indicated dissent.

[Claire Perry]

But no one has ever said how Labour will pay for any of this stuff—including the shadow Chancellor—so it is all ambitious pie in the sky as far as I am concerned. What we need to do is to balance continually the cost of what we are doing, the carbon dioxide reduction and the competitive advantage, because by solving our own problems in the UK we can help to solve the world’s problems.

Unlike the Labour party, I do not have a quiver full of magic arrows and the promise of a unicorn at the end of every garden. What I have is a serious and sober set of policies, based on regulation. As the hon. Gentleman knows, we have already regulated for an improvement of the energy efficiency of the worst-performing private rented homes in the market. Those regulations are in force, and we think they will have a material impact.

We are rolling out the world’s biggest smart meter programme. Why do people get smart meters? Because they want to take control of their energy, and because smart meters help them to reduce their energy consumption. By the end of 2020, every home in the country will be offered a smart meter, or an upgraded smart meter if they already have one, to ensure that there is no interruption of data.

We are investing our own money. Sorry—the Government do not have any money of our own; it is always other people’s money. That is another lesson for the Labour party. We are investing other people’s money in energy efficiency measures in many parts of the housing stock right across the country. I am also told that increasingly large sums of money are coming particularly from pension funds and other private sector investors who want to invest in such things because doing so is good for their investment return.

I want to create markets that invest in the right sorts of technologies and that bring in the greatest amount of capital. The hon. Gentleman knows, although his Front-Bench colleagues do not, that Governments can never take enough in taxes or control enough of the economy to make a difference by themselves. We always have to incentivise others to innovate and to invest. Another quiver in our bow is the £2.5 billion of innovation money that I am putting into the smart energy space over the course of this Parliament—money that is targeted to get costs down, get carbon down, and build a competitive advantage.

I am disappointed that I am unable to persuade the hon. Gentleman to support what I think is a very sensible set of measures, which manage not to overburden consumers, who are paying for them, and manage to take a scheme that has for too long not focused on helping those who are in the worst financial straits or living in fuel poverty, often in rural areas, and will then drive up innovation and the level of local flexibility, which will mean that the scheme is better targeted.

I conclude by addressing the point made by the hon. Member for North Ayrshire and Arran. We already have many co-operative energy companies running south of the border. There is no barrier to one being set up. If an energy company wants to start up and focus entirely on that issue, that is absolutely fine. She knows that I applaud what is being done by the devolved Administrations, but energy bills and large amounts of energy policy are set and, in many cases, paid for by Westminster taxpayers. It is good to see the innovation, but she should never forget who is actually paying for much of the innovation that we are seeing north of the border.

Wylfa Nuclear Power Project: Taxpayer Liability for Safety

Debate between Alan Whitehead and Claire Perry

Tuesday 24th July 2018 Westminster Hall

[Claire Perry]

The hon. Gentleman is right, but we should start from where we are on energy policy. There is a role for further decarbonising gas to keep it in the mix, which is why I am keen to investigate, using excellent environmental standards, the potential contribution of onshore shale gas. [Interruption.] He is chuntering; he may not agree.

We have an independent regulator, the Office for Nuclear Regulation, which has scrutinised the proposed reactor design for Wylfa. The design has received design acceptance, which means that all regulators are satisfied that the reactor meets the regulatory expectations on safety, security and environmental protection at this stage of the process.

The hon. Member for Southampton, Test invited me to talk about the media reports—he is doing better than I am if he is reading the Japanese newspapers. I reassure him that any operator in the UK is required to obtain insurance to fulfil their financial responsibilities in the event of an accident, and as he referenced, international treaties, such as the Paris and Brussels conventions, provide the framework for the management of nuclear liability in the UK.

This deal will be no different. I emphasise that we are still going into negotiations and having conversations—we have not done the deal yet—but we are absolutely clear about the commitment to insurance for any form of accident. Not putting decommissioning liabilities on the taxpayer, as the hon. Member for Ynys Môn pointed out, is also part of those calculations. I agree with him that we did not think hard enough about that in the past; successive Governments had not worked out how to include those liabilities. We have learned, however, and we are moving forward with that.

Before the reactor can be built and operated, it will need a nuclear site licence. Wylfa will also always be subject to environmental permitting through Natural Resources Wales. A development consent order process that will run under the Planning Act 2008 will scrutinise the construction and operation proposals for the project.

The Energy Act 2008, passed by the Labour Government, introduced the funded decommissioning programme that moved the dial on who pays for decommissioning liabilities. It is now the case that all operators of new nuclear power stations are legally required to have secure financing arrangements in place to meet their full share of the costs of decommissioning and of waste management and disposal. We are absolutely committed to managing radioactive waste safely, responsibly and cost-effectively for the long term, but also to looking at other opportunities to reprocess some of that waste, as the hon. Member for Glasgow North East said. We will not repeat past mistakes where the taxpayer had to foot the bill for decommissioning.

There were some questions about liability in the event of an accident. I am happy to say that the last significant incident was the Windscale fire in 1957, and we are light years away from that plant in terms of nuclear operating technology and the safety regime that we operate. The Nuclear Installations Act 1965 makes the insurance that I mentioned a requirement, without which operators cannot operate. As the hon. Member for Southampton, Test mentioned, we also have legislation based on the Paris and Brussels conventions. If the total cost of claims ever exceeded €1.2 billion, a further €300 million would be provided by all contracting parties to the Brussels supplementary convention. Any further claims above that total would be met at Parliament’s discretion.

The only liability-based agreement with Hinkley Point relates to insurance failure, and the Government will provide an insurance product in the event that one cannot be obtained on the market. I am not in a position to comment on what might be the case with Wylfa, but I emphasise that the operator of the plant at Wylfa will have the same obligations as all other nuclear power stations and installations in the UK, and will be required to fulfil those obligations in the event of an incident.

Hon. Members have asked about what happens with the Brexit negotiations. Nuclear safety is and always will be our top priority. We will continue to apply the international standards on nuclear safety specified by the International Atomic Energy Agency irrespective of our future relationship with Euratom. I emphasise that we want a close association with Euratom: a new relationship that is broader and more comprehensive than any existing agreement between Euratom and a third country. The Nuclear Safeguards Act 2018 provides the reassurance of a backstop in the very unlikely event of any changes.

Alongside that, the UK is negotiating nuclear co-operation agreements to add to those already in place. On 4 May, we signed a bilateral NCA with the United States, and we have further arrangements with Japan, Canada and Australia that are also on track. Those relationships facilitate the sharing of best practice in terms of nuclear operations and liability management. As I said, we are considered to be a proud leader internationally in the field of nuclear safety and regulation.

Further investment will bring huge benefits through innovation. My right hon. Friend the Secretary of State travelled to Wales to launch the nuclear sector deal on 28 June, which was a fitting setting to underline how the nuclear industry provides economic opportunities across the UK, particularly in more remote areas, as we have heard from many hon. Members. The nuclear sector deal is worth more than £200 million. It focuses on innovation and skills, which we can then use to export, and by striking it we aim to ensure substantial cost reductions across the nuclear sector, to ensure that the sector can remain competitive with other low-carbon technologies, because I constantly have to balance all investments with the potential pressure on consumers’ bills.

[Dr Whitehead]

It would be really helpful if the Minister were able to indicate, either today or very shortly, when she will be able to place on the record the shape of the negotiations on Wylfa—the main components of the negotiations, what has already been agreed in principle and what remains to be discussed. I do not know whether she can do that in the near future, but it would be helpful if she could indicate at an early stage when it might be possible.

[Claire Perry]

I appreciate the hon. Gentleman’s desire for transparency, but obviously I cannot do that, because doing so would prejudice negotiations that are ongoing. He will know, based on his long experience, that there is an interplay of costs, of contracts for difference numbers, and of potential asks from the UK Government and from shareholders, and these negotiations are long and complicated.

Part of the challenge, if you like, with large-scale nuclear is that a very large, up-front cost is associated with it; it is a very capital-intensive investment, although one that we want to make for the reasons I have mentioned. However, the conversation that we had earlier was about small modular reactors, which require less up-front investment, have more flexibility and allow us to invest in multiple sites, which are reasons why such reactors are so attractive; they allow us to spread those up-front costs much more widely.

In conclusion, this debate has been a very good opportunity to emphasise again the value of nuclear in our energy mix; to reassure people in this House and elsewhere that the UK Government will not make energy policy based on ideology but will soberly assess the cost, the innovation, the carbon and the security as we go forward; to celebrate the fact that we have one of the most robust nuclear safety regimes in the world, including world-leading independent regulation; to note the fact that people are hungry to see the details of the Wylfa deal and I will make sure that my right hon. Friend the Secretary of State, who is of course conducting those negotiations on our behalf, is aware of that; and, essentially, to reassure the House and others that—as is the case with all other nuclear generation in the UK—Wylfa will be a safe source of energy and one that minimises any form of liability being borne by the taxpayer.

Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Alan Whitehead and Claire Perry

Wednesday 18th July 2018 Commons Chamber

[Claire Perry]

My hon. Friend uses his great experience in this area to point to this being two halves of an equation in making sure, first, that energy is going into a property at the lowest possible price, and secondly, that consumption is as low as can be.

With ECO now at over £600 million, we are targeting that entirely at fuel poverty. The consultation has closed and we have the responses to come out. There is the whole challenge of getting energy efficiency levels up so that, overall, households are more energy-efficient. I am looking at the hon. Member for Neath (Christina Rees) on the Opposition Front Bench. I very much enjoyed a visit to her constituency to see an energy-positive home. That is an incredible innovation funded by her local excellent councillors, looking at how to design homes that return energy to the grid and are cool and lovely to live in. That is the kind of technology and innovation that we want to see.

I hope that we can all agree on this amendment, send it up to be agreed in the other place, and get on and pass the Bill before this place rises, because the regulator has told us that it will need up to five months to calculate the mechanism. It is absolutely vital, as my hon. Friend the Member for Wells (James Heappey) said, that that mechanism is absolutely watertight so that energy companies do not seek to frustrate further the introduction of this measure. We want it in place by the end of this year so that people can start saving on their energy bills this winter.

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

Labour Members are delighted that the Bill to institute an absolute price cap on energy costs is about to pass into law, mechanisms notwithstanding, this afternoon. We are delighted because of the parentage of the Bill, which emanates from the Labour Benches. If hon. Members are worried about the authenticity of the parentage, I can produce a birth certificate: the motion that was debated in this Chamber on a Wednesday afternoon, at exactly this time, on 6 November 2013. It said:

“That this House calls on the Government to freeze electricity and gas prices for 20 months whilst legislation is introduced to ring-fence the generation businesses of the vertically integrated energy companies from their supply businesses, to require all electricity generators and suppliers to trade their power via an open exchange, to establish a tough new regulator with the power to force energy suppliers to pass on price cuts when wholesale costs fall, and to put all over-75-year-olds on the cheapest tariff.”

That motion was in the name of my right hon. Friend the Member for Don Valley (Caroline Flint). When it was debated that afternoon, it did not, I have to say, receive a terribly positive response from the Government of the day.

draft Oil and Gas Authority (Offshore Petroleum) (disclosure of protected material after specified period) regulations 2018

Debate between Alan Whitehead and Claire Perry

Tuesday 17th July 2018 General Committees

[Claire Perry]

Would it not be nice to have that running through all debates? As always, the hon. Member for Southampton, Test has asked some sensible questions. The information that I have been provided with suggests that the OGA has consulted industry extensively on the periodicity of the provision of information. Further guidance will be forthcoming if people want it.

The hon. Gentleman prompted a question in my mind, which was, what happens if a person who requests information disagrees with the period for which that information is retained? Basically, appeal provisions are set out in the Energy Act, which he sat through in Committee, that say non-compliance with a reporting notice is sanctionable. The OGA has dedicated compliance personnel who already ensure compliance with other aspects of information and samples powers, and it can set a deadline for the provision of information with which companies must comply. I hope that answers his sensible questions.

[Dr Whitehead]

I would be grateful for clarification on one more point. As is set out in the regulations and the guidance, the Minister mentioned that the OGA is not required necessarily to publish according to the lines that are set out in the regulations and that it may not publish as a result of representations by companies that say there would be particular problems.

Unless there is subsequently some form of code that relates to that, the OGA could put itself in the situation of not recording the circumstances under which it has declined to publish something that it should have done, or, if it has declined to publish something that it should have done, what its justification for doing so was. That might make some of those actions actionable, if someone wanted something to be determined according to what the regulations had set out, but the OGA had declined to publish it for reasons that it had not put forward. There may already be guidance on that, but if the Minister could assure me on that point, it would be helpful.

[Claire Perry]

It is an important question. Essentially, the OGA has to pay attention to the objective of maximising economic recovery. It is therefore a judgment question for it as to whether it makes information available. We have now set out more guidance on the timeframes, depending on different sorts of information, but it may make a judgment that it will not publish because it would inhibit the delivery of that objective. For example, a field or licence report that might be subject to a shorter reporting period could contain confidential seismic data that is subject to a longer protection.

The hon. Gentleman will know from his time on the Energy Act Committee that many of those compliance and appeal requirements were set out in that Act. I will ask the team to draft a note to him so he can be satisfied that that power of judgment is being exercised correctly and that appropriate appeal routes are in place if there is a sense that it is not.

It is always a pleasure doing business with Her Majesty’s official Opposition, because we have a thoughtful discussion. It is rather disappointing that Scottish National party Members never bother to show up to debates about this vital industry these days. Luckily, I have my hon. Friend the Member for Dumfries and Galloway behind me, but, if I may be so partisan, having a political party that does not effectively represent the most economically valuable industry in that geographical area is disappointing. With those remarks, having hopefully reassured the hon. Member for Southampton, Test on his good questions, I commend the regulations to the Committee.

Question put and agreed to.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 17th July 2018 Commons Chamber

[Claire Perry]

I can only refer to the comments of my right hon. Friend the Secretary of State. We want to provide a balanced, secure energy supply that keeps bills down for consumers. That is why we will be investing in nuclear. We have invested in many forms of renewable energy. In fact, we are now leading many parts of the world in that investment, and we will continue to do so.

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

Solar PV installations this year will be running at just 2% of their peak rate in 2011. This is certainly due to the downgrading and forthcoming closure of the FIT scheme in March 2019. As the Minister has mentioned, a consultation on FITs has now been promised for a year. It was supposed to have been published by this recess; now it is not. Why is the Minister fiddling about the future of FITs while the solar house burns down?

[Claire Perry]

Such alliteration, despite such late nights. The hon. Gentleman will know that we have been really successful in pulling forward a huge amount of solar. In fact, solar has contributed enormously to the energy mix over the past few days, as the hon. Gentleman will know. Much of it is not recorded because it sits behind the meter. However, I acknowledge his point. We intend to bring forward a scheme that works, that does not put up bills for consumers and that acknowledges that much of our renewable future will be subsidy-free.

Draft Renewables Obligation (Amendment) Order 2018

Debate between Alan Whitehead and Claire Perry

Monday 2nd July 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Wilson.

As the Minister set out, the order essentially deals with a very narrow point of policy relating to biomass conversions and biomass production. It is about stations that have converted from coal to biomass and are receiving renewables obligation certificates—in other words, they converted before the ROC period came to an end. As the Minister said, there are no more stations in that category because, although the ROC programme is continuing for another nine years, it has been closed to new applicants since the arrival of contracts for difference on 31 March 2017. The order is about existing conversions that have an expectation of the number of ROCs they would receive as a result of their power generation. It contains a proposal to limit the number of those ROCs. As the impact assessment for the order states,

“The policy objectives are to protect the”

levy control framework

“and limit the costs to consumers of additional unforecast RO spend on biomass conversion and co-firing.”

The Minister made a customarily comprehensive case about the order’s purpose, but I am not sure it is likely to do what is says on the tin. Will it really protect the LCF and limit the costs to consumers of additional unforecast RO expenditure, as described in the impact assessment, the explanatory memorandum and the Minister’s statement? I ask that question because the order is founded on renewables obligation certificates, but it talks about the money potentially spent or saved in relation to the levy control framework. Those are not quite the same things, and I will try to shed a little light on why.

Renewables obligation certificates came into place in 2002. As we have mentioned, no new ROCs are issued now, but during the period of their life, they were created as a result of agreements that were set out with various renewable power plants to provide a varying number of ROCs per megawatt-hour of electricity produced. In that sense, they are a little like bitcoin, inasmuch as they have been mined, produced and then are in existence as a result of the activity of producing energy, but they have no value in themselves. They can obtain value as a result of being bought, as the Minister said, by bodies that are obligated by the ROC system to provide evidence that they have supplied a proportion of their output from renewable power.

Such bodies can do that in two ways. First, they can show at the settlement point a number of ROCs from their own generating activity that coincides with their obligation level—and if they do that, their obligation is met. On the other hand, if they have a shortfall, or do not generate any power from renewable sources, those suppliers would have to meet their obligation via another route, in one of two further ways. Either they pay a buyout price for their ROC shortfall—the price will be administratively set by Government at a substantially higher level than the likely traded prices of ROCs—or they purchase from the companies that have created the ROCs enough ROCs to meet their obligation level.

That, of course, is what gives ROCs their value and places money in the hands of the renewable generators who have invested money in their projects with the expectation that, in part, their project will be underwritten by the proceeds of ROC sales. However, a question then arises: what is likely to be the actual value of a ROC? It is that value that is paid by the supplier and that impacts on customer bills. It impacts on the levy control framework—that is, a controlled total for the amount that can be spent on underwriting for renewables over successive five-year periods. It is not money that is actually spent, because it is money that is effectively supplied by consumer bills. Of course, that is real money as far as consumer bills are concerned, but it is to be regarded as an imputed tax and spend by the Treasury, so it is as if extra taxation had been raised and then charged against the levy control framework. That levy control framework is the subject of the order, inasmuch as the Government’s imputed tax and spend within that framework has been running ahead of what that framework suggested it should be. Measures have therefore been taken to try to get it within the overall framework.

The next question that arises is whether the way in which ROCs are valued is easily coterminous with what it is the Government are trying to do about maintaining those levy control framework levels. This is the key bit. If the value of a ROC is high, that will result in more putative tax and spend, and hence more cost against the levy control framework. If the value is low, it results in some, but less, cost against the levy control framework.

How does that value rise and fall? Essentially it comes from two elements. First, there is the headroom that the Government have built into the system. That is the level of obligation suppliers have to meet. That is, or should be, adjusted to remain ahead of the supplier ROCs so that they retain value, and so that the generators are rewarded for their efforts. The headroom sits in the system and will have a central effect on ROCs’ values. That is, if the headroom is set very high—10% above the current level of the ROCs—then, with the obligation up to a relatively high percentage of the power supplied by a supplier, the ROCs will gain value, because people will chase more of them to cover their obligation requirement. If the headroom is reduced, the value of the ROCs drops. Furthermore, the more ROCs in the system, even within the obligation level framework, the easier it is for suppliers to obtain them to meet their obligations. In other words, if more ROCs chase a set amount of obligation space, the price will reduce.

How does that relate to what the draft statutory instrument seeks to do? It wants to cap the number of ROCs for particular plants operating biomass and bioliquid methods of producing electricity. That retrospectively alters the terms under which those companies undertook a build for biomass or a conversion to biomass of a plant that previously burned coal. Changing retrospectively the terms of scheme is exactly what caused the 2015 hiatus when the feed-in tariffs for solar were dropped. In this instance the situation is worse, because although dropping those FITs affected the development of new solar, it did not affect the remuneration of existing plants. The draft order seeks directly to affect the planned remuneration of existing plants by shifting the goalposts after agreement has been reached.

That is why a number of affected plants that had converted from coal to biomass told the consultation that the changes would make them—at least for the foreseeable future, and presumably until the Government outlaw coal from the system—produce electricity from coal and not from biomass, since the terms of the altered system are such that it will be economically less advantageous to generate power from biomass and economically more advantageous, relatively speaking, to produce power from coal, which I thought the Secretary of State was against. Indeed, the Minister and I have agreed considerably on the need to remove coal from the system. It would be a particularly perverse outcome of this instrument if we increased, rather than reduced, the amount of coal being used to produce power in the system over the next few years.

That, however, is the collateral damage, as it were, of a less than perfect measure. The Government tell us that the real effect of the cap on ROCs for those companies is that it will take the pressure off the levy control framework. The impact assessment explains at length just how much a cap will save. It suggests that doing nothing means expenditure of between £55 million and £320 million, whereas under this draft instrument the range is between £5 million and £20 million.

It will not, however, necessarily do that. Capping the number of ROCs that can be issued by plants would have a potential effect on the number of ROCs available for purchase. The effect would therefore be to increase the value of the ROCs that will be available. The amount of money paid out for them, which would be regarded as putative tax and spend, would go back into the levy control framework. That would not change the overall effect very much, although that depends on the proportion of the total amount of ROCs available and the plants affected, which the impact assessment does not address.

The fine and detailed calculations made in the impact assessment, which are in the SI and the explanatory memorandum, do not add up to a hill of beans unless done properly against what the countervailing effect of having fewer ROCs in the system would do to the overall cost to the levy control framework. I do not know what the exact effect would be, but it does not appear to have been well worked out. In principle, it possibly delivers the wrong mechanism—saving costs to the levy control framework as far as ROCs are concerned.

Far be it for me to advise the Government on what to do about the ROCs system, which undeniably through its trading mechanisms causes costs to consumers and the LCF total, but in terms of a mechanism that would have an effect on those costs it might be worth—

[Claire Perry]

Will the hon. Gentleman accept an intervention that might provide him with some comfort and save us a bit of time? His suggestion is that if we had a totally free market with an infinite number of ROCs and a price-setting mechanism based on demand and supply, by capping the number of ROCs, prices will go up and the overall value will be the same. However, the obligation is set annually. Therefore, in effect, every year a certain number of ROCs are issued, taking into account that fewer ROCs in the system would have an impact on that level. The ratchet will come down based on there being fewer ROCs in the system. It is not a completely dynamic system—there is that annual setting of the absolute number.

[Dr Whitehead]

I thank the Minister for that intervention. Unfortunately, the annual settlement for the amount of ROCs compared with headroom took place last October.

[Claire Perry]

It happens every year—now until 2027.

[Dr Whitehead]

Indeed, it happens every year, but the system will not rectify itself in any way until about one and a half years after the order is in place. Therefore, if ROCs are fewer in number and increase in value, the workings carried out may not have the effect that the Minister or the officials who drew them up think they will have, because of how those values relate to scarcity or abundance as far as possible purchases are concerned.

I was going to mention, as the Minister did, the headroom for ROCs. If one looked at the relationship of headroom to the number of ROCs in circulation, one would certainly see that having a depressing effect, but it would have a much wider effect on the whole of the market. As a result of our, I accept, quite lengthy expedition of how ROCs work, work against each other and may or may not work up to the levy control mechanism, does the Minister really think that the order will work as she has described? Given the lack of an assessment of a possible countervailing effect from a reduction in ROCs because of how the system works, might it not be a good idea to take that away and have another look at it, to see whether it will work as well as she thinks and whether any action on headroom figures might have an equal effect, as I have just described? The countervailing effects of the headroom recalculation might be worse than the proposed measure.

I am not drawing any conclusions. I am stating that it does not appear that all the factors relating to how ROCs work have been taken into account in the calculations. I would not like to see us pass legislation that does not do that properly and that possibly draws us into areas where we think we have done something about the system, but actually we have done something rather different.

Geothermal Energy

Debate between Alan Whitehead and Claire Perry

Tuesday 19th June 2018 Westminster Hall

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

I congratulate my hon. Friend the Member for Bishop Auckland (Helen Goodman) on securing this important debate and on putting her case with such clarity and precision. After what she found out about geothermal during her research for this debate, I am sure she will agree with me that it is indeed Britain’s forgotten renewable. It is not forgotten because it is not feasible or because it does not bring tremendous benefits. It is forgotten simply because no one has done much about it, even though that resource is under our feet in many parts of the country and is relatively easy to access. When that resource is accessed and developed, it provides potential free heat and power, probably for 100 to 150 years, as a result of a single borehole drilled down into the ground to unleash it.

Why it should be forgotten is a source of puzzlement to me, because it is a universal and beneficial renewable. Some people may regard deep geothermal as not quite renewable, in that if there is drilling into a deep geothermal aquifer, the aquifer, in theory, depletes over time. However, if water is being raised from the aquifer at the typical temperature level in the UK of about 73° or 74° Celsius, that resource will deplete at only 1° in heat per 100 years. Yes, it depletes a bit, but it is not exactly calamitous—unlike, one might say, drilling a fracking well, where the well depletes after about eight years.

[The Minister for Energy and Clean Growth (Claire Perry)]

Such a fact-free debate.

[Dr Whitehead]

No, it is a very factual debate—that is the difference.

The geothermal potential of the country is enormous, and the hon. Member for Falkirk (John Mc Nally) set out what the potential would be, in electricity and heat, for the UK were we to proceed seriously with geothermal energy. Perhaps a limiting factor is the fact that geothermal energy is not available everywhere in the country. We need to be clear about the fact that deep geothermal is available on the basis of three different kinds of site. Basins with very ancient water at the bottom are one kind of site. Another kind, which require slightly different technology, are areas with radiothermal granite batholiths. I believe that the Minister, as a first-rate geographer in her time, will know all about batholiths and lopoliths and various other things. We have quite a lot of radiothermal batholiths in the UK, with naturally occurring radioactive-based heat coming from deep within the earth’s crust. Another kind of site relies on the availability of technology to release heat by putting water down one pipe and up another, giving geothermal as a result.

As my hon. Friend the Member for Bishop Auckland mentioned, lower-temperature geothermal resources arise from abandoned mine workings. With heat-concentration techniques that is not a problem, in terms of concentrating the heat to get into production either for heat distribution or, indeed, for making steam to generate electricity.

As hon. Members have kindly mentioned, I have an interest in the debate because I think I can claim to be the only sitting Member of Parliament who has directly set up a geothermal energy scheme. I know a little, therefore, about how it all works. That scheme is based, as has been mentioned, in the middle of Southampton in a not particularly prepossessing shed, with a small wellhead in the carpark of the former Toys R Us store. That unprepossessing setting hides a well, drilled to about 1,800 metres. Water comes up at just over 70° Celsius and is converted into the material for a district heating scheme by a heat exchanger and concentrator. Now Southampton has a city centre district heating scheme with some 17 km of pipes, covering the university, the civic centre, the country’s only geothermally heated hypermarket and a five-star hotel. In other words, there is a complete city centre arrangement, heated substantially by geothermal energy. Not only that, but it has been heated in that way on an untroubled basis since 1987, and will continue to be so until 2087 on present estimates of what may be available. That is the potential, in practice, for geothermal energy.

Draft Scotland Act 2016 and Wales Act 2017 (Onshore Petroleum) (Consequential Amendments) Regulations 2018

Debate between Alan Whitehead and Claire Perry

Monday 4th June 2018 General Committees

[Dr Whitehead]

I am sorry, but I thought the Minister was finishing her comments about bringing together the various pieces of secondary legislation relating to Wales with the commencement of the Act, but I assume she has something to say about an additional negative instrument that is to come.

[Claire Perry]

I am happy to clarify. The Wales Act 2017 provisions overall commence on 1 October 2018. I have been informed that there is one additional statutory instrument for Wales. I assume we will have to detain our colleagues one more time to ensure we have all the relevant pieces of legislation in order for the Wales Act to commence. I am looking forward to a final conversation about that. Clearly, it is right to ensure that we have the correct licensing provision flowing to the devolved Administrations, to fulfil the commitments made with our various commissions.

The hon. Gentleman asked a series of questions about what was on and offshore. I am happy to write to him to clarify further. I am told that the Territorial Sea Act sets baselines and that within 12 nautical miles is regarded as onshore.[Official Report, 19 June 2018, Vol. 643,c. 1MC.] Outside that is territorial sea. We are transferring functions only in the onshore areas. He will ask what happens if there is a field that straddles both; I assume that there will be joint responsibility. We may have to debate that at a later date. If he is not satisfied with that answer, I am happy to go away and see if there is more information that I might be able to give him.

I cannot read what has been passed to me by my officials, so we will have to leave it there, unless the hon. Gentleman has any further questions. If not, I commend the regulations to the Committee.

Question put and agreed to.

Draft Offshore Combustion Installations (Pollution Prevention And Control) (Amendment) Regulations 2018

Debate between Alan Whitehead and Claire Perry

Tuesday 22nd May 2018 General Committees

[Claire Perry]

I try my best every time.

[Dr Whitehead]

It really did sound quite interesting as a result. I say that because these are particularly dense regulations—dense in the sense of close-packed. Essentially, as the Minister has said, they are the process of transposing European directives into UK legislation, which I notice that we were supposed to have done under the directives by 19 December 2017. We are a little behind time and, should we get an extension of our leaving point of Brexit, issues could arise from that.

[Claire Perry]

I am always amazed by the hon. Gentleman’s ability to get Brexit into every conversation and I take the chastisement. Of course, we would not want to detain the Committee any further by delaying these regulations today.

[Dr Whitehead]

That is absolutely right. Let me make it clear that it is right and proper that we transpose the directives in the way the Minister has described, particularly in terms of the newer circumstances now in place offshore, which were not the case in 2013 when the original regulations came into place.

We have no issues with the process being undertaken. It seems to be a thoroughly sensible and well worked-out process. I am glad it now covers the installations operating in the North sea in the way the Minister has described. Indeed, she mentioned the two larger offshore plants—over 50 MW—and the existing 13 smaller offshore plants that will be covered by the transposition of the medium combustion plant directive.

I would like some brief clarification on a few points relating to those plants and how the regulations apply to them. First, the regulations include a phased implementation for both the IED and MCPD requirements on the point at which plants will not be deemed to be compliant and could be chased for enforcement on not being compliant. The regulations state that existing plants with a thermal input of greater than 5 MW will require a permit from 1 January 2024 and those with a thermal input of greater than 1 MW but equal to or less than 5 MW will require a permit from 1 January 2029.

I have two observations about that transposition. In fact, that grace period—as it were—before compliance is deemed to be necessary is not a transposition but a choice we have made in UK legislation. Strictly speaking, it does not relate to those two directives, and the ranges for the permits are different from those covered by the directives. The IED covers plants of over 50 MW and the MCPD covers plants of 1 MW to 50 MW. We therefore now have a different compliance regime here from that in the two directives. The question is, therefore, which side of our compliance line do the plants that we have mentioned—the 13 covered by the MCPD and the two by the IED—fall? For example, are all the plants listed as being covered by the MCPD under 5 MW? If so, they will have a long period before they require a permit. If they are mostly above 5 MW, the period for them is the same as for those covered by the IED.

The date of 1 January 2029 sounds like a very long way away and a long grace period as far as compliance is concerned. Can the Minister give further elucidation on why that period was chosen? If the smaller plants are all more than 5 MW, it may be that it does not cover anything; in which case, it is an academic exercise. That may well not be the case, but we have not had elucidation on that, which would be useful.

Secondly, are all the smaller plants external or internal? They are all present on rigs in one way or another, and clearly the larger plants will all be external, but the smaller plants could be partly or completely internal to the rigs. If that is the case, further safeguards may need to be considered for their operation. The Minister mentioned, for example, that there is no limit on carbon monoxide emissions, which could be relevant should those plants be internal.

Thirdly, to what extent do the draft regulations sit alongside or in any way supersede or otherwise replace the regulations that the Department for Environment, Food and Rural Affairs has made under the IED concerning concentrations of emissions from diesel plant generally? I assume that it is mostly diesel plant on the offshore rigs, and that might well be covered by the DEFRA regulations as well. I am not clear from what we have before us whether there will be any dual or cumulative effect from passing both sets of regulations.

My final question is on penalties. I assume that the penalty regime that we discussed last week is the one that will apply as far as the plants are concerned, but how does it relate to the penalty regime that was in the 2013 regulations? That 2013 penalty regime has been left virtually unamended by the draft regulations before us. If hon. Members refer to the 2013 regulations, they will find little to enlighten them, in as much as the penalty regime relates simply to the maximum penalty provided for in statute, and that appears in principle to have been superseded by the penalties in the regulations that we discussed last week. Will the Minister confirm whether that is the case? Have the regulations from last week in effect produced another layer on the draft regulations before us through assumption of that penalty regime? If not, is there any necessity to look further at what the penalty regime in the 2013 regulations refers to, so that it is fully compliant with what has been put forward in the new regulations before us?

I hope that my bowling this afternoon will have been regarded as fairly easy. I look forward to hearing from the Minister what she has to say about those particular points, with a view to making the draft regulations as good as we can get them.

Draft Offshore Environmental Civil Sanctions Regulations 2018

Debate between Alan Whitehead and Claire Perry

Tuesday 15th May 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Ms McDonagh. I have read the proposals carefully. My understanding is that, as the Minister set out, the plan in essence is not to create a further series of offences—indeed, the statutory instrument does not create any new offences—but to attach a series of civil penalties to the existing penalties so that there is a range of civil remedies available to OPRED in addition to the criminal remedies available to it under existing legislation.

There are two kinds of civil penalties for offshore breaches of environmental regulations: fixed penalties, ranging from £250 to £5,000, and variable penalties, ranging from £500 to £50,000. The distinction between those ranges is considerable, but the fixed penalties clearly would be very minor for companies found guilty of a breach.

[Claire Perry]

Will the hon. Gentleman accept a clarifying intervention? My officials have provided me with a helpful table, which sets out the offences to which the civil sanctions will apply—the underlying regulation, the offence and the proposed level of sanction. I am happy to share that with him and with other Committee members who are interested, if that would help.

[Dr Whitehead]

I thank the Minister for that helpful intervention. I was attempting to establish the range of penalties that will be available under the new regime. It would be helpful to have that additional information, but the penalties basically fall into the two categories I mentioned—one with a minor range and the other with a rather more major range. Nevertheless, the top of the range of variable penalties is £50,000.

In addition to what the Minister has told us, the explanatory memorandum published alongside the SI deals with why it is claimed those penalties are needed. It states:

“The need for the instrument has arisen due to a number of contraventions of environmental Regulations going unpunished as a result of OPRED’s lack of a proportionate enforcement response. The introduction of instrument will provide a more flexible, timely and proportionate enforcement tool by conferring on OPRED the power to impose civil sanctions on operators who are found to have breached existing environmental Regulations.”

It also states, as the Minister mentioned, that prosecutions

“are costly and time consuming and ultimately, the decision whether to bring criminal proceedings lies with external prosecuting authorities, not OPRED.”

That gives the impression—my hon. Friend the Member for Wallasey pressed the Minister on this—that a number of contraventions are going unpunished. It appears that they are happening but, because OPRED either is too busy—it is snowed under with other work—or does not have a proportionate enforcement response, they are not being prosecuted. It would be helpful, either now or for future reference, to hear a little more about exactly what those unprosecuted contraventions consist of. My hon. Friend made an excellent effort to pin that down, but I do not think we got very far with that question.

That is a puzzling question in the context of a number of oddities with the proposed procedure. As far as I understand it, the procedure is not supposed to substitute offences and civil penalties of a different order for those that are in place at the moment. It specifically does not do that. The idea that a number of offences go unpunished because they are below the radar of criminal prosecution therefore appears to be gainsaid by the structure of the new arrangements.

The explanatory memorandum states:

“The instrument does nothing to change the burden or standard of proof in relation to the offences, so civil sanctions will only be imposed where OPRED is satisfied that a prosecution could have been pursued.”

In other words, the civil sanctions will be the punishment for an offence that could have been subject to prosecution and the present criminal sanctions available to OPRED, and it would be OPRED’s choice to impose those civil sanctions. The new regime will not be able to spot and punish a series of under-the-radar offences; rather, the existing criminal sanctions regime will continue, but with a series of new penalties on top. That is one oddity of the proposals.

One could conclude that this approach is being taken in the belief that a fixed penalty regime enables us to, as it were, stick notices on the windscreens of offshore operating companies, thereby making life easier all round, and that some of the offences that have been scooped up under the existing regime are not really as bad as all that, so a small fixed penalty of a few hundred pounds should do the trick. I am sure that that is an unfair characterisation, but it is an interpretation of some of the consequences of the new regime.

It also sounds like the particular issue of environmental offences committed in the North sea and elsewhere is not that great, so a new regime will cope better with an overall downsizing of what we think we are doing in enforcing regulations on companies. Moreover, OPRED is extremely busy and does not have a proportionate enforcement response; prosecutions are costly and time-consuming; and the measure fills a gap in a very busy schedule.

OPRED already has enforcement notices under its belt. The Minister mentioned a number of OPRED enforcement notices over the past year or so, but what, on a broader canvas, has OPRED been doing recently regarding those offences? She helpfully set out for us the number of prosecutions that could have been considered for possible breaches, but I have here the actual notices and prosecutions carried out by OPRED over the year prior to May 2017. It issued five enforcement notices under the Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005; two under the Fluorinated Greenhouse Gases Regulations 2015; and a further improvement notice. That is eight notices all together, with one prosecution completed and three further cases referred to the relevant prosecuting authorities.

OPRED did not, therefore, have a massive burden of prosecutions and enforcement notices under its belt during that particular year. I hope the Minister will explain whether she believes that that level of activity amounts to the crippling burden suggested by the explanatory memorandum, which has been used to justify the new regulations.

It is also interesting that OPRED already has a range of civil penalties available to it for environmental pollution and breaches of regulations related to environmental stewardship. Surprisingly, they are not mentioned in the notes accompanying the SI, but OPRED has been active on notices under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, which provide for substantial civil penalties for breaches such as failure to comply with a condition of a permit; failure to pay a penalty for exceeding an emissions target for an excluded installation; under-reporting of emissions from an excluded installation; failure to comply with a condition of an emissions plan, a direction relating to an operating ban, an enforcement notice or an information notice; and providing false or misleading information.

Those are civil penalties for breaches that in many cases mirror the sorts of things listed in the SI under discussion. OPRED has been quite active in pursuing penalties under the 2012 regulations: hon. Members will be interested to know that in 2016-17 no fewer than six civil penalties were issued, and fines of more than £900,000 were collected as a result. That suggests that OPRED is already quite active in pursuing civil penalties for breaches of regulations under legislation that is inexplicably completely absent from our discussions this afternoon.

I hope that the Minister will clearly tell the Committee that she considers there is no danger that the introduction of new penalties will lead to the downgrading of enforcement, particularly environmental standards enforcement. Also, I hope she will indicate that in future we will be able at the end of each year to see in full the working of the breaches that have occurred and how they have been dealt with, as a matter of regular record. Then we can see on a continuing basis that such downgrading is not happening.

Perhaps the Minister will also inform us what is to happen to the existing civil penalty regime under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, as a result of the introduction of the new penalties, particularly given that, at first sight, we see that a number of penalties provided for in the new regime mirror those already available under existing legislation. What would be the preferred option for OPRED? Will it stop applying the higher-penalty civil remedies available under the legislation I have mentioned, and begin to operate the lower-penalty arrangements available to it under the new regime, or has the Department issued no guidance on that? If not, will such guidance be available in the guidance document that we are promised will be available in November?

We do not intend to divide the Committee, but as I think you can appreciate, Ms McDonagh, a number of aspects of the proposals look frankly a little odd, and further consideration is needed of how they will sit within the existing criminal and civil penalty regimes. Clarity from the Minister to diminish that feeling of oddness would be an admirable way to conclude our proceedings.

--- Later in debate ---

[Claire Perry]

The hon. Lady shakes her head, but she will know that this Government proposed the transferrable tax history, which my hon. Friends north of the border campaigned for very strongly and the industry had been asking for. Along with investment in the Oil and Gas Authority, which is the oil and gas regulator, and the wonderful Oil and Gas Technology Centre in Aberdeen, which is co-funded by the Westminster Government and the Scottish Government, that has stimulated a whole wealth of new investment and interest, and asset transfers from the big boys—she was correct to call them that: they are mostly boys—to smaller, more nimble companies that are better able to exploit those assets. We should all be very proud of that.

I want to push back a bit on the idea that the regime is being weakened. There are some serious large breaches—in effect, oil and chemical spills—that are absolutely worthy of prosecution. Then there are a whole suite of lesser offences for which enforcement notices can be issued and, most importantly, remediation action can be taken, both in clean-ups and ensuring that it does not happen again. However, other than through an exchange of letters and conversations, there is no way to make it clear to that operator that that is totally unacceptable behaviour which must not happen again.

I argue that having a civil sanctions regime enables that message to be sent even more strongly. For operators who—knowingly or unknowingly—are effectively allowing smaller breaches to happen, a suite of sanctions that did not exist will exist and be in force thanks to the regulations. I say unequivocally to the hon. Lady that this feels like a tightening of the regulatory regime. She is right that we have an offshore sector that is capable of generating hydrocarbons into the future. Ultimately, we will get to a hydrocarbon-free world, but, in the case of gas, if we invest in carbon capture and storage technology as we want to do, we can keep that gas being burnt cleanly in the system for a long period of time. It is economically vital to this country that we do that, and we need a regulatory regime that enables good operators to do what they do.

The hon. Lady said there might be some rogue operators creeping in. I am not suggesting that—there is no evidence of that—but we do have to bear that in mind, and these are the sorts of regulations that will send a strong message. Sanctions can be applied and penalties, which can be reinvested in the industry, can be collected to ensure that that message is sent loud and clear.

[Dr Whitehead]

The Minister has been making remarks in the important context of the burden of proof in circumstances where there are civil penalties. Should not the burden of proof for the new penalties be the civil burden rather than the criminal burden when they are in place? That would really underline how the regulations are an extension of powers rather than a contraction.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 1st May 2018 Commons Chamber

[Claire Perry]

The hon. Lady, as always, speaks up powerfully for her constituency. I assure her that exactly those assessments are being made, both by ourselves and by the Welsh Government, to whom there have been very specific requests from the developer. It is right that we are having a cordial, open-book conversation about what commitments are actually being asked for, because this all comes back to UK consumers and/or UK taxpayers.

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

The Minister mentions that the Welsh Government have committed, in January, to provide substantial equity and loan investment to get the Swansea tidal lagoon project off the ground. Indeed, they are anxious to explore with the UK Government how this might be incorporated into an overall support package for the lagoon. Over and above contacts between officials of the two Governments, what meetings has she or other Ministers in the Department held with Ministers in the Welsh Government to examine and progress this offer?

[Claire Perry]

The hon. Gentleman is right to say that these conversations have to happen jointly. There have been numerous meetings between my officials and officials in the Welsh Government, and I have met the Welsh Environment Secretary and her special advisers to discuss this and many other issues.

Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Alan Whitehead and Claire Perry

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

[Claire Perry]

There has been a huge amount of scrutiny, and I am hoping that we can get the legislation through to the other place, but my door is open. We want a well-functioning energy market that works for everybody and provides competitively priced energy.

I was asked an important question about the statutory instrument, which is also going through the House, that enables data sharing between the DWP and others. It has completed its pre-legislative scrutiny and will be introduced during the passage of this Bill. It is a vital and necessary part of ensuring that the powers in the Bill work.

[Dr Whitehead]

Will the Minister be clear with us tonight that the safeguard tariff and the absolute cap do not contradict each other and that they can be introduced together, so that the protections can continue? Is she convinced that that is the way forward?

[Claire Perry]

There is nothing in the Bill that interferes with Ofgem’s ability to extend the safeguard tariff, which is part of an existing separate set of powers. By having this discussion, we are sending a clear message that we expect Ofgem to retain adequate protections for the most vulnerable consumers once the Bill is passed. I thank colleagues for putting that matter forward for debate today, because it is an absolutely vital point that we must get across. However, on the basis of my responses, I hope that the hon. Member for Leeds West will not feel the need to press amendment 9.

Amendment 8 essentially sets out the conditions that would determine success when we consider whether the price cap should be removed. As we discussed in Committee, it is not the job of Ministers to prejudge the regulator’s work on what a good market will look like in two years’ time. This country has seen some of the most rapid evolution in energy innovation, and in the future there may well be factors that are no longer considered relevant in establishing competition or factors that do not best address consumers’ needs. I do not want to put anything into the Bill that would give energy companies something to target. The Bill is supposed to be about giving the regulator broad powers to ensure that companies deliver a better price for consumers, not try to engineer a particular outcome. I hope that the hon. Member for Southampton, Test considers that a sufficient explanation and will not press amendment 8.

It has been great to have so much cross-party conversation and discussion on this important piece of legislation. I forgot to mention the vital point made by the right hon. Member for Don Valley (Caroline Flint) about green tariffs, but the process of setting such tariffs will be scrutinised as never before and we will have better, more transparent tariffs as a result. I hope that all Members are satisfied with the explanations I have provided and that we will not need to trouble the Lobby Clerks this evening.

[Dr Whitehead]

On the basis of the explanations that have been put forward, we will be happy not to press our amendments, but we will wish to press new clause 1, which has not been properly understood or responded to this evening.

Question put, That the clause be read a Second time.

Draft Renewable Heat Incentive Scheme Regulations 2018 Draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018

Debate between Alan Whitehead and Claire Perry

Monday 23rd April 2018 General Committees

[Claire Perry]

Obviously we consulted on the cap last year. Given the current scope, the scheme will be affected. Part of its output will have a guaranteed tariff, but perhaps the development team can come in to speak to officials and have a conversation. The hon. Gentleman mentioned that the scheme was bidding into CfD regulations as well. There are other routes and opportunities. Hopefully the people of Grangemouth whom he represents will be pleased that there is so much incentive. We want developers to bring forward the schemes to take us to a lower-carbon future. If a meeting would be helpful, I would be glad to arrange it.

I praise the hon. Member for Southampton, Test, who is almost my hon. Friend these days. He has brought his typically detailed level of scrutiny, and I will try to cover as many points as possible. On the question of the cliff edge, we are undertaking a lot of work. We published a call for evidence on 19 March. We are keen to develop cost-effective policies for the 2020s through to the 2030s and beyond, but we have a unique situation in this country. We have a centralised gas distribution network to which 85% of houses are attached, and 15% of us, including many in my constituency, live off the gas grid. It is about trying to work out cost-effective ways of delivering those low-carbon, cost-effective solutions on which we all agree. We have published a number of studies. Only last month, we published one showing initial findings on the options available for long-term heat decarbonisation, which are typically hydrogen, bioenergy and electrification. As promised, we will publish a full report of evidence in 2018. I look forward to discussing that with the hon. Gentleman.

The hon. Gentleman raised a challenge about reducing ambitions. It is important to recognise the size of the scheme—£23 billion of taxpayers’ money is committed over its lifetime, which is a substantial investment. Its goals were ambitious, but it is important that we have responded to some of the concerns.

[Dr Whitehead]

I think we need to be clear that the £23 billion is over the lifetime of all the projects that would have got anything from the scheme up to its closure, which could be a period of up to 35 years. The £23 billion should be looked at in that context, rather than as something being funded by the scheme now. Indeed, the £23 billion should be compared with the estimated lifetime undertaking on the same basis with the original RHI, which I think the NAO put forward as £70 billion or so.

[Claire Perry]

I am not going to detain the Committee debating Her Majesty’s Treasury policy, but effectively this is an on-balance-sheet commitment to a liability for either current or future taxpayers that is part of the Government’s spending commitment in perpetuity, and I think £23 billion is a fairly substantial sum. The hon. Gentleman will be pleased to hear that we were keen to understand whether we were rolling this out in the right direction. The Select Committee on Energy and Climate Change made the point that mass roll-out was not the right way forward. That is partly because—this relates to some of the other comments raised—as with all elements of decarbonisation, we need to cut carbon, find cost-effective deployment pathways and create strategic ways to invest where we can grow a manufacturing base and deliver. This is what the reforms are about—trying to reform the scheme for technologies that are more likely to be strategically important in the long run, for example heat pumps. It is less about the fewer, larger installations that use technology that we all know about. I think that is really important for driving through our UK plc investment profile.

The hon. Gentleman raised a question about CHP and why we were bringing in the 20% efficiency point. Again, we do not believe that offering a full CHP tariff to plants with lower electrical efficiency represents good value for taxpayers. We have talked about the strategic elements of this. If I have not answered any of his questions, I will write to him. I did want to discuss an area where we both have a great interest: geothermal. That can be part of the scheme. I am particularly interested in geothermal energy from abandoned mine workings, which is possibly a great untapped source of heat. That would bid in as a heat pump scheme, as opposed to any other scheme. There are really good opportunities for us to look at where we can bring forward some heat from the work that has already been done.

My hon. Friend the Member for Stafford raised an important point, showing that he has read all his documents. I am very impressed. Let that be a lesson to the Committee. He and I always like to debate the numbers. I will write to him with the absolute detail, but essentially there was a revaluation of the air quality and decarbonisation benefits. We may not necessarily agree with them, but if it is sufficient, I will write to him to give him more detail on the calculations. I would like to put it on the record again that as much as we all love being bound by our Treasury guidelines, which are important for delivering value for money, sometimes others make the case that they do not always capture the benefits, particularly these early-mover schemes. They do not yet capture the benefits of any investment in UK manufacturing or service expertise that we might be developing as a result of these, effectively, very big Government procurement programmes.

My hon. Friend the Member for South Thanet offered a very nice invitation, which I would be delighted to accept, and raised a really important and telling point about assignment of rights. I do not know the answer and I will write to him, but it is a tribute to his background that he is thinking hard about avoiding any form of payment protection insurance scandal or any sort of mis-selling. We want to assign these rights to ensure that people in potentially lower-income households are able to get that third-party capital investment into these schemes, but not in a way that causes problems. I am told that the Financial Conduct Authority will look at contracts to ensure compliance with the Consumer Credit Act 1974, if needed, but it would be reassuring to him and me to put that in a letter. I would be happy to send that to him.

Draft Electricity Supplier Payments (Amendment) Regulations 2018

Debate between Alan Whitehead and Claire Perry

Monday 19th March 2018 General Committees

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

It is a pleasure to serve under your chairmanship, Mr Paisley.

The regulations, as the Minister set out in some detail, are about providing for the operational costs of the counterparty body, as far as contracts for difference are concerned, and the Electricity Settlements Company, as far as the capacity market is concerned. They are not concerned with the success of the market or of CfDs, but with the operational costs of the bodies that essentially stand between the people who are supposed to put money into the system, and the people who are supposed to take money out of it. That, at its heart, is the arrangement as to what those two bodies do.

It is worth spending a moment looking at what the operational costs are. The Minister spent a little while stating that they are good value for money and that they are a good representation of what the LCCC and ESC do. It is not easy to find out the total cost of LCCC operational activities, because the amounts presented for 2018 to 2020 are expressed per MWh for any day during that period; they do not represent the total operational cost of the body’s activities.

[Claire Perry]

I would be happy to share information about the gross cost; I apologise if it has not been made clear, but I will write to the hon. Gentleman—indeed, I may be able to share it with him during this debate. It may reassure him to know that the average cost per household bill of the total budget for these bodies is estimated at 30p per year in 2016 prices, but I am happy to share the gross numbers with him or any other member of the Committee.

[Dr Whitehead]

I thank the Minister very much for that intervention, which to some extent anticipates what I was going to say. It appears that the cost per MWh has remained reasonably stable for the LCCC since the original regulations were made, but it would be helpful to know the total cost over the period as far as CfDs are concerned. The 30p that the Minister mentions, which I assume represents the total cost of both arrangements to the consumer, is not an enormous amount, but it is not insignificant either. I am therefore slightly surprised that the explanatory note states:

“A full-impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sectors is foreseen.”

Frankly, the impact on customer bills is not insignificant, so I would have hoped for some assessment of it, particularly in comparison with the impact of other measures on bills. I appreciate that it may be a relatively small amount compared with the consequences of other levies on bills, but it is not insignificant. I think it ought to be looked at in that light.

The Electricity Capacity (Supplier Payment etc.) Regulations 2014, which are the original regulations relating to the operational costs of the ESC, give a rather different picture from that of the costs relating to the LCCC. The 2014 regulations specify a total operational cost of £1,374,000, which was subject to annual amendment, as the Minister says. By 2016, the figure had risen to £4,283,000, and by 2017 it stood at £6,241,000, which is the figure that the draft regulations seek to amend. Article 3(1) states:

“in regulation 9(2), for “£6,241,000” substitute”

£7.6 million, £7.5 million and £7.5 million for the years 2018 to 2020. The figure of £6,241,000 comes from the most recent iteration—the Electricity Supplier Payments (Amendment) Regulations 2017—not the original 2014 regulations. It is difficult to tease that out in this statutory instrument, but that appears to be what has happened.

Frankly, we are faced with an inflation of costs from £1,374,000 in 2015 to £6,241,000 in 2017, and then a further increase to £7,629,000 in 2018. That series of costs does not strike me as carefully under control and good value for money. It may be, if the ESC’s work has expanded sevenfold since it was originally given the task of carrying out the administration of capacity markets under the 2014 regulations—other things may also have taken place to increase some of those costs—but I am not entirely convinced that the ESC’s activities have increased over the period by a factor of 700%, justifying those increases in operational costs.

Can the Minister give a satisfactory explanation of why those costs have inflated so much over that period? There may be a good explanation, but perhaps we are not paying sufficient attention to the considerations that go into the operational costs of these organisations. I do not know whether there is a body to oversee how those costs are brought about and what they relate to. On the face of it, they appear to have inflated considerably over the period in which the ESC has been in post, as it were, overseeing the activities of the capacity market and their results.

I do not want to divide the Committee. Clearly, these organisations need to have a period to set out what their organisational costs will be and what the supplier companies will contribute to those costs. However, this afternoon, or by subsequent communication, I would like to hear whether the Minister shares my view about the apparent enormous inflation of the operational costs, as set out by the preceding statutory instruments. In her view, is that enormous cost inflation justified by the sort of activities she has set out?

The Minister will not necessarily have a complete and instantaneous response to all my points. It would be wonderful if she did, but I do not blame her at all if she does not. It is a fairly arcane point, but it is important to raise it as we look at the operational costs of the bodies in this statutory instrument.

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

Debate between Alan Whitehead and Claire Perry

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

[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.

[Claire Perry]

Just Claire is fine.

[Dr Whitehead]

I think I will just continue with “the Minister”—or Claire, depending on the circumstances under which we meet.

Secondly, the hon. Member for Kilmarnock and Loudoun mentioned that he is a man of few words. I may well be a man of even fewer words today, because I am suffering somewhat, and my voice may not last for the whole proceedings. That could be a great boon for the Committee.

--- Later in debate ---

[Dr Whitehead]

I will make two points in response. I hope that the hon. Gentleman will be enthused by the merits of the pool when he looks into it—knowing, as I do, how deeply he does look into these matters on a regular basis. Although it is true that a number of companies are dividing themselves in different ways from the model that there used to be, it is by no means clear that in the complete vertical integration of those companies those divisions all face in one direction. In some instances, such as the recent merger of SSE and Innogy, retail has been put together in one company. In other instances, companies are breaking themselves up into what might be called a good company and a bad company, in terms of the different forms of generation, without distinguishing between vertical integration and generation. Indeed, there are further moves abroad. For example, E.ON in Germany has effectively taken over elements of Innogy, which may have effects back on SSE and Innogy in the UK. A variety of things are happening in the market, some of which point towards different forms of vertical integration and some of which, as the hon. Gentleman says, point in the direction of demerger.

That is not necessarily the central point about how a pool operates. Even if there are circumstances under which there is rather less vertical integration, the fact that the pool is bringing complete transparency on all trades to the table means that everybody in the market is absolutely on the same level as far as both those trades and the retail element, whereby people are bidding in, are concerned. As the hon. Gentleman knows, a number of newer companies will largely be bidding into the day-ahead market. They may be considerably disadvantaged in not knowing what has happened with trades down the curve when bidding into that market. Having that transparency right across the piece is, in principle, a very powerful lever to ensure that the market works well regarding retail trading.

Secondly, the pool system is not a fanciful notion that some people might think is a good idea but that has never worked in practice. Probably the most successful trading arrangement in Europe at the moment is Nord Pool, which does precisely this across the whole of Scandinavia. It does not have the negative effects that the hon. Member for Wells suggests it might in terms of cost of capital and investment, but stabilises that market across the whole of Scandinavia and produces transparency across borders.

In any event, a pool system is something that this we ought to look at for this country. What this amendment does is rather less than that. It asks whether the Minister thinks that, under circumstances in which it has not been possible to frank the market for returning to competitive purposes by 2023, other instruments should be introduced to get us beyond the end of the temporary pool and out of that temporary price cap, which is what we all want. That will be on the basis that we between us will have not just done a good job of running a cap but changed how the market works, so that the cap does not have to be in place subsequently and we do not need to return to the idea of one in the future.

That is what the amendment intends to do. I think it is a relatively modest ask of the Minister. I am sure that, if she is not promoted, she will be in her post in 2023—if there is a Conservative Government. At that point, she would simply have to produce a small report setting out how the pool system might work. Then we will look to see whether we can take that forward at that point as a key measure, to ensure that competition returns to the markets after the end of the temporary price cap.

[Claire Perry]

I have listened with interest to the hon. Gentleman and done a bit of research.

The first part of the amendment asks that an additional report is published setting out additional measures for competition. We had a fruitful discussion of this issue on Tuesday, and talked about the fact that there will be a comprehensive report. There is a duty on the Secretary of State to make this transparent, so it will be obvious that the conditions for competition that have been recommended by Ofgem at that point are clear. We discussed at length whether we need to specify, and the will of the Committee was that that was not the case. So the first part of the amendment is not needed, because we will have a transparent report, we will be able to see what “good” looks like—a phrase many of us have used—and we should be able to satisfy ourselves of that.

The second part of the amendment relates to pooled trading. I understand that the hon. Gentleman is a bit of an expert on that, so I felt that I should go away and look at such things. His argument is that having pooled trading arrangements could be an option that should be included in the assessment of competition, and that the report should cover that. He will know that pooled trading arrangements were in place historically. Indeed, I believe it was the first Blair Government that removed those conditions.

[Dr Whitehead]

rose—

[Claire Perry]

The hon. Gentleman is going to correct me on that. Good—I like a bit of correction on history.

--- Later in debate ---

[Dr Whitehead]

The Minister is absolutely right that there was a pooled system in place, but it was a one-way pool, not a two-way pool. Furthermore, there were only two generating companies at that time, so the circumstances were very different, and it was not a full pool in any event.

[Claire Perry]

I accept that helpful piece of information. But when it was cancelled and replaced with alternative arrangements, the real issue was that prices did not fall as far as they should. The rocket and feathers effect was in full cry. I have not been able to find a pub called “The Rocket and Feathers” anywhere in the country, so we cannot go out and celebrate the successful passage of the Bill with a drink in an aptly named pub. However, the new arrangements were put in place back in 2001 and extended in 2005.

The CMA, in its very comprehensive review of market competition, compared the principle of bilateral trading relationships, which the hon. Gentleman has eloquently expounded, with a pool approach. Its view was that the evidence did not support a move to such a pooling system, primarily because there is sufficient liquidity in the market—Ofgem reviews the liquidity arrangements—and there is price transparency for all the pool participants already. The CMA’s conclusion was that if we all accept that we need to move to a more competitive market, the evidence does not suggest a move to bilateral pooled trading relationships.

I have set out that Ofgem has wide powers to say what “good” looks like, on the basis of which it will make its recommendation to the Secretary of State about whether the cap should be lifted. I think that covers the first part of the amendment. I am persuaded by the CMA’s report that, given that the arrangements are working, there is insufficient merit in examining the merits of the pooled market, and there would not be sufficient gain from introducing that system. It should not be a specific requirement, as detailed by the clause.

There may be other opportunities to debate this structural point. On the point made by the right hon. Member for Don Valley when discussing the previous amendment, I hope that there will be opportunities over the next few years to talk in depth about what other arrangements need to be made in the market to improve the efficiency of the entire supply chain. However, hopefully in this case the hon. Member for Southampton, Test will consider withdrawing his amendment, as it is not needed in the Bill at this time.

[Dr Whitehead]

I am not persuaded that this notion is not needed in the Bill in the eventuality of the cap going to 2023. However, I am reasonably persuaded that it would not be a good idea to press the amendment to a Division this morning, because the purpose of the amendment was essentially to allow us to debate the question of the possibility of a pool. I have not persuaded the Minister this morning that it would be a good idea for future trading arrangements. However, given the assiduous work that she has already done in looking at how a pool might work, I hope that she will continue with her studies, and will perhaps be persuaded in the fullness of time that it is actually a rather good idea for the long term, and ought to be pursued—if not by this Government, then by the next. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 ordered to stand part of the Bill.

Clause 9

Consequential modification of standard supply licence conditions

Question proposed, That the clause stand part of the Bill.

[Claire Perry]

I am not going to delay the Committee on non-controversial clauses, but I feel it is important to state briefly the purpose of each clause, so that we are all clear in supporting them. Clause 9 gives Ofgem the power to modify the standard supply licence conditions after the tariff cap ceases to have effect under clause 8. On the point made by hon. Member for Kilmarnock and Loudoun, we are giving the regulator powers, as it sees fit, beyond the extension of the price cap, to modify the licence as it has already. The effect is that Ofgem can continue to modify the standard supply licence conditions as it deems appropriate, following the removal of the tariff cap, but of course those modifications must be published and it must state their potential impacts.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10

Amendments of the Utilities Act 2000

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[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.

[Claire Perry]

I am extremely interested in new clause 3. I will not delay the Committee too much, but the hon. Gentleman is absolutely right to have observed the issue faced by many small businesses. Indeed, it was observed by the last Conservative Government when they commissioned the CMA report. That report also looked at what was happening in the small business sector. It was a really important question.

As the hon. Gentleman mentioned, there is a huge variety of SMEs. They consume energy in entirely different ways and have different supply contracts. Many of them are on a domestic tariff. A question I have asked—I am not sure I know the answer—is what triggers the move from a domestic to a business tariff. If I do not have the answer by the end of this speech, I will happily write to the hon. Gentleman. It is an important question. [Interruption.] My civil servants are scribbling furiously. Of course, those businesses will be protected by the tariff.

As the hon. Gentleman mentioned, companies that are not supplied via a domestic tariff generally have fixed-term, fixed-price contracts that they negotiate through a broker, and those contracts are based on a range of different factors. In my constituency, I am aware—this has come up in the question around energy efficiency, which is a particular problem we need to try to crack with the small business sector—that many small businesses, particularly service companies, occupy premises where energy is just part of the price they pay. There are real disincentives for those landlords to shop around for a more competitive energy price, because it might reduce some of the benefit they get from selling those services as a bundle. It is an interesting question.

The CMA reviewed the small business market and found that a combination of features lead to a weak customer response. My argument on that—I have discussed this with small businesses—is that if someone is making payroll every month, looking to export to new markets and thinking about what they might have to do with the changes to our technical relationship with the EU, they do not necessarily always default to looking at energy costs, even though that might be economically rational, as electricity or power prices might be 5% of an overall cost base. According to the CMA, that weak customer response provides energy suppliers with unilateral market power over inactive customers—those words always make me feel very uncomfortable when we are talking about a supposedly competitive market.

The CMA has already recommended remedies, and those are being implemented. We have ended auto-rollover contracts with restrictions, including termination fees. That was implemented by the Energy Market Investigation (Microbusinesses) Order 2016. We are making prices more transparent, and we are having a price comparison website, which has already been implemented by the CMA through an order in June 2017. Early reports suggest that that has not been fully taken up by suppliers.

We are establishing a programme of prompts with information for consumers to engage, which is similar to the remedy for domestic customers in terms of the least engaged groups. That is ready for implementation, but no date has been set. In a similar way to what we are doing on domestic remedies, we are establishing a database of inactive customers that will be made available to rival suppliers and switching sites. Ofgem has not yet implemented that recommendation.

There has been some progress on transparency and auto-rollover contracts. The recent welcome action Ofgem announced to end back-billing beyond 12 months will also benefit small businesses and should help significantly with the cash-flow drain that a large backdated bill could cause.

Ofgem has a business consumer survey under way that we expect to get sight of this summer. It should give us more insight into the experience of business consumers. Ofgem plans to review consumer protections in the small business market.

While I invite the hon. Gentleman to withdraw the new clause on the basis that the Bill focuses on domestic customers, where we already have more information, I am extremely interested in the problem of how we might provide better customer service and pricing availability to small business customers. I am perfectly happy to commit to looking at the problem very seriously and to have a proper and open discussion, as the hon. Gentleman and I tend to do, about what more might be done. I would send a very strong signal that, if at some future point a price cap mechanism might help small businesses, that is not something I would turn away lightly.

The hon. Gentleman has re-identified an excellent problem, if you like, in the energy markets. As I said to the right hon. Member for Don Valley earlier, the Bill is part of the intention to make a competitive market work well for all consumers. I will continue to engage closely with this problem, and I hope the hon. Gentleman will be content to withdraw the new clause on that basis.

[Dr Whitehead]

I thank the Minister for that positive response to the overall suggestion. I appreciate that the Bill sticks fairly closely to domestic tariffs, and that is perhaps how we should leave it for present purposes, but I hope that the principle that has been raised, about that almost imperceptible gap, on occasion, between where domestic tariffs finish—

[Claire Perry]

Would the hon. Gentleman accept an intervention?

[Dr Whitehead]

Ah! The Minister has been inspired.

[Claire Perry]

I can inspire the entire Committee with the assiduousness with which my brilliant team is able to answer my questions. A company chooses the business rate. Those in commercial and retail premises have to choose a business tariff, but, of course, a home business, of which there are millions and millions, can be on a domestic tariff. In a way, there is a sort of self-selection mechanism, but if the business moves into commercial premises, it does have to default on to a business tariff. I hope that clarifies the confusion I raised.

[Dr Whitehead]

I thank the Minister for that clarification, but it emphasises the fact that a small business may be in circumstances where it is renting part of a building or is part of a business park, the negotiation of the energy supply is out of its hands and it is paying a set amount for that electricity, but that is not done on domestic rates, even though the extent of the business means the electricity may be well within what is normally paid for by a domestic consumer.

The Minister is absolutely right to identify the issue for small businesses, and I hope that will underline the seriousness with which she will take the issue forward. She indicated that she does want to give it further thought and to look at circumstances where the point of departure may be less abrupt in the future. On that basis, with the trust that she will assiduously pursue this, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 4

Ongoing relative tariff differential

“(1) The Secretary of State shall, during the term of the tariff cap conditions being in place, develop, ready for implementation, a relative tariff differential.

(2) A relative tariff differential is a requirement on supply licence holders that the difference between the cheapest advertised rate and the most expensive standard variable or default rate shall be no more than a specified proportion of the cheapest advertised rate.

(3) The Authority will be responsible for setting the proportion referred to in subsection (2).

(4) The relative tariff differential shall take effect on the termination of the tariff cap conditions.”—(Dr Whitehead.)

Brought up, and read the First time.

--- Later in debate ---

[Claire Perry]

I agree with the right hon. Member for Don Valley that it is absolutely right to think about what might happen when the cap goes off into the sunset, as we have done extensively. I am always interested to listen to the hon. Member for Southampton, Test but I slightly feel—unless I have misjudged this—that we are going over territory that we have covered extensively, in particular on Second Reading. We have heard many arguments about the absolute versus the relative tariff and, in effect, he is proposing a perpetual relative tariff—[Interruption.] Perpetual or ongoing, perhaps we are dancing on the head of a pin—

[Dr Whitehead]

I am not proposing an ongoing cap.

[Claire Perry]

Okay, but there is a relative tariff or a relative cap that is ready to go. The hon. Gentleman said on Second Reading:

“It should be clear that we want this price cap to come in. We believe it should be an absolute and not a relative price cap”.—[Official Report, 6 March 2018; Vol. 637, c. 271.]

I agree with him, as does Ofgem and as does the Select Committee, which made it very clear that it felt that a relative cap would simply be gamed.

As the right hon. Member for Don Valley mentioned, there is also the problem that companies will simply lift up their skirts and raise their whole tariff. The hon. Member for Southampton, Test may say that companies would then lose their customers, but we come back to the question of whether people will actually move. Yes, companies may lose those hyper-price-sensitive switchers who are very engaged, but they may not lose the customers we are really here to help today—those who are more vulnerable and not as savvy.

The hon. Gentleman is right to say that Centrica lost more than 800,000 customers, but 650,000 of them were due to a collective switch—one big deal. So only 150,000 of a very substantial customer base, the majority of whom are still on SVTs, actually shifted, despite the price rise. The numbers are therefore not quite as unequivocal as he suggests.

He is also right to raise the issue of ongoing protection for vulnerable consumers. We will all be pleased that, regardless of the price cap, Ofgem has already introduced a safeguarding tariff for those on prepayment meters, an additional 1 million customers. Those customers have saved about £120 to date relative to what they would have paid. The tariffs that they are paying have come down relative to the uncapped SVTs on the market. That absolute cap mechanism, therefore, is working. Even when the safeguarding tariff put in place by the CMA or the price cap in the Bill comes to an end, Ofgem will continue to have the powers to take further steps to protect vulnerable customers as it sees fit.

We are all here because we want the market to be in a competitive place on the expiration of the tariff cap under the sunset clause. The hon. Member for Southampton, Test may say that that is a triumph of optimism over practicality but, in essence, if we believe the market will be more competitive and we do not believe that the relative price cap is the way to address any remaining issues of uncompetitiveness, I find it difficult to see why we should put his new clause into the Bill, running all the risks we talked about on Second Reading—which have been explained eloquently by others—of the variable tariff cap not being an effective way to establish competition. We will have had a temporary absolute cap in place. We will have sent the very clear signal. That will have operated. I can see a situation where a relative cap could undo some of that good work and we would suddenly see prices zooming upwards because there was the opportunity to do so.

I appreciate the hon. Gentleman thinking hard, as always, about what “good” will look like, and I share his desire to continue to work together on ensuring that this cap delivers, but I hope he will withdraw the new clause on the basis that it is not necessary and could have bad unintended consequences.

[Dr Whitehead]

I simply do not accept what the Minister says about bad unintended consequences. I do not think that is realistic. Conversely, having something like this in place would be a positive driver of a return to not only good market conditions but proper protections for those operating tariff arrangements under those otherwise good market conditions. It is important that, in the ending of the absolute cap, we get both sides right. It is not just a question of the market working well. It is a question of people in that market who have disadvantageous circumstances being protected properly as it goes forward.

[Claire Perry]

Would the hon. Gentleman accept that those arguments could be made today about whether we are introducing an absolute or relative cap? We have all agreed quite strongly that an absolute cap provides those protections. If he were proposing that Ofgem has an absolute cap ready to go, we could raise some of the questions we discussed earlier about future uncertainty in the market. I felt that until today we had all considered carefully, but rejected, the structure of a relative cap as a hypothesis—as opposed to an actual absolute cap, which we have—that would not deliver the results we want: vital protections for vulnerable customers.

[Dr Whitehead]

Yes, indeed. That is why I have been pains to say that this is not a relative cap. It was not a relative cap when it was proposed, although it was branded as one, but can actually be a pillar of an instrument for market return. I do not want to pursue the new clause today; but, for reasons that the Minister and I perhaps need to talk about, it would be a good idea to bring something like it back on Report. I think we probably will. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Question proposed, That the Chair do report the Bill to the House.

--- Later in debate ---

[Claire Perry]

May I thank you for your wise chairmanship, Sir Edward? I also thank Ms McDonagh, who chaired the Committee on Tuesday; the Clerks of the Committee, who have kept us assiduously on the straight and the narrow; and the House staff and Hansard reporters, who always do such an amazing job.

I extend fervent thanks to all members of the Committee. We have had an extremely constructive and helpful debate and have probed many aspects of the Bill. I also thank the witnesses who gave evidence and from whose wisdom we have benefited. I think that covers it, apart from thanking my excellent civil servants for their help in drafting the Bill and their excellent answers to questions. We will continue to draw deeply from that well, but at this stage I thank everybody for taking the Bill—hopefully successfully—through Committee.

[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.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 13th March 2018 Commons Chamber

[Claire Perry]

We have worked very hard on the wind industry in Scotland—the hon. Gentleman and I both welcome the recent announcement about remote island wind, which is a really positive step forward—but the challenge is that the phasing out of the renewables obligations was set over four years ago. People have been fully aware of them, and we are currently not intending to extend the length of the grace periods. However, as he knows, I am always happy to try to build cross-party consensus on this vital agenda for this country.

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

I am sure it is absolutely not the intention of the Minister to mislead the House in any way, but her statements about our being 96% of our way towards meeting our fourth and fifth carbon budgets need to be put in the context of the fact that we are committed to reducing CO₂ emissions by 225 million tonnes, but the Government proposals will reduce the amount by only 116 million tonnes, which is only just over half the requirement between the fourth and fifth carbon budgets. What are the Minister’s proposals under the clean growth plan to make sure that we reduce the amount by the outstanding 109 million tonnes?

[Claire Perry]

The hon. Gentleman is a clever scientific fellow, and he knows that those numbers refer to the baseline numbers of 1990. I would be very happy to sit down with him and go line by line through the carbon budgets and the policy proposals. Again, he and I both need to be absolutely clear that regardless—[Interruption.] There is an awful lot of shouting from the hon. Member for Blyth Valley (Mr Campbell), who wants to bring back coal. Regardless of what this and future Governments do, those budgets must be fit for purpose, and we have to be absolutely clear and transparent about how we are going to meet them, and that is exactly what the clean growth strategy has done.

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

Debate between Alan Whitehead and Claire Perry

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

[Dr Whitehead]

Q I just want to be clear about the point on five months, Dermot, that you have mentioned. Could you briefly break down what that five-month period will consist of? And are you able to guarantee that there will not be any drift in that process, so that the five months is an absolute outside time rather than an approximate time?

Dermot Nolan: I might ask Rob to answer that, but I may come back at the end.

Rob Salter-Church: That five-month period will start with us issuing a statutory consultation, which will run for eight weeks, or two months. That is something that we are required to do by law as part of the due process that we go through. Thereafter, we would have a period to analyse fully the responses to the consultation. As we said, that will be a transparent process; there will be lots of information that we will need to review. Thereafter, when we publish our decision and the final drafting of the cap, it is subject to a 56-day notice period, which again is a legal requirement that we have to go through before the changes can take effect. When you add those various stages together, it gets to five months. Can I guarantee you that there will not be any drift? What I can guarantee is that we will have this as our absolute No.1 priority for Ofgem to deliver.

One of the things that is important for us to consider in ensuring that this cap is in place as quickly as possible is making sure that the due process is gone through. It would be unfortunate if, in trying to do something more quickly, we created a legal risk around process, and that could be exploited by somebody challenging it and seeking to delay the introduction of the cap. So, we are confident that we have a good, robust process and we will get through it as quickly as we can.

[The Minister for Energy and Clean Growth (Claire Perry)]

Q We are all very much appraised of the need—cross-party—to get this cap introduced by the end of the year. For us, winter does not start in February 2019; it starts in November 2018. What is the opportunity to apply the cap retrospectively, particularly if there is any form of legal challenge?

Dermot Nolan: Retrospectively, Minister, in the sense of—?

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

Debate between Alan Whitehead and Claire Perry

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

[Dr Whitehead]

Yes, I am happy to accept your guidance, Ms McDonagh. I am being enticed down the road I have taken by hon. Friends and colleagues, and of course as far as I am able I will not give way to temptation.

The central point, on which I want to end, is that we do not need a lot of sanctions to get Ofgem to do what it is supposed to do under legislation; but if something is in legislation it is pretty sure that it will get done, because that is how it works. An out date in the Bill would be a little further help in making sure that Ofgem would do what it has said it will do to put the measure into practice. Hon. Members will have a view on how important or necessary that approach is, but I do not think it can be gainsaid that putting the date into the Bill would provide a little further assurance.

That is the basis for the amendment. I hope that Members will support it, if they decide they want that further assurance, but I am sure that the Minister will come up with persuasive reasons why another view could be taken. We will listen with interest.

[The Minister for Energy and Clean Growth (Claire Perry)]

It is a pleasure to serve under your chairmanship, Ms McDonagh. I thank all members of the Committee. We have a highly qualified Committee here to deliver, over the next few days, what we all want: a legally watertight price cap Bill that enables some of the more egregious pricing structures in the energy market to be addressed.

The amendment moved by the hon. Member for Southampton, Test is intended, as he said, to put a hard-stop deadline on the implementation of the Bill. I understand his reasons exactly. We have discussed the Bill and are broadly in agreement about what we are trying to achieve. I agree that it is imperative for the measure to be in place before the end of the year. People say “before next winter”, and that somehow rolls into 2019. I want it on the statute book and implemented by the end of the year—ideally well before 31 December—because we owe it to the customers whom we are trying to protect. We have all been clear about that, and it is the message delivered in multiple debates and in multiple communications with Ofgem and suppliers. I shall speak in a moment about the possible risks of accepting the amendment.

Something else that is refreshing is that all parties have committed to getting the Bill through. I do not suggest that there will not be strenuous attempts to amend it, but I intend that it should be sent up to the other place in good order, so that it can go through the Lords effectively and we can get what we want, which is for the Bill to be in place and in good shape by the summer recess.

It was helpful to have the witness sitting this morning. We heard Ofgem say that, once we have given the go-ahead on Royal Assent, it will have to take a whole series of statutory measures, including developing the cap. Of course, some of that work has already started, quite rightly. We do not need to do this sequentially; we can do it in parallel. We are then going through a fairly transparent consultation process to make sure that any possible objections or concerns about the tests we have set out in the Bill on competition, switching and maintaining investment are met. There is a statutory duty to have a consultation period. We heard this morning that that will take five months, albeit with some things starting already and processes going on in parallel.

--- Later in debate ---

[Dr Whitehead]

The hon. Gentleman shakes his head. I cannot possibly comment on that. I got this on the internet, by the way. The headline was “Millions of Brits in line for £100 as Theresa May delivers on energy price cap promise”. Underneath, it said:

“The price cap on 11 million gas and electricity bills is to come in by end of the year as The Sun’s Power to the People campaign pays off”.

“It was The Sun wot done it”—not us, by the way.

[Claire Perry]

It is worth saying that that fine newspaper The Sun has campaigned for an end to various aspects of rip-off energy tariffs, and it is great that it was celebrating the fact that we had finally launched this Bill and got the provisions in. In this case we should all say, “Power to the people!”

[Dr Whitehead]

Since I do not read The Sun, I am not entirely up to date with all its campaigns, but obviously the Minister does and is. We will leave it there.

--- Later in debate ---

[Claire Perry]

The hon. Lady is quite right: the great thing about energy efficiency in the home is that it cuts both carbon emissions and bills, so it is a win-win situation, and that is why we have set an ambitious target. She is right that we have started with homes in the rented sector and the social rented sector, and our intention is to make sure that progress is delivered as soon as possible.

[Dr Whitehead]

I am grateful to the Minister for not exactly spilling the beans but giving us a little preview of what the Government will come up with in response to the consultation on ECO. If there is to be much more concentration on those in fuel poverty, regardless of one’s view on whether the total sum on ECO is sufficient to do what we want on energy efficiency, that is a positive step.

Will the Minister also say a word or two about the regulations that I think are still not yet with us on the responsibilities of landlords to raise the energy efficiency of their properties? I am sure the Minister will know that overwhelmingly those who are vulnerable and in fuel poverty are concentrated in that private rented sector—

[Claire Perry]

I am not sure I agree.

[Dr Whitehead]

Substantially, I think we can agree. Does the Minister have any idea whether the regulations will turn up shortly? Secondly, if they do turn up, will they have within them the requisite amount of money that landlords should spend on bringing their properties up to band E, so that we can have reasonable assurance that will help vulnerable and fuel-poor customers?

[Claire Perry]

At the risk of being ruled out of order, I will write to the hon. Gentleman. He is quite right that we want to make sure that people are not living in private rented accommodation with poor quality safety or energy efficiency. We intend to introduce those regulations—indeed, they are already on the statute book. We intend to make sure of the maximum amount of cash that is required.

The other question on this is that the vast majority of landlords are small: they are people owning one or two properties that they rent out. As the hon. Gentleman will know, the whole scheme was based on the green deal. It was a Bill Committee that I was proud to sit on; we thought that was going to provide a financing mechanism, but it has not. That is why the work of the Green Finance Taskforce, which we will be bringing forward to assist in financing mechanisms, will be helpful. I will write to him with those details.

Turning to amendments 4, 8, 9 and 10 and new clause 1, I hope I have persuaded the Committee, first, that to put an arbitrary number for savings in the Bill would not be appropriate. It would not be an average number and is not necessary, because we can see from the safeguarding tariff that bills have fallen. Also, we would all expect that number to be greater. Secondly, I think we are all seized of the need to protect and improve services for vulnerable customers. That is part of Ofgem’s duty and is part of the tariff cap conditions and the conditions for competition. There is a lot of support already. I take the point made by my hon. Friend the Member for Wells that more needs to be done. That is why we would like to bring in ECO, to make sure that that customer group is paying the least possible for their energy and getting the best possible service.

On that basis I invite the hon. Member for Southampton, Test, to withdraw his amendments.

[Dr Whitehead]

As I have mentioned, our amendments are requirements on Ofgem to take these matters into account. It may be that, as a result of what we have discussed in Committee—after all, it will be on the record—that Ofgem might consider itself to be rather better instructed.

[Claire Perry]

I want to emphasise that this is exactly why this process is so incredibly helpful. The signalling that collectively we can give about the need to consider the conditions that might be there—albeit perhaps buried in a statute book somewhere—is vital. That is why it is a pleasure to have these conversations.

[Dr Whitehead]

I think the Minister for giving that additional weight to the points we made this afternoon, which will amplify our intentions for those reading our deliberations. It is clear that the intention behind the amendment—what Ofgem should have regard to in setting the tariff cap—is shared across the Committee.

I also take the point in practice that the first part of amendment 4 would give Ofgem additional work and could be a little problematic as far as getting the amount right before the price cap comes in is concerned. It might have been prudent for the Prime Minister to put those caveats in what she said a little while ago about how the Bill was to proceed, but on the basis of our discussion this afternoon, I do not wish to proceed further and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Clause 3

Exemptions from the cap

--- Later in debate ---

[Dr Whitehead]

I hope the hon. Lady will forgive me for saying this, but she makes a rather good case for my amendment. Let us consider circumstances, such as those she mentions, in which insufficient renewable energy is generated on a particular day to “go round”. What we mean by “go round” is that renewable energy, in most instances, is variable. If we look at our little National Grid—

[Claire Perry]

The app!

[Dr Whitehead]

The app, to see what is being generated on any particular day, we will see that it varies from 4% or 5% to 20% or more, depending on the circumstances, so it certainly is true that there will be a variable amount of renewable energy to go round.

However, that is not the point as far as renewable energy suppliers who contract to supply wholly from renewable sources are concerned because they will provide themselves with power purchase agreements or will own their own generating capacity and guarantee that, come what may, what the consumer gets as a result of their tariff is renewable. In a sense, they will have pre-empted the “not enough to go round” point by guaranteeing with their arrangements that there is. I suggest, precisely for the reasons the hon. Lady set out, that that can be problematic for those companies. Nevertheless, that is what they guarantee as part of their tariff.

As far as brown energy companies that want to do a bit of greenwashing are concerned, the hon. Lady is absolutely right that if there is not enough green energy to go round they remove the portion of renewable energy from their supply and the tariff becomes browner, even though they say it is partially green. That is precisely what the amendment seeks to avoid, by making the starting point that the exemption applies to tariffs that are clearly wholly renewable and about which it can be said without a doubt that that is what they are—no messing about. That is why they should be exempted.

--- Later in debate ---

[Claire Perry]

In standing up for her local enterprise, the hon. Lady pre-empts the second point I was about to make, which is that we will use transparency, but we will also use the Ofgem consultation process to do exactly that. Ofgem has to consult—it has to review the existence of these tariffs and understand what they mean—and it will have to do that as part of creating the cap, because it is a condition of introducing the cap that those exemptions are also carefully defined.

There is an interesting question. There is the transparency issue, there is the consultation issue, but the third thing is this: is it zero, 100 or somewhere in between? It will be explicit, I think, in conducting that analysis that Ofgem has chosen a level of what it thinks this level will be. I totally understand the point that the hon. Member for Southampton, Test made about us all wanting a world in which renewable energy is not intermittent. Indeed, I opened Clayhill solar farm, the country’s first subsidy-free solar farm, partly because it has managed to achieve on-site storage, providing both a better economic return and overcoming the problem of intermittency. That is all absolutely correct.

However, we are not there yet, and I was very struck by what my hon. Friends the Members for Wells and for Chelmsford and the right hon. Member for Don Valley said. They said that we want to be in a world where we are not stifling that evolution, but instead creating a demand for those tariffs in the future. It may be that, in setting out its view on what constitutes the tariff, Ofgem will say that it is 75%, or 95%, or 50%, and we will all have a chance to respond at that point. I absolutely accept the spirit in which the hon. Member for Southampton, Test tabled the amendment, but I fear, as we talked about, that it would have the unintended consequences of driving some tariffs out of the market and creating other perverse incentives.

I would like to put on record that the issue of gaming exercises us all. I have said this to the energy companies and I will say it face to face: if they think they should be spending their energies working out ways to game the tariff, as opposed to delivering better consumer value and service, we will put them on notice that that is exactly what none of us wants to see. That is a strong message that we have all delivered.

I am happy to provide more information to inform the debate. I have listened carefully to the excellent contributions, but I hope that the hon. Gentleman sees that this one tiny word creates a series of unintended consequences that perhaps weaken the cap and that he is therefore content to withdraw the amendment.

[Dr Whitehead]

I take the Minister’s offer to give further and better particulars about green tariffs, including what they consist of, what the relationship between part-green tariffs and wholly green tariffs is, and what the cost is, as essentially a suggestion that the matter should at least partly be placed on the Table and might be revisited on Report, depending on what we see. It is an excellent suggestion and I very much welcome it.

[Claire Perry]

To be clear, I am not inviting further amendments to the Bill—far from it. My hope is that during the passage of the Bill, with the joint messages we are sending out with cross-party support, the requirements for more information and transparency that will accompany the Bill’s passage—because they have to inform the tariff calculation—can only be helpful in this consumer market, even if they are not on the face of the Bill.

[Dr Whitehead]

I understand that the Minister is not inviting further amendments—it is her job not to—but I can envisage a circumstance in which we have gathered all the information together and some things scream out from it that we might consider on Report. In which case, we should properly do that. On the basis of that offer, and presuming that the information would effectively be in the form of a sort of late evidence submission to the Committee and would go to all its members—

[Claire Perry]

My intention is that we will write to all Committee members with the information.

[Dr Whitehead]

That is great. It is a very welcome suggestion and wholly constructive regarding what we are trying to achieve with the amendment. On that basis, I wholly agree that it should be withdrawn. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 ordered to stand part of the Bill.

Clause 4

Notice of proposed modifications

Question proposed, That the clause stand part of the Bill.

[Claire Perry]

I realise that, in moving swiftly through clause 2, I did not give anyone the opportunity to comment, so I feel that I should say briefly what this clause does and why it should stand part of the Bill.

The clause sets out the first part of the bespoke licence modification that must be followed by Ofgem to implement the price cap. They are the statutory steps that Ofgem will take and they will cover the final design and level of the cap. Concerns have been expressed that if organisations wanted to try to derail the implementation of the Bill, it would be by objecting to some part of that process. The process very much mirrors powers that Ofgem already has to modify the standard supply licence. The clause sets out the technical arrangements of the timing, the timings of notice of publication, and provides the steps to be taken before the Bill is passed, which I alluded to in earlier comments, so that as much of the work as possible can be done in tandem with the Bill’s passage through Parliament.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

Publication and effect of modifications

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Claire Perry]

My hon. Friend makes a good point. I believe a very good letter was written to the Select Committee in which the timetable was set out specifically. Perhaps we can arrange for the letter to be distributed to the Committee—although I am not sure whether I have such powers over a letter to the Select Committee. Ofgem set out the timetable clearly, including all the statutory periods, with the assurance that it felt very capable of bringing the cap in before year end.

To return to the clause, in Committee we are very much of the mindset that the judicial review route, should someone wish to appeal against Ofgem’s methodology, is appropriate and would not delay implementation. That was agreed in the excellent work of the Business, Energy and Industrial Strategy Committee.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

Review of level at which cap is set

[Dr Whitehead]

I beg to move amendment 6, in clause 6, page 4, line 31, leave out “6” and insert “3”.

I must confess that I have been following the past several clauses assiduously by reference to the draft Bill instead of to the actual Bill, although the Government had not made any changes, so I do not feel too out of sorts. However, with this clause, the draft Bill and the final Bill part ways considerably. Fortunately, I managed to realise where I was in time, so we can talk about this relatively short clause, which is on a review of the level at which the cap is set.

The clause is important because it is the clause that decides this is a cap and not a freeze. The requirement on the authority is that it regularly review the level at which the cap is set, on the basis of all the circumstances to which the market has been subject, and whether the cap should be modified or changed as a result of its review. Indeed, the clause requires the authority to publish a statement when it has done that review, as to whether it proposes to change the level at which the cap is set.

--- Later in debate ---

[Claire Perry]

My hon. Friend again brings assiduous online research, which is marvellous, and his knowledge of this market, to support the point that Ofgem believes that six months is a proportionate time. The Bill does allow Ofgem—should it be required to do so by market movements, and that volatility persists over a period of time—to make the necessary adjustments. I know that I am on a winning trend, which may not last, but on that basis, I hope the hon. Gentleman is persuaded once again to withdraw the amendment.

[Dr Whitehead]

The intervention of the hon. Member for Wells demonstrates why I should not only have been looking at the right Bill in the last 10 minutes, but have brought my iPad with me.

[Claire Perry]

You are sat in front of the iPad queen.

[Kerry McCarthy]

Mine has died.

--- Later in debate ---

[Claire Perry]

That is an excellent point, and I was thinking of exactly the same things when the hon. Gentleman was speaking. The rocket and feathers, by the way, sounds like a marvellous pub in the Don Valley that I would love to come and visit one day. That is an excellent description for what happens and, thinking it through, the existence of the cap protects against the feathers, because there will be a hard stop in the market that might accelerate the fall of the feathers or create something a little more weighty, on the same duration, or a more accelerated duration, than the current SVTs. It would be a prod to the market, to make sure that those downward prices are reflected in the price cap. On that basis, it could be very helpful to overcoming the problem.

[Dr Whitehead]

Indeed. As the hon. Member for Wells points out, over the recent period, there has been a pattern of volatility in the wholesale market, but not necessarily a pattern of predictability. The market tends to be rather more volatile at the beginning of the year; the level of volatility differs, but we know it is more volatile. There is the question of looking at that effect over the entire period of intervention of the cap, and how that volatility is factored into Ofgem’s duties.

I take the point that the phrase in the Bill is

“at least once every 6 months”.

After what has been said this afternoon, I hope that Ofgem will consider fairly carefully how its interventions take place. It may well be that—after close consultation with the hon. Member for Wells—Ofgem comes along and says it will review the cap more frequently at certain parts of the year and rather less frequently at other parts of the year.

[Claire Perry]

I hope that the hon. Gentleman will agree that the wording of the Bill allows Ofgem to effect exactly those decisions, should it think it necessary.

[Dr Whitehead]

I take that point. Although I prefer to legislate with absolute certainty rather than hope, in this instance we can reasonably expect that Ofgem would look at that properly, as far as the market is concerned. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Claire Perry]

We have had an excellent debate, where we have been genuinely probing and testing the Bill, and we have come to a good outcome. I commend the clause to the Committee.

Question put and agreed to.

Question 6 accordingly ordered to stand part of the Bill.

Clause 7

Review of competition for domestic supply contracts

--- Later in debate ---

[Dr Whitehead]

May I say something first about Tigger and Eeyore? I can see the analogy, but we have to remember that Tigger got Pooh and Piglet completely lost in their quest for the North Pole, and also consumed all Roo’s medicine in a very unhealthy way.

[Claire Perry]

But surely the hon. Gentleman would accept that that was a fine and wonderful adventure, and Tigger did it with great gusto?

[The Chair]

This might be slightly outside the scope of the Bill.

[Dr Whitehead]

I was just going to say briefly that Eeyore stopped people standing on each other and falling over while trying to get Piglet out of a tree. He was very wise in certain circumstances. What I am trying to say, I hope without any further reference at all to Pooh and Piglet, is that under these circumstances we need to be a little more—I will refer to it again—Eeyoreish than Tiggerish. It is essential that we are careful about the going out of the cap, just as we are careful about its going in.

I heard what the hon. Member for Wells had to say—indeed, it would have been possible to put out a list as long as your arm of possible concerns. He is quite right. I heartily endorse a number of the concerns he raised. I am grateful to him for describing me as a fellow traveller; as he will know, in our party, being described as a fellow traveller is not always meant in the most complimentary of ways. He has set the record straight as far as that is concerned.

What I have tried to do with this particular amendment—by the way, I am not particularly precious about every last line of it—is to craft a number of considerations that should reasonably pass by the eyes of Ofgem when it is thinking about whether conditions have returned to the market or not, so that it is shaped. Indeed, if the Minister were to say, “Yes, jolly good idea, but we’re not quite sure that all the conditions are absolutely right. We’ll take it away and come back with something on Report that will set that out in a rather better way,” I would be overjoyed. It is an attempt to try to make things work, rather than to get everything right first time.

What I do know, however, is that among the flakier conditions is ensuring that Ofgem has due consideration for the roll-out of smart meters. I could see circumstances where the smart meter roll-out has gone completely down the Swanee, yet market conditions are effectively there for the removal of the cap. Indeed, from what I know about the circumstances around the smart meter roll-out, partly as a result of my involvement in the Smart Meters Bill recently, it is quite possible that the smart meter roll-out will go seriously down the Swanee.

[Claire Perry]

I now feel a T-shirt coming on saying, “What would Eeyore do?” I wanted to try to give the hon. Gentleman some comfort on this matter. Clause 7(1) refers back to something set out in clause 1(6)(b):

“whether conditions are in place for effective competition for domestic supply contracts.”

That means that in consulting on the cap structure, what Ofgem believes to be important will have to be explicit upfront. Also on smart meters, it says that the review “must, among other things”, so it is not the exclusive thing. In fact, I have just reassured myself, because clause 7(5) states that the Secretary of State will have to publish the statement about whether they consider the conditions to be in place. It will be very explicit about which conditions have been taken into account in establishing whether the market competitive conditions have been restored.

[Dr Whitehead]

I thank the Minister for her concordance-like examination of the Bill to look at those conditions, but I stand by the point that there is, with the anomalous imposition of smart meter roll-out, nothing there effectively. I would have hoped that the Minister would be able to say, “Yes, you are quite right. There is nothing there effectively and we can put something there—perhaps not exactly this—on Report”. That would have caused my worries about the out as well as the in of the price cap to recede, but apparently that is not going to happen.

I, of course, wish the Minister the best of luck with her Tiggerish wish to get smart meters absolutely right. I am sure she will give that her full attention and ensure that it works as well as it possibly can, but I am afraid that under the circumstances I will have to press the amendment to a vote on the principle of what it is about.

Question put, That the amendment be made.

Energy Efficiency and the Clean Growth Strategy

Debate between Alan Whitehead and Claire Perry

Thursday 8th March 2018 Westminster Hall

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

We have had an excellent debate. I congratulate the hon. Member for Eddisbury (Antoinette Sandbach) on securing it and on her excellent contribution, which was a superb setting-out of the imperatives of securing energy efficiency in homes and what flows from that.

What happens to fuel poverty, if we systematically insulate our homes to an acceptable standard? What happens to bills in the future, and what happens, as the hon. Member for Eddisbury pointed out, to the amount of fuel that we are consuming in our homes? She estimated that a 25% or so reduction in gas as a result of insulating our homes to an acceptable standard has all sorts of knock-on effects for the wider climate change debate. As she also said, that is reflected in the clean growth strategy ambition and targets that ideally we should be aiming for as far as insulation in all homes is concerned, and in the earlier target of insulation up to band C for homes in fuel poverty.

I very much commend the target in the clean growth plan, but how do we get to that target? That was also a part of the hon. Lady’s and other hon. Members’ contributions this afternoon. We ought to dwell on that as something that we can all sign up to and aspire to. There is a long gap between that aspiration, where we are now and what has happened in recent times with energy efficiency and what we now have to do to close that gap. Among other things, we must make sure that we fulfil our climate budget obligations and make sure that what comes into those climate budgets from the energy efficiency contribution is as good as it can be.

Having congratulated the hon. Member for Eddisbury on her contribution, I want to add a slight note of sadness. Perhaps we should have all sat on one side of the Chamber this afternoon and addressed our comments to all the rest out there who did not turn up to the debate and who quite often do not engage with this issue. We might have collectively addressed the importance of energy efficiency not only in domestic buildings but in commercial and industrial buildings. It is important to work together to address climate change, fuel poverty and all those other targets to make sure we sort them out. Today’s debate has reflected the collective and consensual activity that we ought to organise among all of us, provided all those other people along the road support the Minister in what she is doing for energy efficiency. The Opposition party must have the very best policies so that when our turn comes to govern, we have a clear understanding of where we need to get to, what we have to do and how we support and fund it. That is a job of work for all of us in this Chamber to get ourselves involved in.

The elision of energy efficiency and the clean growth plan in this debate highlights one of the central issues that will make or break our approach to making sure that our obligations under the fourth and fifth carbon budget can be met. I have said on various occasions that the really good news about the clean growth strategy is that it encompasses all of those things. The bad news is that the clean growth plan itself does not get us to where we need to go in terms of our obligations under the fifth carbon budget. I think the Minister accepts and understands that and has, I hope, substantial plans to add to the measures in the clean growth plan to get us to the fifth carbon budget target. However, I do not think we need to come up with a lot of brand new ideas to do that. We need to make sure that what is in the clean growth plan is funded and sorted out at the earliest possible stage and on the widest possible canvas so that when we come to put the sums together we will see that they add up as we go down the line.

I cannot emphasise strongly enough, along with other hon. Members this afternoon, what we need to do to meet the target for energy efficiency in homes. The hon. Members for Eddisbury and for Wells (James Heappey) and my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) all emphasised the components of the action that we need to undertake with regard to energy efficiency. The hon. Member for Eddisbury emphasised how clear-eyed we need to be about what it will cost us and how it will be financed, but, once that cost has been met, there will be benefits in the end. We need to understand that that is a pretty good cost-benefit analysis over the long term.

My hon. Friend the Member for Birmingham, Selly Oak reminded us not only about how the cost will be borne, but by what parts of Government it will be borne. He drew attention to how matters stand under the clean growth plan of action. I believe that there is shortly to be a Government publication on the plan for the next phase of ECO and how that will have its impact on energy efficiency. We have to be clear that even if ECO is extended out to 2028, at its present level of funding that will get us nowhere near to the numbers that we need to be energy efficient. There are still 7 million homes out there—the non-cavity wall and hard-to-treat homes—that have a far higher unit cost of treatment than what we might call the lower-hanging fruit of loft and wall insulations, a lot of which have already been done around the country.

Since some of the measures taken by the previous Labour Government on area-based schemes, including the enveloping of some hard-to-treat homes, there has been a 58% drop in treatments related to energy efficiency. I do not blame the present Minister for that drop. I know that she is committed to turning that around and getting a far greater number of treatments undertaken, but we have to face the fact that that is what has happened in recent years. We are starting our road back towards energy efficiency from a fairly low and, in some senses, rather dispiriting base.

My hon. Friend the Member for Birmingham, Selly Oak reminded us that when it comes to funding the changes it is extremely unlikely that we will be able to do it by heaping obligation on obligation in customers’ energy bills. I want to go further and remind hon. Members that we are assuming at the moment that action will be taken in a range of areas by means of obligations on companies, which will be passed on to customers in their bills. As my hon. Friend mentioned, we assume that the cost of the smart meter roll-out will go on customers’ bills, because the obligation on energy companies to fund them will be passed on. The capacity market for procuring standby energy supply and new forms of conventional energy supply is, effectively, an obligation that is passed on to customers in their bills. The contracts for difference that we have already are also based on such an obligation—the renewables obligation—and the additional £557 million that is in the budget for further offshore wind. The warm home discount is in the same boat. If, as I understand the present plan to be, the energy company obligation is extended to 2028, that will also be based on a continuing obligation—it is in the name—that will go on to customers’ bills. Recently what was effectively a grant from Government to energy-intensive industries was converted to an exemption, which is to be funded by a levy on customer bills. There is a raft of such levies, and the number is increasing.

The hon. Member for Eddisbury set out some recent figures from, I think, Frontier Economics, and said that they were the likely real annual cost of getting us to an acceptable level, close to the target in the clean growth strategy. Her figure was £1.1 billion. From recollection, although I do not have the Frontier Economics report before me, that figure is a net one, arrived at after taking into account other contributions, including local authority and, as other hon. Members have mentioned, landlord contributions. The hon. Member for Wells—perhaps in future we can refer to him as the hon. Member for HEEPS—mentioned, and my hon. Friend the Member for Birmingham, Selly Oak emphasised, the fact that landlords may make a contribution, but if they say they cannot afford it or get into ECO, they will effectively be given a free pass.

There should be a minimum merchantable standard for property for rent. Although it is true in theory that at the moment the landlord should not be able to let property below that standard, which would be band E in this instance, the remedy is enforcement at local authority level. We know what the situation is as to enforcement at the moment, given local authority resources.

Landlords do not necessarily have to stick at band E if they have spent, I think, £2,500. If they cannot get on ECO, they get a free pass. I do not think that that should be regarded as acceptable in the next 10 to 20 years. The landlord contribution should be doubled—and, indeed, the Frontier Economics report suggests a landlord contribution of £5,000 being factored in to the figures mentioned by the hon. Member for Eddisbury.

However, the issue is not only about that. If someone said, “I am letting out this hotel room, which has no glass in the windows, has cockroaches all over the place and has no sheets on the bed, but is quite cheap,” trading standards and various other people would be all over it. We need to get into the idea that a house being let in the rented sector with poor energy efficiency is a non-merchantable product and should be seen as such. A key part of a drive to make firm progress on energy efficiency is making sure that rentals in that sector are made on the basis of merchantable properties with good energy efficiency.

The figure that the hon. Member for Eddisbury mentioned can be upped a little in view of all the contributions. It comes to a round total of, I think, £1.8 billion. That is certainly what our party would commit to as the sort of expenditure needed to get to the level in question. I cannot see that that can be found by increasing obligations on bill payers over the next period. It must come from central taxation.

[Claire Perry]

The hon. Gentleman is a sensible, intelligent man, but what he is saying presupposes that the prices never change. However, the reason we no longer have to invest so much of the £557 million in offshore wind is that prices tumbled precipitously, giving us more bang for our buck and enabling us perhaps to buy technologies that are further in the market.

Part of the clean growth strategy is trying to take that investment spend—the innovation spend that the Government are setting out—so that we can drop the prices of technologies significantly, and so that they no longer require a burden on the bill payer or the taxpayer, because they are sufficiently cheap. The benefits in reduced energy costs that my hon. Friends described mean they pay for themselves. Please would the hon. Gentleman get out of the world of equating the amount of money that the Government spend with the result that we need? It is actually a matter of how we deliver the most homes, well insulated and cheap to run, most affordably.

[Dr Whitehead]

The Minister is right, in that, obviously, area-based efficiency measures that uprate an entire area lead to economies of scale. Far more houses can be treated in that way than by cherry-picking individual houses in different places and dealing with them one by one.

[Claire Perry]

That is true, but surely the hon. Gentleman agrees that other people’s money will be better used if the underlying price per installation has fallen because of a completely different approach to cavity wall insulation or investment in solar-reflective paint, which is a technology being rolled out in other parts of the world—in other words, if we are looking at more cost-effective and innovative ways of doing things, so that the same amount of money buys far more installations on a per-unit basis.

[Dr Whitehead]

I surely do. On the basis of what the Committee on Climate Change says, the current ECO commitment falls way short of the levels of treatment we need if we are to get anywhere near our 2035 targets. Even the £1.8 billion figure that has been cited will not cover a complete series of treatments for houses in the UK. I suggest that making our treatments much more efficient—by doing them on an area basis, for example—would allow us to get much closer to our target for the same money. We can probably agree that £1.8 billion will be the sort of money that will get us there, but an efficient approach could get us so much further, which I would completely support.

As the hon. Members for Eddisbury and for Wells and my hon. Friend the Member for Birmingham, Selly Oak emphasised, enveloping energy-efficient homes area by area needs to be funded from the infrastructure budget. It may not look like big boys’ toys, but it is absolutely an infrastructure project and ought to be treated as such by the Government. That would have a number of advantages for costs of capital, borrowing and all the rest of it; as the Minister says, we could make even more houses efficient for the same investment.

I appreciate that I have gone on rather longer than I intended, but let me briefly say a few words about the speeches of my hon. Friend the Member for Redcar (Anna Turley) and the hon. Member for Ochil and South Perthshire (Luke Graham). They both drew attention to the role that CCS can play, as did the hon. Member for Wells—or rather for HEEPS. I thoroughly endorse that line of thinking on CCS, but I must point out that as far as the clean growth strategy is concerned, £100 million will not get us anywhere near our CCS target, just as our ECO commitment will not get us anywhere near our energy efficiency target.

I congratulate Teesside on its comprehensive approach, in which my hon. Friend the Member for Redcar has been centrally involved. Teesside could be an absolute exemplar for the rest of the country in its combination of intensive industry with CCS and its by-products. That is very important for realisation of the clean growth strategy and we need to incorporate it in all our future clean growth plans.

I congratulate all hon. Members on their contributions to the debate. They all faced in exactly the same direction, acknowledging the importance of energy efficiency in homes, for a variety of reasons including climate change and fuel poverty, and the prominence that we need to give it in our policy debates. If this afternoon’s debate has hastened that process, we will have done a very good job between us.

--- Later in debate ---

[The Minister for Energy and Clean Growth (Claire Perry)]

It is a pleasure to serve under your chairmanship, Mr Walker. You tempt me, but I will say what I had planned to about this excellent debate.

May I wish everyone a happy International Women’s Day? [Hon. Members: “Hear, hear!”] I am so proud to represent my constituents on this marvellous day—a great day for discussing boys’ and girls’ infrastructure investment preferences. It is a bit like blue and pink jobs, but we all need better roads, railways and power generation as well as warm and well-insulated homes. That is certainly my focus.

I congratulate my hon. Friend the Member for Eddisbury (Antoinette Sandbach) on securing this fantastically important debate and on her characteristically thoughtful, knowledgeable, well-balanced and well-researched speech. She is an extremely important member of the Business, Energy and Industrial Strategy Committee, which has done such good work on the matter. It is striking that this is our second debate this week—after the Second Reading of the Domestic Gas and Electricity (Tariff Cap) Bill on Monday—in which there has been an outbreak of consensus. Long may it last.

Hon. Members across parties understand the vital need for action and the potential difficulties. A lot of sensible suggestions have been made about prioritisation, but ultimately we all share the ambition to secure clean growth for the UK at the right level and the right cost; maximise productivity under our clean growth strategy and our industrial strategy; and create a secure, diverse energy supply at low cost for our consumers. This has been a really thoughtful debate and many good ideas have been suggested.

Let me recap where we are. Based on 2017 data, the last time emissions in the UK were this low was in the year the Forth bridge was opened and “The Picture of Dorian Gray” was published, which was the year before penalties were introduced in football. I hope hon. Members from north of the border will already have got it, but in case not, it was the year 1890. When we consider the scale of the challenge, we should take a moment to think about just how far we have come: in a couple of decades, we have dropped our emissions to a level last seen in Victorian times. That has been achieved through cross-Government support for the Climate Change Act 2008, impressive work done by successive Governments on decarbonising parts of the economy, sustained investment and getting the costs of intervention to a market level, as we have seen so recently in offshore wind.

To be slightly partisan for a moment, I am very struck that it was Margaret Thatcher who made the first speech to the United Nations on the impact of human activity on the climate. She referred to sulphur emissions and acid rain, but since then we have realised the impact of chlorofluorocarbons, started talking about carbon and methane, and become far more informed. Only two countries in the world are considered to be doing enough to meet a 2° target: China and the United Kingdom. I would be the first to acknowledge the scale of the challenge ahead, but we should feel reasonably good about getting there and about speaking to colleagues and constituents about what we have done.

Before I plunge into my attempt to answer the many questions asked in the debate, let me refer to a couple of speeches. My hon. Friend the Member for Eddisbury opened the debate and the next speech was made by the hon. Member for Redcar (Anna Turley). It has always been a pleasure to work with her and it is so wonderful to see her back in her place, standing up very ably for the concerns of her constituents. The opportunity to create a new industrial cluster on the SSI site that sequesters rather than emits carbon is incredibly exciting. Unfortunately, the hon. Lady was not there when I visited, but I was pleased to go up to see the site, work with some of her colleagues and celebrate a really good interaction between national Government and local government—having a Mayor for the combined authority is making a huge difference—and some incredibly effective cross-party working. That is a really important model for how we should be going forward.

Let me briefly address carbon capture, utilisation and storage, which is not the topic of this debate but is important none the less. We have a triple test for spending taxpayers’ money on technology. First, can we get the carbon down? Secondly, can we get the cost down? Thirdly, can we create a competitive innovation that we can then export around the world to improve productivity? I was not in my current post when the decision was taken on the council. I can say that the money that was not spent was recycled into the research and development budget, which has allowed us to have £2.6 billion to spend on energy innovation that is bearing fruit all over the place.

By the way, there are only 21 at-scale CCS plants working in the world today, 16 of which rely on capturing the carbon and using it for enhanced oil recovery. This is not a cost-effective technology that other countries are embracing with gusto. Even our friends in Norway, who are a little further along than us in building up the infrastructure, are struggling with precisely this point, which is, how much do we burden taxpayers or consumers to fund these projects? That is a real challenge. However, we are not going to bow down before it; we are going to embrace it.

That is why I have set up the carbon capture, usage and storage council—literally the best minds on this problem in the UK, and indeed around the world—to consider how we build strategically the case to carry out CCS in a more cost-effective way. We have also set up the CCUS cost reduction taskforce, emulating what was done in offshore wind, to drive prices down, not only in terms of the technology, but in terms of the financing, risk analysis and risk-sharing, which was one of the problems we had in the last project structure.

As the hon. Member for Redcar mentioned, I have set aside £100 million for CCUS innovation. That is not a subsidy and it is not putting money into a contract for difference; it is trying to create the innovation that we need. There are enormous opportunities to work with the hydrogen economy and with heating systems, to try to bring this work together. I accept that that news was a disappointment, but I would like colleagues to be reassured that we understand completely the need to decarbonise these industrial pools and to decarbonise further our heating system. Without CCS and CCUS, I do not believe that we can do that, which is why they are such vital technologies.

My hon. Friend the Member for Wells (James Heappey) displayed his characteristic vision and knowledge of this sector. He said that we have been too focused on inputs, not outputs, when we talk about energy and efficiency. He also talked about the distributed energy future, which is absolutely what is happening both in our minds and the minds of the commercial world.

Of course, we already have solar. We do not often see a lot of solar generation on the very helpful national grid app, because it tends to sit behind the distributors and make its contribution there. However, we also know that we need to keep investing in this industry, which is why the smart systems plan has tried to set out the framework for doing that.

My hon. Friend also alluded to Birmingham combined heat and power, demonstrating that there are some fantastic examples out there, whereby not-for-profit or community-owned entities have already been set up. Robin Hood Energy in Nottingham also comes to mind, as does the White Rose Energy project. In those projects, there is real innovation and local leadership, which we welcome. We have been supporting those things. I have just put another £7 million into working with UK100 to try to build capacity at a local level.

For me, most of this activity works when it is delivered in a particular place. It is very easy to sit in Whitehall and push out suggestions, but if they can be pulled through by a local authority, a local council or a local company, we can start to think about transport. How does transport plug in? And how do we deal with heat? That was an excellent set of suggestions.

The hon. Member for Birmingham, Selly Oak (Steve McCabe) also spoke. I will try to reassure him that these things are not just warm words; they are actions. I think we are all apprised of the need to deliver and to continue to maintain the UK’s leadership position in this area, which is genuine. Now, when we go around the world and talk to other countries about what we are doing, people listen. There were 70 people at the event on this issue in Germany yesterday, according to my officials, who said people are really hungry to learn. That is because the strategy is not just a piece of lovely paper; it is trying to set out a cross-Government set of actions that we have to take. They are not optional, if we want to meet our targets, which we must do by 2032 and beyond to decarbonise.

The hon. Gentleman and I share the aspiration around energy company obligation and fuel poverty. As the hon. Member for Southampton, Test (Dr Whitehead) mentioned, shortly I will publish some of the ECO consultation and consider how we pivot ECO to focus on fuel poverty, while also making it a conduit for more innovation, so that we can reduce the costs and target it better. That is because I get invitations to join ECO through my front door. Why? Because I live off the gas grid, so I clearly fall into some category that says there will be some fruitful mining out there. I do not want to respond to those invitations; I want ECO to be targeted at the people who need it most. They may not be the ones who are currently in the frame; they may not be known. We know that local authorities know where they are, so we want to target the ECO system much more at those who need it. I will return to mortgages when I wind up.

My hon. Friend the Member for Ochil and South Perthshire (Luke Graham) again made a powerful case for CCS and its importance. I think he also referred to the “win-win” of clean growth. We are not looking forward, as some campaigners might want to look forward, to a kind of deep green “lights off” future, because we all know that recessions are the greatest thing for cutting carbon emissions. We want the economy to grow. As he said, we already have 400,000 people working in this sector, which is delivering jobs from Aberdeen to Aberystwyth to Cornwall, and to many places in between. People have only to go to the Humber area to see what is happening with the support and the manufacturing of the offshore wind turbines for the wind industry, which is hugely transformational.

Of course, I also enjoyed receiving my hon. Friend’s invitation to all; we have had many invitations. Perhaps a Select Committee would like to produce a report on this subject, because its members could then travel around and take advantage of all these great opportunities.

The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry)—I normally never get a chance to say the full name of his constituency—gave a typically well-informed speech. We exchanged views on off-gas grid. I think that in both his constituency and mine, 15% of households live off the centralised grid, and we have to find cost-effective ways to provide them with more heating solutions in particular. Of course, all those people will benefit from the Domestic Gas and Electricity (Tariff Cap) Bill. Again, we exchanged views on CCS.

The hon. Gentleman also made a strong point about the Scottish Government’s plan. We should all be willing to learn from each other. There are so many good people out there who are coming up with good ideas, whether that is at a local level or a national level, and we will be stronger if we pool all those ideas. Then we would not replicate what we are trying to do and spend.

The hon. Member for Southampton, Test again talked about clean growth being a strategy, which is important. It is not a plan; it is a longer-term strategy, deliberately for that reason. He also emphasised that there is strong cross-party support for these measures and, frankly, we will need that support. If we are asking for this issue to be a spending priority or a national priority, we will need as many voices as possible from all parties to make these points on behalf of our constituents.

Have I covered everyone? I think I have.

I now turn briefly, Mr Walker, to some of the plans that we have to implement this agenda. I was very interested—indeed, excited—to hear the conversation about whether this issue should be a national infrastructure priority. I know that the National Infrastructure Commission will report shortly. I will follow that closely and I undertake to meet the commission, because the case that was made for demand-side as well as supply-side infrastructure investments is powerful. However, I caution colleagues that that does not automatically turn on a new funding tap. There is no packet of money under the Chancellor’s desk marked “Infrastructure”, so this all has to be put through a similar hopper.

Nevertheless, the point about energy efficiency is excellent; energy efficiency is not only a strategic imperative, but an economic imperative. If we improve energy efficiency, we reduce people’s bills, create value, and create opportunities and investment for new forms of technology. We lead the world in many of these spaces, but we have never provided a really good route to market. I am interested, for example, in the Government’s commitment to new home building, which is absolutely vital. We should try to make those homes as affordable to run as they are to buy, using that as a route to market for so much of this technology.

I have talked a bit about what we have done, and of course we have seen household energy consumption fall by 17% since 1990 and the energy efficiency of non-domestic buildings has also improved substantially. Actually, the Government’s minimum energy standards, which we have put in place for appliances and for boilers, have had a measurable effect.

I would like to reassure right hon. and hon. Members in the Chamber on one point. People have asked, “Does coming out of the EU mean any weakening of these efficiency targets?” Absolutely not. Of course these targets have a meaningful impact on energy efficiency and they reduce bills. As a result of more energy-efficient products being used, the average annual bill for dual fuel households in 2020 will be £100 lower than it might otherwise have been, and the Domestic Gas and Electricity (Tariff Cap) Bill, which we introduced this week—I was pleased that it received cross-party support—will also help to cut bills, as will the record low capacity cost of the energy that we are now buying in the market, as indeed will Ofgem’s announcement yesterday of further investigations into network company returns. We have to find a way to reduce the cost of energy right across the board.

This work does not just stop in the home or in the business environment. In the public sector, enormous efforts have been made, using the Salix programme, which has been highly successful in lending money for these energy efficiency measures. We anticipate a saving of about £1.5 billion for us all—for taxpayers—between 2018 and 2020.

So, we are moving in the right direction, but we have to go a lot further and faster. I completely accept that, which is why I set out the band C objective for 2035. That is the first time we have done that, saying, “That’s what we think ‘good’ looks like in housing stock.”

There will always be homes that are cost-inefficient to treat. There will also be homeowners who do not want that and will deny access. We cannot forcibly upgrade someone’s home if they do not want it.

[Dr Whitehead]

Can I tempt the Minister to have a look at a particular private Member’s Bill that is going through the House at the moment promoted by one of her colleagues, the hon. Member for Basildon and Billericay (Mr Baron)? The Bill suggests that the 2025 aspiration should be made a statutory target. Does she have any thoughts on that?

[Claire Perry]

Indeed. I have met my hon. Friend the Member for Basildon and Billericay (Mr Baron) and some of those who support the Bill. I think it is an extremely interesting suggestion. I was able to reassure my hon. Friend that, given the work we are doing on ECO—I will come to that—and other measures, we will get there without legislation. That is always the preferred route, although having the overarching legislation of the Climate Change Act 2008 has meant that we have to deliver on these promises right across the economy.

I started to have the conversation with my hon. Friend the Member for Ochil and South Perthshire about it ultimately being a win-win to upgrade people’s homes or buildings because it saves money. Someone upgrades their home and they save money on their bill. There is a commercial proposition there. I served on the Energy Bill Committee—the Bill provided for the green deal—and I had great hopes for it, but it did not deliver. There is an economic value to doing those upgrades, however. Some of it may flow straight to the homeowner. Some may flow to a landlord, in which case there is the opportunity to rent the flat at a higher rate or to have a different sort of tenant who has a bit more money. There are opportunities there.

We talked a little about the co-benefits of better health for the country from warmer homes. We do not cost those things, and we cannot necessarily capture the money in the silo of BEIS, but we all know that they intrinsically make sense. As well as supporting what is already happening through spending, which I will talk about, we are focused on trying to build a better market for long-term delivery of much better solutions. That is absolutely where we want to go.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 30th January 2018 Commons Chamber

[Claire Perry]

I am left in no doubt by my right hon. Friend and others about how anxious people are to see this review go forward. We want to get our future investment in renewable energies right. We continue to look very closely at this, and I hope that we will be able to inform the House shortly.

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

The Minister will have seen the recent report by the Committee on Climate Change about the Government’s clean growth strategy in relation to the fifth carbon budget. Indeed, I know that she has seen it, because she wrote the committee a nice letter thanking it for its report. What plans does she have in place to rectify the shortcomings and omissions in that strategy, as identified by the Committee on Climate Change in its report?

[Claire Perry]

As the hon. Gentleman and I both know, the report basically said there had been a sea change in our ambition for future climate reduction actions. I was extremely grateful to the committee, as I always am, for its scrutiny and information. We were the first country in the world both to pass a climate change Act and to set up an independent scrutineer. As we all know, we have to do more, particularly on business energy efficiency and new homes standards. I am looking forward to working in a consensual way, cross-party, to bring forward those measures.

Financial Assistance to Industry

Debate between Alan Whitehead and Claire Perry

Monday 18th December 2017 General Committees

[The Minister for Climate Change and Industry (Claire Perry)]

I beg to move,

That the Committee has considered the motion, that this House authorises the Secretary of State (Greg Clark) to undertake to pay, and to pay by way of financial assistance under section 8 of the Industrial Development Act 1982, compensation to eligible energy intensive industries in respect of a proportion of the indirect costs of funding the renewable obligation (RO) and smallscale feed in tariffs (FIT) totalling more than £30 million and up to a cumulative total of £565 million maximum.

It is a pleasure to serve under your chairmanship, Ms Buck. I hope not to detain the Committee too long, but it is extremely important that we consider this substantial and necessary motion.

The motion was laid before the House on 6 December and is being made under the Industrial Development Act 1982. I draw the Committee’s attention to the very helpful explanatory memorandum that my officials circulated ahead of time to enlighten Members about the more technical aspects.

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

Just ahead of time.

[Claire Perry]

Well, it was unusual to have it, and it was rather a helpful process.

In order to meet our climate targets, we have implemented a number of policies designed to incentivise generation of energy from renewable sources. As we know, the costs of such policies are recovered through obligations and levies on suppliers, who pass those costs to end users, usually in their electricity bills. Such costs can put the most energy intensive industries at a competitive disadvantage. Indeed, as set out in the clean growth strategy, our industrial electricity prices for large consumers in 2016 were the second highest in the EU15, after Italy. That can place some of our most important strategic and productive electricity-intensive manufacturing industries at a competitive disadvantage and increases the risk of businesses relocating due to the costs associated with meeting our climate targets, which no one wants to see.

We have taken steps to reduce the cumulative impact of these policies on industrial energy prices for sectors such as steel, paper, plastics, cement and chemicals. At the Budget in 2014, the coalition Government committed to compensate energy intensive industries for the indirect costs of the renewables obligation and feed-in tariffs. The compensation scheme was launched in January 2016. It provides for eligible energy intensive industries to receive compensation for up to 85% of the costs of funding the RO and FIT. We have now paid more than £352 million under the scheme to 147 companies. That has been estimated to have reduced industrial electricity prices by £17 per megawatt-hour in 2016, or around 15% of an eligible company’s electricity bill. The scheme has played a significant role in supporting the competitiveness of these vital industries.

We have tried to focus our resources on sectors that are most exposed to electricity price rises—those that are both electricity-intensive and exposed to international competition. Committee members will agree that those are incredibly important strategic industries that offer highly productive jobs right across the UK.

Under section 8 of the Industrial Development Act, Parliament must authorise the amount of compensation we can pay to these companies for the indirect costs of funding the RO and FIT as the amount exceeds £30 million. In March 2016, we authorised spend up to a cumulative total of £371 million. The motion seeks authorisation to pay up to a cumulative total of £565 million. That is a maximum number—it is not a target—and is intended to enable Government to continue to pay RO and FIT compensation to eligible EIIs until replacement exemption schemes are introduced. I know that many Committee members served on the various Committees in which we introduced those pieces of legislation.

The spending review and autumn statement 2015 set out our intention to provide an exemption from the policy cost, to ensure that EIIs have long-term certainty and remain competitive. Those exemptions are intended to replace the current compensation schemes. I will not go back through the arguments for why exemptions are better than the compensation method; suffice it to say that they are quicker, provide much more certainty of cash flow and are welcomed by the companies.

Sadly, it has taken longer than originally expected to secure state aid approval from the European Commission for the move from compensation to an exemption. We have received approval for the renewables obligation scheme, which we will implement from 1 April 2018. State aid considerations for the FIT scheme are more complex and will take longer to resolve, which is why we need approval to maintain the current compensation system while we deliver on the state aid requirement. The compensation scheme will continue for a little longer, until we have state aid approval, and costs will therefore arise in excess of the £371 million that was originally authorised. However, as I said, they will be capped at £565 million as a result of the motion, which I hope the Committee approves.

It is crucial that we continue to provide compensation until an exemption comes in. The sectors that are eligible for the relief employ around 230,000 workers and have gross value added of more than £30 billion—2% of the UK economy—and turnover of around £115 billion. About 60% of the businesses have exported products in the past 12 months. Crucially, many of the companies that are eligible for the compensation are located in areas of relative economic disadvantage and are a vital and strategic part of our industrial base. As Members will know, we want to work with these industries through the industrial strategy to boost workers’ earning power, improve living standards and create jobs so that everyone across the country can share the benefits of our economic success.

Energy intensive industries need to play their part in reducing emissions. Eight sectors, including steel, chemicals, glass and cement, are responsible for around two thirds of industrial energy use and two thirds of industry’s greenhouse gas emissions. They have worked effectively with the Government to produce industrial decarbonisation and energy efficiency action plans, which we look forward to bringing forward with the various players in those sectors.

I am content that the financial assistance outlined in the motion will benefit the UK’s energy intensive industries, and that section 8 of the Industrial Development Act is the appropriate means by which to make such payments. I therefore commend the motion to the Committee.

--- Later in debate ---

[Claire Perry]

I am grateful to the hon. Members for Southampton, Test and for Kilmarnock and Loudoun for their typically thoughtful comments about what we are trying to do.

I will try to answer all the points that were raised. I know that if I do not, the hon. Member for Southampton, Test will write to me. I want to pick up his point about his parliamentary question, rather than asking him to resubmit it. It is not a new levy. These exemptions are adjustments to the existing scheme, so I do not think they are classified as a new levy, but if he wants to put that question to me again, I am happy to ask the Department to respond.

We are not debating the idea of a switch from compensation to a levy. Businesses absolutely appreciate the fact that this is much more cash-flow positive for them and much less hassle. It reduces the risk of potential overpayments, which the hon. Gentleman raised. It is about smoothing cash flow for them and giving them certainty. As we know, whether the money is coming out of consumers’ pockets as taxes or in energy bills, ultimately we are all investing in this renewable transition together.

I want to pick up the point about the maximum amount of burden being put on businesses and slightly correct the hon. Gentleman’s statement about medium-sized businesses. It is actually medium energy-using businesses. All sizes of business, from small and medium-sized enterprises to large businesses, are eligible to bid into the scheme. The test is whether the energy cost is 20% of their profits plus something—I should know that. Essentially, any size of business can bid into this scheme. That is important. In the round, this is a cost increase of less than 1% of energy bills.

[Dr Whitehead]

If I did not put my point carefully enough, I apologise. I was seeking to suggest that the effect of non-exempt industries and companies being liable for the costs of green and social levies and this new levy would add £6,700 a year to the bill of a medium-sized non-exempt company.

[Claire Perry]

To clarify, a medium-energy user could be any size company. It might be a very large company with a very small energy footprint. As I said, on average, because we do not know by what revenue the £6,700 is divisible, it is about 1% of the total cost for consumer bills.

The point is about who we get to pay for the investment in the renewables of the future, for which we have pretty much cross-party support; we know that we need to make that transition. The good news is that thanks to the policy frameworks put in place by the coalition and Conservative Governments, we are reaching a point where renewable energy is being delivered subsidy-free. I opened the country’s first subsidy-free solar farm a few months ago, and we purchased offshore wind at £57 per MWh in the latest auction. Renewable companies, having been subsidised to get to this point, do not now require subsidy going forward.

It is important that we communicate why we are doing this. To address the point about overpayments made by the hon. Member for Southampton, Test, it is obviously right and indeed required under state aid laws that we recover any overpayments, which are infrequent. That process is continuing. Of course, if there is an exemption scheme, it is far less likely that the Government will effectively overpay on that basis.

I also want to point out that given the critical nature of many energy-intensive industries, there is an extremely long supply chain of different-sized businesses that depend on the health and wellbeing of those industries. The key test for the sector deals that we are putting together with those industries is by how much they can drive up the UK content in their supply chain. By making them more cost-competitive, we are boosting the whole UK supply chain, which is extremely important.

It was asked how we had got to the numbers. Effectively, the increase that we are debating in the motion covers renewables obligation compensation for the final two quarters of 2017-18 and FIT compensation for the final two quarters of this year and all of 2018-19. That is how those numbers stack up. I was asked how the measures relate to the CfD point. Because that is an exemption scheme of its own, this will not combine the two. They are completely separate schemes.

I wanted to pick up the point about research and development, which is crucial. In both the clean growth strategy and the industrial strategy, we have committed to the biggest spending increase on R and D that any Government have ever made, with £2.6 billion going into innovation in the clean space. The hon. Member for Kilmarnock and Loudoun and I have had many conversations about carbon capture and storage technology in which we agreed that it was vital to bring it forward. I look forward to getting those projects moving.

In conclusion, we know that businesses want us to do this, and it is extremely relevant now. It appears that we have consensus on making the changes. On that basis, I commend the motion to the Committee.

Question put and agreed to.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 7th November 2017 Commons Chamber

[Claire Perry]

In the world I live in, £100 million is quite a substantial financial investment in CCUS. It is striking that the Scottish Government invested only £100,000 in Project Acorn, as opposed to our £1.3 million. The point remains that the technology is not cost-effective. Only six plants in the world are operating without additional revenue from enhanced oil recovery. We want Britain to be the technological leader and to develop cost-effective solutions. I hope that we can work together to achieve that aim.

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

I welcome the return to some consideration of CCS in the clean growth plan, after the Government’s dreadful mistake in cancelling the £1 billion UK CCS pilot plants in 2015. What discussions has the Minister had with her Norwegian counterparts on the prospects for UK-Norway collaboration on that country’s advanced plans for carbon sequestration in the North sea?

[Claire Perry]

As the hon. Gentleman will know, Norway is currently a little bit unsure about the level of its own financial commitment. However, it has an excellent Energy Minister, with whom I have had multiple meetings and conversations. It seems strange to me that, having taken the hydrocarbons out of the North sea basin, we should not co-operate to put the carbon dioxide back, so there are frequent conversations. The hon. Gentleman will have seen the clean growth strategy, on which we would like very much to work with other countries—not just Norway, but the United States and Canada as well.

Clean Growth Strategy

Debate between Alan Whitehead and Claire Perry

Thursday 12th October 2017 Commons Chamber

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

I welcome the final publication—after, we have to agree, many delays—of “The Clean Growth Strategy”, and I agree with the Minister that the UK has been, as it should be, towards the front of the pack in action to decarbonise our economy. I also agree that the responsibility for getting us to that position lies with the Members to whom she has paid tribute today. I also welcome the Minister’s clear position that she is fundamentally onside on the need to radically decarbonise our country to meet climate change imperatives—unlike, I have to say, many of her Back-Bench colleagues. I warmly welcome her efforts in this direction and clear commitment to the tasks we have to undertake.

I also welcome many of the additional policy directions that are contained in the document. I particularly welcome the commitment to further rounds of offshore wind to assist with the decarbonisation of the energy sector, and what I hope will be an intention to return to the development of onshore wind. These new policies and commitments, among many others, are important because it is clear that on present policies the UK is set to miss its key targets for decarbonisation, set out in the fourth and fifth carbon budgets, which this House has endorsed. That is surely the point of judgment for the efficacy of this plan: does it do what it is required by the terms of the Climate Change Act 2008:

“The Secretary of State must prepare such proposals and policies”

as

“will enable the carbon budgets that have been set…to be met”?

On that measure, it is clear from the report that the Government have failed in that task.

Even with the additional measures set out in this plan, as the report states on page 41, it is estimated that the UK will over-emit at the conclusion of the fourth carbon budget by 6% above that budget and at the conclusion of the fifth carbon budget by 9.7%. What additional proposals does the Minister have in mind to rectify that deficit—or does she consider that somehow we will get there without anything other than what is in this plan?

On getting there, does the Minister recognise just how far behind in decarbonisation we are in the heat sector? Does she consider that the funding set out for the renewable heat incentive up to 2021, which appears to be a restatement of what is already there, and of the energy company obligation, which appears to be a time extension of present funding for energy efficiency, will get us anywhere near the indicative heat decarbonisation and energy efficiency carbon reductions set out by the Committee on Climate Change in the fifth carbon budget?

The Minister will recall what emphasis the Committee on Climate Change placed on the role of carbon capture and storage. She mentioned in her statement that the Government now appear to be waking up once again to the idea that carbon capture and storage is a good thing. While I welcome that apparent renewed interest in actually doing something about the establishment of CCS, both for energy generation and energy-intensive industries, does she consider that taking away £1 billion of funding for the development of CCS, as the Government did in 2016, and replacing it with up to £100 million of development funding in this plan will get us anywhere near the level of CCS use that the Committee on Climate Change recommends?

The Minister will be aware of how very important the traded sector is in the UK in terms of carbon emission reductions. The traded sector is kept on track by the EU emissions trading scheme. In her report, the long-term importance of the EU ETS is underlined, yet we currently have no certainty that the UK will remain within the EU ETS on Brexit, or that there will be any commitment, if not, that a substantive and internationally connected UK trading scheme will be established that can continue to keep the traded sector on target. Does she agree about the importance of the EU ETS in this sector? Can she commit today to work towards continued UK membership of the EU ETS in the future?

I agree with the Minister that a low-carbon transition can go hand-in-hand with economic growth, and she has today and on other occasions emphasised that the use of industrial strategy to drive decarbonisation, while providing for jobs, supply chains and manufacturing in the process, is a very important fundamental platform for our decarbonisation approach generally.

Labour has committed itself to attain the key mission of industrial strategy that 60% of all energy—all energy, including electricity and heat—would arise from renewable and low-carbon sources by 2030, the middle of the fifth carbon budget. That would in itself ensure that the targets of the fifth carbon budget were met. Will the Minister today endorse the setting of that target and work with the Opposition to bring it about?

[Claire Perry]

I thank the hon. Gentleman for his refreshingly scientific comments. It is always a pleasure to discuss this subject with him. I will try to answer some of his questions.

I welcome what I think was a compliment; of course I am very committed to this agenda, but I have to say, and he can perceive this from the fact that the Prime Minister wrote the foreword of this document, that from the Prime Minister downwards—she also mentioned this at the United Nations Assembly a few short weeks ago—and right across the Government, we are all completely committed to this agenda, because not only is it the right thing to do, but the opportunities that arise from it are enormous. I would like to reassure him about that.

I want to spend a moment on what the hon. Gentleman points out is the carbon budget page—page 41. To reassure him, some of the estimates we have for our delivery of carbon savings from the policies and proposals in the plan today are very well advanced, and we have included carbon savings from about 30% of the new proposals today. Some of them, of course, we have to continue to work to shape, particularly in the light of issues like the Hackett inquiry around the Grenfell review of building regulations and fire safety, so we will be sequencing our consultations in accordance with such work, and that will enable us to set additional reductions in carbon budgets once we have further developed those policies.

I want to reassure the hon. Gentleman, however, and I have helpfully set out on page 41 the fact that, should we have to, and with the consent of the Committee on Climate Change, we can use flexibilities. My intention is that we do not have to use them. Because we have over-delivered, and will over-deliver so substantially on current projections, up to carbon budget 3, more than enough will have been built up in terms of flexibilities to cover carbon budget 4 with more left over. My sense is that, given the ambition, the pace of change and the extraordinary changes in the cost and adaptation of new technology, we will comfortably exceed these budgets. But he is right that we have a statutory duty to report on this. This is a very good example of legislation making politicians focus on what is important, over the political cycle. I thank him for his ability to question, which enables me to confirm those points.

The hon. Gentleman discussed the EU ETS. I am actually off to Luxembourg tomorrow. The UK’s piloting of the emissions trading scheme was absolutely vital in designing the scheme. We remain a very important partner, and I have been absolutely clear that we will do nothing that in any way disadvantages our own economy or that of our EU partners, as we negotiate the new terms of our relationship with Europe.

I admire the hon. Gentleman’s shadow ambition for renewable energy, but I want to be clear today that when we look at new technologies, it is important that we apply the triple test. First, the technology must decarbonise sufficiently; secondly, it must be affordable—we have to see a very good cost trajectory; and thirdly, it must build capabilities that Britain can build on, so that we can export and grow our own economy.

I would be delighted to sit down over a cup of coffee and review the hon. Gentleman’s plans for renewables and see whether they meet those tests. I think those are very appropriate tests, through which all technologies should be reviewed as we go forward.

Oral Answers to Questions

Debate between Alan Whitehead and Claire Perry

Tuesday 27th June 2017 Commons Chamber

[Claire Perry]

Even those who do not think that this is a pressing international issue must surely welcome the fact that there are now more than 400,000 people employed in this industry—more than in the aerospace sector. Britain has shown, in the G7 and the Environment Council meetings, that we are absolutely prepared to stand shoulder to shoulder with our European and international partners to make up any deficit caused by Mr Trump’s withdrawal.

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

We were promised the publication of this report in the middle of 2016. In October 2016, the permanent secretary promised that it would be published by February 2017. In January 2017, the then Secretary of State promised that the report would be published in the first three months of this year. Now we hear that it might be published this autumn. A year and a half on from the original promise, we are now clearly defaulting on our commitment under the Climate Change Act 2008, which requires that the plan is published as soon as is reasonably practicable after the order has been laid. Is not the Minister ashamed of this lamentable failure to act on that legislative requirement to produce a report that is important to the future of climate change activity, and will she apologise to the House for the delay?

[Claire Perry]

I would have expected more from the hon. Gentleman. Let me just remind him what has happened since the Committee on Climate Change’s report was produced. We have had Brexit, we have had a general election and we have had the withdrawal of the USA from the Paris climate change agreement. I want to take the time to ensure that this report exceeds his expectations. I will take no lessons from those on the Opposition Front Bench, who have consistently failed to welcome this country’s progress, which the right hon. Member for Doncaster North (Edward Miliband)—who is, sadly, not in his place—was sensible enough to kick off in 2009. I believe in delivery, not promises, unlike the Labour party’s manifesto.