Enabling Community Energy

David Amess Excerpts

Thursday 1st July 2021 Westminster Hall

[Sir David Amess (in the Chair)]

I do not think it is necessary to remind colleagues how we proceed during Westminster Hall debates, but I remind those who are participating virtually that we are watching you all the time, so be on your best behaviour and watch what you are up to. Members who are participating physically should keep their masks on.

There has been just one withdrawal, and Wera Hobhouse is opening the debate and closing it. I will not impose a time limit, but everyone other than the Front Benchers, who have 10 minutes each, should take roughly four minutes each. Please share the time.

[Wera Hobhouse (Bath) (LD)]

I beg to move,

That this House has considered enabling community energy.

It is a pleasure to serve with you in the Chair, Sir David, and I am looking forward to the Minister’s response. I thank the Backbench Business Committee for granting the debate, which I secured with the hon. Members for Waveney (Peter Aldous) and for Ceredigion (Ben Lake). We want to make the case for enabling community energy by removing the blockage that is preventing its huge potential from being realised.

The evidence that the climate crisis threatens to destroy human civilisation and the natural world is increasingly alarming. We must achieve our emissions reduction targets and get to net zero by 2050 at the latest, as set out in the Climate Change Act 2008 and the Paris accord. The UK is way off track in doing that, as the Climate Change Committee has made clear. Currently, only 12% of our power comes from renewable sources. The only sector that has made reasonable progress is the production of electricity. In all other sectors—heating, transport, agriculture and heavy industry, let alone shipping and aviation—Britain is failing to reach its own targets.

The two big challenges facing householders are heating and transport. How do we rapidly transition from powering our heating and transport with fossil fuels towards doing so with clean energy? A change of this scale can be achieved only through the active involvement of people, because they will have to pay for it through their energy bills, the products they buy, and the taxes they pay. People will need to host the new infrastructure in their neighbourhoods and communities, and they will ultimately need to change their routines and practices. If people do not agree to pay for it, host it or do it, progress to net zero will be more costly and more contested, and it will be less inclusive, equitable and environmentally sustainable. The individual householder or consumer must be at the centre of our transition to net zero, and it seems the Government have not quite understood this; otherwise, they would by now have developed a coherent plan to engage people along the way.

Community energy is one of the few existing tried-and-tested means of engaging people in the energy system. Indeed, the strength of community energy comes from its connection to people and places, because people make community energy. Community energy means smaller-scale, renewable power generation that is owned and run, at least in part, by local community companies or co-operatives. The individual providers might be small or medium-sized, but when taken together, community energy could be done on a very large scale. A 2014 Government report stated that we could have had 3,000 MW of clean community energy generation by 2020. The Environmental Audit Committee’s recent community energy inquiry said that

“by 2030 the community energy sector could grow by 12-20 times, powering 2.2 million homes and saving 2.5 million tonnes of CO₂ emissions every year.”

Let us imagine a future in which we can all buy clean electricity directly from a local supply company or co-operative and in which every pound spent powering our homes, workplaces and transport supports local jobs and helps to fund new facilities and services in our communities and in turn contributes to the building of more renewable energy infrastructure. Right now, UK community energy generation is just 319 MW—just 0.5% of our total energy generation. That is a great failure of potential.

The huge potential of community energy is being blocked by our energy market and licensing rules, which are largely unchanged from when they were designed in the 1990s. They make the cost faced by community energy groups insurmountable. A report by the Institute for Public Policy Research states that the financial, technical and operational challenges involved in setting up a licensed energy supply company mean that initial costs exceed £1 million.

Let us imagine setting up a microbrewery. We plan to deliver our beers to local pubs, off-licences and homes, but then we are told that we have to pay £1 million in road tax for our delivery van. These businesses would never be started, and the savings in transport costs, greenhouse gas emissions and prices would never be realised. That is the reality that the community energy sector faces.

The 319 MW of installed community energy capacity exists because of the dedicated efforts of the people who make up the UK’s few hundred community energy groups—groups such as Bath and West Community Energy, which is in my constituency and which uses its revenues to support energy efficiency in homes, fuel-poverty programmes and low-carbon transport. Often, these groups reach those who are traditionally left behind. They are staffed largely by volunteers, who work hard to survive in an unnecessarily harsh regulatory environment.

Our outdated energy market rules mean that the groups must sell their power to large utilities, which sell it on to customers. That makes it impossible for community energy to scale up. The market structure does not recognise and incentivise the efficiencies and savings that community energy’s distributed generation creates by enabling power to be consumed closer to where it is physically generated.

The Government say that there is no problem. In answer to a parliamentary written question on 1 March, they said:

“The right to local energy supply already exists under the Electricity Act 1989. One of Ofgem’s key strategic priorities is increasing flexibility across the electricity system to support the delivery of net zero and ensuring that consumers benefit from these innovative changes.”

That misses the point: the fact that the right exists does not mean that it is practically possible. In answer to a written question on 2 November 2020, the former Minister of State, who is now Secretary of State, said:

“Ofgem can award supply licences that are restricted to a geographical area and has just consulted on how to use this facility more effectively to bring forward innovation. Ofgem’s Licence Lite regime also aims to reduce the cost and complexity of entering and operating in the market for suppliers.”

Clearly, neither has been able to achieve the potential of at least 3,000 MW of community energy generation that was identified in the 2014 Government report.

The intention behind Licence Lite was commendable, but it has not delivered what was intended. Its key flaw is the need for local renewable generators to partner with a willing licensed energy utility. None of the existing community energy groups in the UK is licensed to sell its electricity directly to local customers. That is why community energy has hardly grown for more than a decade when it should have been multiplying many times over. The flexibilities and allowances for local supply that Ministers referred to have not delivered. As the call for evidence for the Environmental Audit Committee’s recently launched community energy inquiry put it so well,

“the ability of communities to sell the energy produced locally is limited in the UK’s centralised regulatory system, meaning that projects often have to sell energy directly to the grid, then buy it back at additional cost.”

The solution is a right to local supply that enables community energy schemes to sell their power directly to local customers. That would make it viable to expand existing schemes and to construct many new ones. The Local Electricity Bill proposed by the hon. Member for Waveney in the last Session would do that. Think of it—a surge in clean energy and a surge in public buy-in for climate solutions, because people would see the local economic benefits happening in their own communities.

The Government have said they want to enable community energy. They have agreed in principle with the need for a right to local supply, but they have not agreed to look at the detail of how the true potential of community energy could be unleashed and why there are persistent barriers. Words must now become actions. I therefore ask the Minister to engage with me and other lead Members supporting this reform, and the campaigners and experts behind it. Together, we can get the detail right and implement it quickly and effectively.

The need to get to net zero is becoming more and more urgent. We will not get there without the consent and active engagement of the people who have to pay for it, host any infrastructure and change their habits. Community energy could make a large contribution, not only to produce the clean power we need but to bring people with us in our ambition to get to net zero before it is too late.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Amanda Solloway) [V]]

It is, as always, a great pleasure to serve under your chairmanship, Sir David. I thank the hon. Member for Bath (Wera Hobhouse) for securing this important debate. I am representing the Department in place of the Minister for Business, Energy and Clean Growth, my right hon. Friend the Member for Berwick-upon-Tweed (Anne-Marie Trevelyan). As I am taking part virtually, I am unable to take any interventions, but I will happily write to people if they have specific questions that are not covered in my remarks.

I reassure the House that this Government absolutely recognise the valuable role that community and local renewable energy projects can and do play in supporting the UK’s national net zero targets. I know that all Members will agree that excellent work is already under way in the community energy sector. We have heard about a number of such projects from several hon. Members, including my right hon. and learned Friend the Member for Kenilworth and Southam (Jeremy Wright), my hon. Friends the Members for Clwyd South (Simon Baynes) and for Barrow and Furness (Simon Fell), and the hon. Members for Bristol North West (Darren Jones) and for North East Fife (Wendy Chamberlain).

We need only look at the recent state of the sector report by Community Energy England, which identified 424 active community energy organisations across the United Kingdom run by 396 volunteers, to note that community energy projects can contribute to achieving net zero, not only by stimulating clean growth, but by acting as catalysts for raising awareness. As the hon. Member for Bath and my hon. Friend for Barrow and Furness pointed out, the promotion of behaviour change and the ability to build communities is a key outcome for us to achieve our 2050 goals.[Official Report, 12 July 2021, Vol. 699, c. 1MC.]

To support community energy projects, the Government currently fund the rural community energy fund. The £10 million scheme supports rural communities in England to develop renewable energy projects, which provide economic and social benefits to the community. Since the fund’s launch in 2019, it has received 1,214 inquiries and 188 applications, and it has awarded more than £4.5 million in grants to projects focusing on a variety of technologies, including solar, wind, low-carbon heating and electric vehicle charging.

Many Members spoke about the recent Environmental Audit Committee inquiry into community energy and its several recommendations. As many Members will be aware, the Secretary of State published a response last month—it can be viewed on the EAC website—and stated that we are considering future plans for community energy in the net zero strategy, which will be published later this year. As my right hon. and learned Friend the Member for Kenilworth and Southam mentioned, we will draw on evidence from this country and around the world when assessing the most effective way of meeting our net zero goals.

Many Members also spoke about the Local Electricity Bill and the need to establish a right to local supply, which would allow electricity generators to sell their power directly to local consumers. That Bill sought to establish that right through the creation of a local supply licence and to ensure that the costs and complexities of being a local energy supplier are proportionate to the scale of its operation.

As my hon. Friend the Member for Waveney (Peter Aldous) stated, the Local Electricity Bill was unsuccessful in receiving a Second Reading in the previous Session. While the Government agreed with its broad intentions, we did not support the Bill as a means to enable local energy supply. There is already flexibility in how Ofgem regulates energy supply to allow for local suppliers. Ofgem has powers to award supply licences that are restricted to specified geographies and/or types of premises. However, many Members have observed that, while the right to local supply exists, the costs of becoming a supplier currently act as a barrier to entering the market.

Making more substantial changes to the licensing framework to suit specific business models may create even wider distortion elsewhere in the energy system. Artificially reducing network costs for local energy suppliers, as the Bill appeared to suggest, would be distortive. It would mean higher costs falling on to consumers, with costs increasing as more local suppliers entered the market. It is important that we take a broad view of all consumers when making changes to the energy market, including consumer protection measures, which form an important part of the supply licence.

The Government support the development of new business models to supply energy consumers and to help achieve our net zero ambition. The 2020 energy White Paper committed the Government to review the overall energy retail market regulatory framework. That review will assess the changes that may be needed to ensure that the framework is fit for purpose and allows new business models to come forward. We will engage closely with community energy stakeholders as part of the review, and I welcome the various offers from Members today.

To support the establishment of more local energy schemes, we will also continue to look at a full range of other options to support local involvement in tackling climate change in the net zero strategy, which will set out how we will meet our net zero goals overall. My hon. Friend the Member for Waveney raised several additional points, and I look forward to receiving and responding to his letter.

As my hon. Friend the Member for Clwyd South suggested, I am happy to recognise the role that Wales, Scotland and Northern Ireland play in taking forward community energy projects. I was interested to learn from the hon. Member for North East Fife about the community-owned project on Orkney. I note that community energy is a devolved policy, and each nation has different policies and financial support. Indeed, they may use different definitions of community energy. The hon. Member for Bristol North West asked for information on the role of the shared prosperity fund and, again, I will be pleased to write to him in response.

This debate is testament to the fact that there is clear cross-party support and a growing appetite for community energy. I close by reiterating that this Government are supportive of community energy. We absolutely understand that communities are key to the Department’s wider efforts to decarbonise the country and create a cleaner, greener future for us all. I thank the hon. Member for Bath once again for securing this important debate.

[Sir David Amess (in the Chair)]

I call Wera Hobhouse to sum up. You have until 3 o’clock.