Energy Network Charges

Andrea Leadsom Excerpts

Tuesday 5th July 2016 Westminster Hall

[Ian Blackford]

I am grateful to my hon. Friend for making that very valid point, which was raised in a recent Ofgem report. Perhaps the Minister will reflect on what we can do to give support to those on off-grid connections.

A recent study by Ofgem noted that households in the north of Scotland that use electricity for heating would benefit from a cost reduction of about £60 a year if there was a universal network charge. That would have a significant impact on the budget of someone on a low income or a pensioner.

Not only are we faced with high transmission charges, but many consumers in the highlands and islands suffer from a lack of choice in energy provision. As my hon. Friend just mentioned, many households cannot access grid connections for gas, among other things, and have to rely on other sources of fuel. It is often a choice between electricity and domestic heating oil. With such limitations, the last thing we need is price discrimination—that is what it is—being foisted on us by a Westminster Government. Where people live should not result in them being penalised through paying higher network charges. Where is the one nation that the Government speak of? It should be about equity and fairness, but that does not exist today.

We have heard a lot since the European referendum about those who are left behind. We often hear that it is a priority for this Government to tackle fuel poverty, but fuel poverty is exacerbated by having higher network charges in the highlands and islands. I will focus on fuel poverty because there is a clear link between higher prices resulting from network charges and fuel poverty.

I am grateful to Changeworks, which has estimated the percentage of households in fuel poverty in the highlands region. It bands each locality in the highlands into groups. On its calculations, no district in my constituency has less than 47.9% of households in fuel poverty; indeed, in a number of districts fuel poverty is evident in at least 73.5% of households. I look across from my constituency to Na h-Eileanan an Iar, where fuel poverty affects 71% of households. That should shame every single Member of this House and every Government Member. Why should we accept that such a percentage of households in a wealthy country such as this should be in fuel poverty? It should be a priority for the Government to tackle the issue and eradicate such high levels of fuel poverty.

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

I am listening carefully to the hon. Gentleman, but he surely must accept that while the UK Government are doing all they can to support Scotland, this is a devolved issue, so the Scottish Government are responsible for tackling fuel poverty in Scotland? He will be aware that only last week, the Scottish Government stated that their 2016 eradication target would not be met. I am very happy to talk about what the UK Government are doing, but I am not comfortable with him blaming it all on the United Kingdom. It is a devolved matter.

[Ian Blackford]

I hope that people in Scotland have listened to what the Minister just said. It was quite astonishing: blaming the Scottish Government for fuel poverty that is visited on households in Scotland as a direct response to things that are the responsibility of this Government and to the failure so far to deal with the matters we are discussing today, such as network charges. I have outlined to the Minister that people in the highlands and islands are paying 84% more for connection charges than people in London. That clearly demonstrates that it is the responsibility of the UK Government. How dare the Government turn around and blame the Scottish Government! The situation has arisen because of austerity and failure to take opportunities, and the responsibility for that lies fairly and squarely in the hands of Westminster.

--- Later in debate ---

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

This is an incredibly important debate, and I congratulate the hon. Member for Ross, Skye and Lochaber (Ian Blackford) on securing it. Over the last year we have had numerous debates in Bill Committees and elsewhere about the vital importance of addressing fuel poverty. On that, we are absolutely as one.

I also agree with the hon. Member for Brent North (Barry Gardiner) that it is not that those outside of Scotland are doing fine and those in Scotland are being somehow penalised by the Westminster Government. While I do not think that any of the hon. Gentlemen from the Scottish National party would say that is the case, that is the impression they are giving. As the hon. Member for Brent North made clear, fuel poverty affects the whole of the United Kingdom, including Northern Ireland, which has a different distribution and transmission network. This is an issue for all of us and we need to address it as a United Kingdom, taking account of the interests of all our citizens.

[Ian Blackford]

In presenting this debate, I have tried to argue for fairness across the UK. I reflected on the fact that we have 14 regional markets, which I believe to be unfair, because that penalises people based on where they live. I argued about the specific circumstances of the highlands, but specifically I am asking the Minister to deal with that by creating a universal market throughout the United Kingdom so that everyone is treated in the same way. That is the correct manner for this House. It is not about dividing people; it is about recognising fairness and equity.

[Andrea Leadsom]

I will certainly address those issues; I wanted to make it very clear up front how important they are.

The costs of distributing and transmitting energy vary by location. Those differences are reflected in the charges paid by generators and consumers in a particular geographic area. The idea behind that cost-reflective approach is that it helps to drive down costs for all consumers, and it is proving successful. For example, Ofgem estimates that network costs are 17% lower in 2014 than before privatisation, while system reliability remains above 99%. However, it is right that the Government should consider action if one region has markedly different network charging levels from any other. It is also true that network charging mechanisms could never provide an efficient or effective way of providing targeted support to specific groups of vulnerable consumers within a region. I will explain some of the actions we are taking on both counts to ensure consumers right across Great Britain are receiving a fair deal.

The particular challenges of electricity supply in the north of Scotland relate primarily to the relatively large and sparsely populated terrain, meaning that it inevitably costs more to distribute electricity there than elsewhere. I reassure all hon. Members that the UK Government remain committed to ensuring that consumers in the north of Scotland do not bear an unreasonable burden of those electricity distribution costs. The response we published yesterday to our consultation on electricity distribution costs in the north of Scotland confirmed we will continue the hydro benefit replacement scheme at its current level. That scheme helps to protect electricity consumers in the north of Scotland by providing £58 million of assistance to the area, which is worth an average of £41 to each household in the region and is funded by charges on all licensed suppliers across Great Britain.

In addition, our response confirms that the Government remain committed to GB-wide funding for a Shetland cross-subsidy. That will protect consumers in the north of Scotland from the costs of replacing the ageing Lerwick power station in around 2020 and will be delivered through the hydro benefit replacement scheme. The full details will be confirmed once the replacement of Lerwick power station is known. That will have the effect of reducing costs for all consumers in the north of Scotland from the end of the decade.

The Government certainly note the calls, not least from SNP Members, for a move to a single national network charge, but we continue to believe that the priority must be minimising overall network costs for consumers across GB. As I mentioned, network charges vary regionally to reflect the costs of running the network in a specific area and the number of consumers those costs are spread across. Such a significant move away from the important principle of cost-reflective charging would be unhelpful as it risks weakening the pressure on each network company to keep overall costs down for its local stakeholders, which could lead to an overall increase in costs.

[Ian Blackford]

Will the hon. Lady give way?

[Andrea Leadsom]

I will in a minute. It is also important to note, as the shadow Minister pointed out, that a move towards a single national network charge would produce winners and losers. All hon. Members will be aware that in October 2015, Ofgem published a detailed analysis of regional differences in transmission and distribution network charges. It found that, for Scotland specifically, 1.8 million households would face higher bills through a national network charge while 700,000 would see reductions. For Great Britain as a whole, 16 million households would face higher bills while around 11 million would see reduced bills. Ofgem concluded that there is no compelling case, from a regulatory perspective, to move to a national network charge. However, we will of course continue to consider any new evidence that is presented on the matter.

[Ian Blackford]

I am grateful to the hon. Lady for giving way; she has been very generous with her time. Does she appreciate that we have a universal market for the delivery of telephone and broadband and we all pay the same price, regardless of where we live? We pay the same price for a postage stamp. We are still not addressing the fundamental point: people are paying higher prices for transmission of electricity simply because of where they live. We are generating higher levels of fuel poverty as a direct result of that.

On the whole argument about winners and losers, this is about fairness. The Minister talks about being “one nation”; we should be talking about delivering fairness to everybody and not discriminating against people, which is exactly what this Government are doing.

[Ian Blackford]

It is disrespectful how my country has been treated by this Government.

[Andrea Leadsom]

Thank you, Mrs Main.

As with other aspects of our network charging regime, Great Britain’s transmission charging regime is governed by the principle that the user pays. In other words, the costs of operating and maintaining the system are met by those who benefit from it: generators and demand customers. That ensures the economically efficient use of the transmission network and limits the overall cost to consumers across the country. I say to the hon. Member for Ross, Skye and Lochaber that it is not a postal system; it is a transmission system. He makes the case that there is one cost for a postage stamp. In a transmission system, the clear case has been made that locational pricing is needed to keep costs down for all, as that makes it more efficient for everybody. Otherwise, if I can simply add costs to the system in the knowledge that those will be socialised right across Great Britain, I will not face those competitive pressures to keep costs down.

[Ian Blackford]

indicated dissent.

[Andrea Leadsom]

I see the hon. Gentleman rolling his eyes but he must look at the evidence. He must also bear in mind that, in Scotland alone, there would be 1.8 million people whose bills would go up as a result of the measure he proposes.

The higher transmission charges for generators in certain areas of the country reflect the costs they impose on the transmission network in transporting electricity to demand centres. Conversely, demand customers in generation exporting areas pay lower transmission charges. The hon. Gentleman will be interested to note that that means Scottish generators pay higher transmission charges than their counterparts further south and nearer the centres of demand, but Scottish consumers face significantly lower transmission charges.

The hon. Gentleman rightly points out that fuel poverty is a big subject for both the UK Government and the Scottish Parliament, and is a devolved matter. This Government are fully committed to tackling fuel poverty, and it is clear that we must look beyond network charging mechanisms to do so. We absolutely want to be there right alongside the Scottish Government in dealing with fuel poverty, and I will run through some of the actions we are taking to tackle that issue.

Last week we published our proposals to reform the energy company obligation. We proposed to increase the support for low income and vulnerable households from £310 million to £450 million per annum. Scotland certainly receives more than her fair share of ECO measures with 40 measures per 1,000 households, compared with 28 measures per 1,000 households in England. There is clear evidence that through our fuel poverty measures we are seeking to support Scottish households in fuel poverty.

We also support low income households through the warm home discount. We have worked with both the Scottish and Welsh Governments on how those policies could be amended to tackle the root causes of fuel poverty in all UK nations. The devolved nature of fuel poverty action allows different nations to take measures appropriate to them, and each nation has policies tailored to address fuel poverty at the local level. We will work with the Scottish Government to set up a process and methodology for evaluating the impact of schemes implemented in Scotland—on their own and in conjunction with schemes implemented in England and Wales—on the GB energy market and any relevant UK commitments and obligations.

We are determined to help households facing the highest energy costs, including those that are off the mains gas grid, which are much more likely to face higher energy costs and more than twice as likely to be in fuel poverty as households connected to mains gas. Last year, we announced £25 million in funding through the central heating fund, which is designed specifically to help support non-gas fuel-poor homes by funding the installation of complete central heating systems.

Strong competition among suppliers is a key way to keep prices down, drive innovation and improve customer service. We have seen an unprecedented number of new companies enter the market over the last couple of years. There are now more than 40 companies competing to supply households in Great Britain. In 2010, there were just seven small suppliers and the big six.

[Mr Philip Hollobone in the Chair]

We have worked with industry to cut the time it takes to switch supplier from five weeks to a maximum of 21 days, and we are working with Ofgem to move to reliable next-day switching. The number of customers switching supplier continues to rise with 2 million energy accounts switched just between January and March this year—25% more than in the same period last year. As we know, on average consumers can save hundreds of pounds on a dual-fuel bill by switching, which is incredibly important for keeping their costs down.

We are taking a range of different actions and have seen some improvements through lower energy network costs and lower energy bills, but it is clear that this area requires continued attention. I thank all hon. Members who have participated in this valuable debate.