Energy Prices Bill

Baroness Worthington Excerpts

2nd reading
Wednesday 19th October 2022 Lords Chamber

[Baroness Worthington (CB)]

My Lords, I am grateful to the Minister for introducing this Second Reading debate. I begin by saying that I welcome the decision to take action to protect consumers and businesses from sustained high energy prices ahead of this winter. Clearly, something needed to be done, and it is good that we are doing it. The energy price guarantee needs a legal footing, the energy bills support scheme needs to be supported too, and obviously extending measures for non-domestic customers is essential. The measures relating to passing on costs to tenants are welcome, as are those on heat networks and complaints. Then there is decoupling the wholesale gas price from the price we all pay.

Something needed to be done and this Bill is at least an attempt to do it, so its content is necessary and to be supported. However, it is possible to be supportive of the content but dismayed by the means by which these issues are being brought forward. You can be supportive of the what but very concerned about the how.

I wonder how we got here. It is not as if we did not know when winter was going to be or as if the invasion of Ukraine was a piece of news. Why then are we here in October, already facing emergency legislation being rushed through on an accelerated timescale when we had an Energy Bill that we were debating? In fact, we still have one, paused somewhere in the ether. I do not know whether I feel pleased or saddened that many people said at the time that that was not the Energy Bill that the country needed. This is evidence that we were right; the Government have now had to bring through emergency legislation to focus on the here and now and the issues of the greatest importance.

The most important issue is of course affordability; therefore, I am glad that we are now focusing on that. We could be sitting here talking about a hydrogen levy being applied to bills to pay for hydrogen heating, which would have been a catastrophic waste of time, so I am pleased that we are now at least focusing on the real issues at hand. However, this is a difficult Bill to engage with. It is highly complex, lots of the detail is missing, and the powers being taken are extraordinary. Therefore the how leaves me feeling very ill-prepared and concerned that we are not going to do the job that we are expected to do, which is to go through the Bill, in great detail and with great care, to prevent unintended consequences and to ensure that it is fit for purpose. I feel that, as it currently stands, we cannot do that job.

There will be unintended consequences, not least the effect on investor confidence. It is not as if we do not have other problems facing the economy at the moment. Just at a time when we need to provide certainty to markets and give investors confidence to invest in the UK and to help us deliver a transition in our energy system to a cleaner, more affordable and secure one, we are taking legislative powers which will have a chilling effect on any investor reading them. They are so broad-ranging and there are so few checks and balances that anyone considering making an investment decision in the coming weeks will be thinking twice, and I suspect that they will think that for as long as these powers last.

That brings me on to one of the big concerns, which is that the sunset clauses in the Bill are far from adequate. In fact, they really do not exist, because if you analyse some of them, at least one of the measures, the cost-plus revenue recall measure, potentially lasts for five years, and even then, it is on a rolling basis—the Secretary of State can continue to extend that deadline. No justification is given that warrants that length of time or that level of potentiality for it to continue indefinitely. The industry is truly scratching its head—I am sure we have all had the briefings pouring into our inboxes—trying to understand how it can be possible that this seemingly unjustified approach is being rushed through at such pace.

I hope that we will hear from the Minister about the response to the Delegated Powers Committee report, which picks on just two to three of the clauses that it considers to be most problematic. Clearly, if it had had more time, it would have picked up a number of other measures, but it was not given enough time, and we received the report only this morning. It has been quite scathing about certain aspects, including Clause 9 and Schedule 1, which it highlights as bringing in “camouflaged legislation” and “sub-delegated powers” which undermine democracy and will undermine the role of this House if it is allowed to continue. It also highlighted Clause 22, where it has serious concerns about the nature of the powers being taken. We need to hear from the Government their response to those concerns.

The noble Lord, Lord Foster of Bath, mentioned that some things are missing from the Bill. I do not think that we want a huge omnibus Bill to be rushed through, so it is right that we focus on the affordability leg of the challenge we face, but imagine if we had taken the same approach to the upstream sector. Here we are, looking at a Bill that makes a set of big interventions into the market, leaving it open-ended and being expected just to trust the Secretary of State’s judgment on many things. The Bill has sweeping powers—it has been described almost as nationalisation by the back door; that is how big an intervention this is—yet, when we look at what happened up stream, the Bill that was passed to introduce the windfall tax, the excess profits levy, contained a circumscribed set of things. It was very narrow. It did not have any open-ended powers. It also had a huge get-out clause where, if the sector could show that it was reinvesting in the North Sea, up to 85% of that windfall tax would be taken away.

That is how that sector was treated: with precise, time-bound interventions. It was given clear ways in which to encourage it to invest. Compare that to this sector. It is night and day. I do not think that this sector is being treated with anything like the same degree of fairness, which we should expect from legislation. Let us turn this on its head and ask what we could have achieved had we taken these powers and applied them to the upstream sector. Imagine if we had had the ability to go in with some legislative strength and say, “We don’t want you to continue to charge us these inflated prices for the product that we license you to extract”. We are a purchaser of these products from the North Sea. Rather than simply allowing the sector to price-set then try to claw the money back, could we not have done what we are doing here and had a conversation about capping the price for our own domestic consumption? If we had taken broader powers at that time and done things correctly, we might have got a better outcome than simply allowing the sector to set whatever price it feels is necessary and then trying to claw it back through a windfall tax.

As I mentioned during our helpful briefing with the Minister, there is an international dimension to everything we are talking about here. This issue needs to be seen in that context. Obviously, we are reliant on imported energy from our neighbours, particularly Norway. I want these sorts of measures and the approach of treating this issue like the emergency it is to be evident in our diplomatic efforts with the countries that supply us with our energy. Norway is a neighbour. It delivers a huge proportion of our gas—about 60% at the moment, according to the latest statistics. What are the Government doing to have a conversation with Norway about keeping the price at a reasonable level so that it does not flow through to consumers in the way it currently does? There must be a mechanism for doing that. It is not a poor country: Norway’s profits will be excessive during this period and will end up in its sovereign wealth fund, having come from our taxpayers and out of our public spending. There must be an international dimension. I would have liked to see this Bill in that much broader context of the international elements of what we are describing.

To return to the question of equality of treatment of upstream and downstream—other noble Lords will talk to this issue, I am sure—there is a distinct difference in the time of intervention. The measures in the energy profits levy will last only until 2025 but, as we have just discussed, some of the measures in this Bill may last for five years and be extended on an indefinite, rolling basis. That is simply not equivalent. There is also the fact that, in this Bill, we talk about revenues whereas, in the other intervention, we talked about profits. Why is it called revenue in one sector and profit in the other? What is the nature of the difference there?

I have touched on the Delegated Powers Committee. I hope that, by the time we get to Committee, amendments will have been tabled to change some of the negative procedures into affirmative ones. I hope that we will insert more parliamentary scrutiny into some of the powers. We will, I am sure, have to think about requirements to consult, which are absent in large parts of the Bill. Then, perhaps, we could look at further tightening up as we get time to digest some of the briefings we are getting.

My final comments are two additional points. I want to understand how the measures in this Bill interact with other elements of government policy: specifically, capacity market payments. I wonder whether we are continuing to make capacity market payments while at the same time asking for money back. I just do not know. Some of those capacity market payments apply to some of these generators, which are outside the CfD. I am thinking here about the nuclear operators. I want to understand how they interact. There is also the carbon pricing support mechanism that we have on generators. I imagine that it is currently suspended, but I would like clarification on that, because it would be crazy for us to be requiring them to pay and then asking them to pay us back.

Finally, and not to broaden the debate too widely, it strikes me that we are dealing with a commodity-based crisis, with the pricing of commodities causing consumers to feel the pain, and with potentially very serious consequences this winter. It strikes me that when we try to intervene in this market, we must always think about how we can offer support to those most in need in a targeted way, reducing the amount of deadweight support that we give out so that we get it to the people who most need it. That must be done efficiently.

We must also think about who can bear the cost of paying for this. We should not be assuming that it should be on the public purse and that we have these uncosted borrowing and spending implications coming out of the Government, because that damages our reputation, increases the cost of capital, and has a big effect on people’s confidence in us as a country.

Where could we do this recovery? Clearly, we can take it out of the electricity market, which is making excessive profits. We can also take it from the upstream oil and gas suppliers, as we have done with the windfall. However, there is another body of people who make money in this market: those involved in the trading of these commodities. Gas, and particularly oil, are highly traded commodities. There are derivatives upon derivatives that sit on top of every physical therm of gas and every barrel of oil.

I do not have much hope for this idea because of everything that we have seen coming from the current Prime Minister, but the City of London does understand commodity trading. It is home to thousands of traders in these commodities. The energy companies have thousands of traders, all making money in this market. It is a very lucrative aspect of the financial services market. I would love it if a Government could have a conversation about whether we should be levying some kind of tax on that aspect, so that it would deflate the speculative bubble that I am certain is sitting on top of some of these energy prices that we are all paying, and which will have a very damaging effect this winter if we do not do something about it.

With those final words, I reiterate my general support for the contents but my very strong concerns for how these powers are being implemented. I look forward to the rest of the debate.

--- Later in debate ---

[Lord Callanan (Con)]

That goes back to the point I made in my introduction. There are many different circumstances facing different providers. Some of them have pointed out quite loudly that they have sold their power in long-term contracts, et cetera, so it varies from provider to provider. However, the noble Lord gives me the opportunity to say that the precise mechanics of the temporary cost-plus revenue limit will of course be subject to a full consultation, which we will launch shortly.

The noble Baroness, Lady Worthington, raised important issues on who should bear the cost of the measures. The energy profits levy on oil and gas and the cost-plus revenue limit that have been announced for low-carbon generators will help to fund these schemes. The scale of the crisis means that the sums involved are beyond those two mechanisms so higher borrowing will be necessary to pay for this temporary support, and it is right that we use all the available tools to support businesses through this crisis and to spread the costs over time.

The right reverend Prelate the Bishop of Manchester, the noble Baroness, Lady Young—

[Baroness Worthington (CB)]

I am sorry to interrupt when the Minister is trying to finish, but on a point of clarification, with the profits levy, up to 85% of that tax can be defrayed by the Government investing in North Sea oil and gas, keeping us hooked on a volatile and unpredictable source of fossil fuels, whereas this cost-plus recovery has no provision for generators to invest in cleaner power. Why is there not equal treatment?

[Lord Callanan (Con)]

There are separate provisions allowing generators to invest in clean power. The aforementioned contracts for difference scheme is doing exactly that, providing the incentive for them to invest in clean power. We have increased the number of CfD rounds that we have launched. As the noble Lord, Lord Teverson, said, this has proved to be an immensely successful scheme. I pay tribute to the officials who designed it. It has been so successful that most of the rest of Europe is proposing to adopt a very similar scheme for their own wind generation. It is precisely because that mechanism exists and provides guaranteed revenue for their investments that those incentives that the noble Baroness refers to already exist.

The right reverend Prelate the Bishop of Manchester, the noble Baroness, Lady Young, and the noble Lord, Lord Grantchester, all raised important points regarding the default tariff cap. The energy price guarantee will now determine the prices that households pay for their energy. However, we are retaining the price cap to help deliver this energy price guarantee. Clause 20 will ensure that Ofgem continues to calculate the cap level to determine what it costs an efficient energy supplier to provide a household with gas and/or electricity. Of course, this will not determine the prices that householders pay, but it will enable the Government to identify what level of support is needed to deliver the prices in this energy price guarantee. The price cap is a mechanism that has been proven to prevent excessive charging and to reflect the real costs of supplying energy. Retaining it will ensure that suppliers price in line with the energy price guarantee and that public funds are used efficiently.

The noble Lord, Lord Foster, gave his view that the Bill treats renewables less favourably than oil and gas. No energy firms, however they produce, should be profiting unduly from Russia’s war in Ukraine, whether they generate low-carbon or fossil-fuel energy. Current price levels in electricity markets are far higher than any energy firm could possibly have envisaged or forecast, or would have predicted they would need, to continue investing in renewables.

Low-carbon electricity generation from renewables and nuclear will be key to securing more low-cost homegrown energy, which is why we continue to support investments in the sector. I remind noble Lords of the point I have made continuously: the schemes have been extremely successful. We have the highest proportion of offshore wind energy in Europe, by far. We have the second-highest proportion in the world, and we have extremely ambitious plans to continue investing and producing more of it, precisely because the scheme has proven so successful and is delivering much cheaper power. It is our flagship scheme and it has worked a treat, as I said—so successfully that other countries are now adopting it. In 2023, the scheme will move to annual auctions, helping to further accelerate the deployment of clean low-cost generation, which is something that I know all contributors will welcome.

The energy price guarantee and the energy bill relief scheme support millions of householders and businesses with rising energy costs. The Chancellor made clear that they will continue to do so from now until next April. Looking beyond that, I am sure noble Lords would be interested to know that the Prime Minister and Chancellor have agreed that it would be irresponsible for the Government to continue exposing the public finances to unlimited volatility of international gas prices. Therefore, it is the Government’s intention that, after this winter, support is better focused on the most vulnerable households and those least able to pay, with greater incentives to improve energy efficiency.

The noble Lord, Lord Foster, raised issues on the essential importance of encouraging solar energy use in households. I completely agree with the noble Lord. We are committed to solar power, which not only is good for the environment but at the moment represents the cheapest way to generate electricity in the UK, albeit intermittently. The British Energy Security Strategy sets out an expectation of 70 gigawatts installed solar capacity in the UK by 2035. To achieve that and meet this increased ambition, we will need a significant increase in both ground-mounted and rooftop solar in the 2020s and beyond. The noble Lord will be pleased to know that there is a healthy pipeline of ground-mounted projects, currently amounting to around 19 gigawatts across Great Britain, which either are in scoping or have already submitted planning applications.

The noble Baroness, Lady Worthington, asked me yesterday and again today about our negotiations with Norway.