Energy Update

Debate between Greg Hands and Alan Whitehead

Monday 5th September 2022 Commons Chamber

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

I thank the Minister for his statement and for the brief advance notice that we had.

I think that we can all agree that this is a statement of astonishing vagueness and complacency. I had, for example, anticipated that the Minister might have a bit more urgency on the consequences of Russia’s decision to cut off Nord Stream 1 today, and the effects that that will have on gas prices. I thought that he might have come to the House to tell us about that. We are closely tied to European markets. Does he accept that this announcement today puts an even greater sense of urgency on the need to protect the price of gas from outside the UK, both for businesses and for domestic customers, and what measures are the Government undertaking to make that happen?

For domestic customers, there is certainly an energy bill crisis in this country. We need urgent action now.

The Minister talked about funding for the last round of price cap increases, not the one we have now. I know that we have a new Government coming in, but we have heard nothing from the Minister or the Prime Minister about what the plans might be. In fact, all we have heard from the new Prime Minister is that there will be an announcement, but nothing about what the announcement might be. A clear and obvious announcement already exists, however: Labour’s fully funded plan to freeze energy bills this winter, paid for by a further windfall tax on the oil and gas giants making record profits on the back of the energy crisis.

The Minister has an opportunity today to put flesh on the bones of any announcement. He should tell us whether he thinks that the Government should freeze energy prices. Also, does he think that the Government should implement the further windfall tax on the oil and gas giants, and if not why not—and if not, does he want just to protect the profits of the oil and gas industry as a whole?

As well as short-term support for households, we need a long-term answer to this crisis. We on the Opposition side of the House are clear that the best way out of a fossil fuel crisis is to get off fossil fuels. That is why Labour has called for a national clean energy sprint for renewables and a national home insulation plan. The Minister mentioned home insulation and talked about the Government’s existing schemes, but he knows that, in relation to real need, they do not touch the sides. Does he recognise that we urgently need a national warm homes programme to insulate 19 million homes, and is he prepared to commit to that today at the Dispatch Box?

On future energy, the Government could fix many of the problems we face if they decoupled the price of electricity from that of gas. The Minister said in his statement that there is a very leisurely process of consultation and discussion, which I see from the discussion document “Review of Energy Market Arrangements” would not be enacted until 2025. Does he accept that that is a ridiculously long timescale for an urgent change we need now? Is he prepared to commit to decoupling the price of electricity from the price of gas now, particularly given the weight that renewables now have in the market? The Minister talked about offshore wind, but why has he not removed the Government’s ludicrous ban on onshore wind, and does he intend even at this late stage to decide it is time we actually did that?

Finally, the incoming Prime Minister is obviously a fan of fracking, but the Minister told the House on 15 March:

“We are clear that shale gas is not the solution to near-term issues. It would take years of exploration and development before commercial quantities of shale gas could be produced.”—[Official Report, 15 March 2022; Vol. 710, c. 761.]

Does he stand by that statement and will he be communicating this view to the new Prime Minister?

[Greg Hands]

I thank the hon. Gentleman for his engagement, as ever. Let me try to deal with each of his points in turn.

First, on the Russian decision to cut off—or, as they put it, repair—Nord Stream 1, it is worth reminding ourselves that we are not dependent on gas from Russia, as the hon. Gentleman knows. Last year less than 4% of our gas came from Russia, and this year there have been no deliveries of gas from Russia since March—50% of our gas is domestic, and 30% is from Norway. He is right that this has an impact on prices, however, and that is being discussed at the moment and I would expect to hear more from the new Prime Minister and her team in the coming days, as he well knows.

The hon. Gentleman asked about any future windfall tax. Again, I do not want to speculate on what might happen, but I will say what happened when Labour last proposed a windfall tax. The measure that we introduced—the energy profits levy—is projected to raise twice what Labour’s proposal for a similar move would have raised at the time, and it has led to greater support for the most vulnerable customers. Labour’s proposals would have raised about £600, but the Government’s proposals raised twice that amount—about £1,200 for the most vulnerable households—and, as I said in the statement, there will be more to come on this.

The hon. Gentleman asked a very reasonable question about decoupling the electricity price from the gas price. Of course, this is one of the measures being looked at in REMA, as he rightly pointed out, and it will also be something of active interest for the Government. He asked about onshore wind, and he will know that the local partnerships scheme announced in the British energy security strategy in April has exactly mapped out how we see the changes in the onshore wind regime in England. There is no change as yet in Government policy on fracking, but that will obviously be a matter for the soon-to-be new Prime Minister.

Overall, the Opposition seem to make three central points: the Government failed to invest in renewables; the Government failed to invest in nuclear; and the Government failed to invest in energy efficiency. They are wrong on all three. On renewables, under this Government we have quintupled the percentage of electricity generated from renewables, from 7% of our electricity mix when they were in power to 40% in 2021, which is a very strong achievement. On nuclear, the Labour party’s 1997 manifesto said there was

“no economic case for the building of any new nuclear power stations”

in Britain. Twenty-five years later, we have reversed that. We are building Hinkley Point C, and on Friday the Prime Minister was at Sizewell C announcing his support for that power station. On energy efficiency, we have actually increased the percentage of homes that reach the band C level of energy efficiency: we have trebled that from 14% of our homes in 2010 to a strong 46% today. When it comes to matters relating to energy—prices, taxation and energy security—this Government will take no lessons from the Opposition.

Draft Electricity and Gas (Energy Company Obligation) Order 2022

Debate between Greg Hands and Alan Whitehead

Monday 18th July 2022 General Committees

[Greg Hands]

The hon. Member raises an important point, but an energy consumer does not have to have an encyclopaedic knowledge of the available schemes. The important thing is that the Government provide that assistance, in some cases via energy suppliers, local authorities or social housing providers. If he wants to write to me to suggest which schemes he might seek to abolish in favour of putting it all in one scheme, I would happily receive such a representation.

The hon. Member for Southampton, Test said the solid wall insulation minimal requirement should be higher. ECO4 will focus on the least energy-efficient properties and, as I mentioned earlier, we have introduced a requirement for a minimum of 150,000 band E, F and G private tenure homes to be treated. Most of those will be solid-walled homes and we estimate that around 75% of total scheme spending will go towards improving them to band D or better. We believe the current solid wall minimum strikes the right balance between giving certainty to the supply chain and giving them the flexibility to treat homes in the most important way. The hon. Member for Brighton, Kemptown sought a street-by-street approach—an area-based scheme. We expect area-based schemes to happen as installers involved in ECO also deliver under the home upgrade grant, the social housing decarbonisation fund and the local authority delivery scheme. We already know of installers planning to work in that way.

The hon. Member for Southampton, Test asked why the scheme was delayed. It is worth stating that ECO4 is the most significant reform since the scheme began nine years ago. We have had to ensure that it is fit for purpose until March 2026—it is important to get that right. This has presented new challenges in policy design, modelling and legal drafting. As I have already mentioned, however, nearly 33,000 measures have been installed since 1 April and registered with TrustMark. We expect that number to rise by several thousand because, obviously, there is a time lag between installation and registration. That is not a bad rate. This is a scheme of 450,000 households over four years, so that is roughly 110,000 per annum, so the fact that in three months, 33,000 measures have been installed shows there has been no discernible impact on delivery from the change from ECO3 to ECO4.

The hon. Member read us a long chronology of parliamentary questions and the different points he has made. I will never forget in my first year in Parliament when I asked a point of order to the Speaker. I read out a long chronology relating to a then Labour Minister, who had failed to provide an answer. The then Speaker—the glorious late Michael Martin—replied to me with just one word, “Persevere.” That was all he said to me. I will not urge the hon. Member to persevere. I say to him that at the end of that long chronology, he was not actually able to demonstrate that there had been any deficiency, that anybody had been damaged or that any measures had not been delivered as a result of ECO4 coming in three months after the scheduled end of ECO3. We covered it due to the extension of ECO3 and the bringing forward of measures in ECO4. That has been solved, and the hon. Member should join us in celebrating those 33,000 measures that have been installed just in the last three months.

Moreover, by allowing suppliers to overdeliver against their ECO3 targets—referred to as carryover—at least 40,000 extra measures were delivered earlier than they otherwise would have been. We have engaged with energy suppliers, and the hon. Member for Kilmarnock and Loudoun asked about the supply chain.

[Dr Whitehead]

If the Minister thought all along that because of all the various issues and complexities of this particular scheme, it would take longer than originally anticipated and there would be a gap in schemes, why did he not say so at the time? Why did he give me a series of replies to my questions, which said anything but that being the case?

[Greg Hands]

Sometimes, when we are making a reform, it is not always obvious where that reform process will lead. Let us bear in mind that there was a big consultation and we wanted to hear from suppliers and consumer groups, so we obviously wanted to look closely at the responses to the consultation. I have already mentioned the consultation in response to the point of the hon. Member for Kilmarnock and Loudoun; we want a GB-wide scheme. It was right and proper to wait for the responses to the consultation before laying out our reform measures.

[Katherine Fletcher (South Ribble) (Con)]

I promise to be brief. Part of the technical consultation that the Minister has alluded to for solid walls is really important. Is there a major gain in preventing the latent heat of evaporation by putting a PVA coating on the outside of walls? Do we have to lose space from inside homes that may already be small to provide initial internal insulation? Does he agree that it was important to take time to ensure that the industry and different providers could work out how to get the most bang for their buck to move it forward?

[Dr Whitehead]

But we always knew that.

[Greg Hands]

I am not sure whether the hon. Gentleman is making an intervention on my hon. Friend’s intervention, but my hon. Friend makes a good point about the strong measures that we are taking on solid wall insulation, which are important to get right—the most important thing. I do not think that anybody could point to any damage that has been caused by this; we have continued to deliver a huge number of measures in those three months. We should look at the new scheme and welcome the additional measures that we are taking to help vulnerable households.

The hon. Member for Kilmarnock and Loudoun asked about the solar process; it is a matter for Ofgem to ensure that ECO is protected in that. Obligations are calculated annually and suppliers must fulfil their obligation. Any supplier that went bust would lose the obligation. So far, only very small—or relatively small—suppliers have gone bust. The larger suppliers have continued to fulfil their obligation under ECO3.

The hon. Gentleman also asked about discussions with the Treasury. As you will know, Mr Sharma, it is always difficult to disclose matters relating to a discussion with the Treasury, so I will pass on that.

The hon. Gentleman asked about the negative NPV of £3.8 million; I will have to write to him on the exact details of that. On the 1 million homes that would be left in bands E, F and G after these schemes, we recognise that this scheme will not improve every home in the country. To help with that effort, we have additional schemes in place that I have already mentioned. Of course, some homes will not be able to be upgraded to band C or above, or it would not be cost-efficient to do so, but hopefully that will be a very small number.

--- Later in debate ---

[Greg Hands]

The hon. Gentleman asks a reasonable question. Obviously, that will be a matter for the Bulb Energy administrators. I am happy to write to him with more detail on how they might look at that in terms of ECO4.

[Dr Whitehead]

There are two separate administrators.

[Greg Hands]

Of course, there are separate administrators for different parts of the company. I am happy to write to the hon. Member for Kilmarnock and Loudoun about how the administrators might approach that issue in relation to ECO4.

The hon. Gentleman asks about the back end and risk delivery, which has not happened before with ECO1, 2 and 3. Obviously, however, Ofgem monitors that closely to make sure that there is no risk of suppliers back-ending their obligations. To the best of my knowledge, we have not had that problem in the previous three schemes.

On a budget by nations, I think I am right in saying that Scotland, along with the north of England, has benefited the most of the nations or regions of the United Kingdom from the previous ECO1, 2 and 3 schemes. It has very much been, to date, a scheme where disproportionately Scotland and the north of England have benefited. I know that the hon. Member likes to create grievances here on behalf of Scotland. He is even having a pre-emptive grievance. The scheme has not even started and he is already ratcheting up the grievance policy. I have to say that from my experience of the previous ECO1, 2 and 3 schemes, Scotland has been very well served, as has the north of England. I think we should continue to celebrate that. The hon. Member asked about a biofuels exclusion. There is competition for biofuels, and they may be better used elsewhere, but we also do not want to maintain low-income homes on volatile fuels wherever possible.

The Government recognise that millions of households across the UK may need further support with the cost of living and the extraordinary increase in the cost of energy, which we have witnessed this year. That is why the Government have announced additional support this year worth over £37 billion, including targeted support for those on the lowest incomes. The Government remain committed to helping low-income, vulnerable households to reduce their fuel bills and heat their homes. Improving the energy efficiency of our homes is the best long-term solution to achieve this. Tackling fuel poverty is an essential for our transition to net zero. That is why we are spending £6.6 billion over the course of this Parliament and expanding the previous ECO3 system into a much larger ECO4 scheme, targeted particularly at the more vulnerable and those living in the least energy-efficient homes.

The Government have an excellent record in improving the energy efficiency of homes in this country—from 14%, the level we inherited from the last Government, to 46% today. That still means that 54% of homes in the United Kingdom are rated below band C for energy efficiency. That does not give any cause for complacency. I think we can see with the action taken by this Government that we have improved the energy efficiency of homes gradually and considerably over the last 12 years, and we will continue to do so with ECO4. Therefore, I commend this draft order to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the Draft Electricity and Gas (Energy Company Obligation) Order 2022.

Oral Answers to Questions

Debate between Greg Hands and Alan Whitehead

Tuesday 12th July 2022 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

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

The Minister knows that, at present, all retail electricity supplies—whether they derive from more expensive gas or cheaper renewables—are charged as though they had all come from gas. He also knows how to decouple prices coming into the retail market, so that domestic and business customers can enjoy considerable reductions in their energy bills by getting the direct benefit of renewable prices. Why is he not legislating to do so?

[Greg Hands]

The shadow Minister raises an interesting and good point about how the UK electricity market is structured. That is one reason why we have launched the REMA—review of electricity market arrangements—process and why we are taking action in the Energy Bill on aspects of the domestic energy system that will yield real gains for consumers, such as the onshore distribution and transmission network, so that there will be more competition in the network. There will be other measures in the Bill, which I very much hope that he and the other Opposition Front Benchers will support in due course.

Home Energy Efficiency: North of England

Debate between Greg Hands and Alan Whitehead

Wednesday 6th July 2022 Westminster Hall

[Greg Hands]

I fundamentally disagree. Solar has done incredibly well in this country. We have a big capacity in solar—I think around 14 GW. Our ambition is to grow that to 70 GW. Part of that is thanks to the VAT reduction that we saw this year. I do not remember the hon. Lady supporting that VAT reduction on solar panels. The Government are taking active measures to increase and support solar energy.

On energy efficiency, when we took office in 2010, just 14% of properties in England were rated “energy efficient”. That has risen to 46%, which in 12 years is an incredible increase. However, that shows that 54% of our properties are still not sufficiently energy efficient, so we still have work to do, but we can only do it by making investment. The last Labour Government said there was no money left. Perhaps if they spent a little more on energy efficiency in those 13 years, we would not have been in a position where only 10% of homes were rated A to C when we took power.

My hon. Friend the Member for Darlington asked when the new energy company obligation scheme will begin. I think the shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead), also raised that same point. A three-month interim delivery phase was introduced between 1 April to 30 June 2022 under the previous scheme rules to enable delivery to continue subject to some measure limitations. Obligated suppliers may choose to deliver under the new scheme rules backdated to April 2022, when the underpinning legislation was put in place. We are pleased to announce that we laid the draft Electricity and Gas (Energy Company Obligation) Order 2022 before Parliament on 22 June. We expect the regulations to be made and come into force in July.

My hon. Friend the Member for Darlington also asked about energy advice. Our simple energy advice service, launched in 2018 in response to the Government-commissioned “Each Home Counts” review, provides homeowners with impartial and tailored advice on how to cut their energy bills and make their homes greener. The service has been accessed by over a million users.

[Dr Whitehead]

rose—

[Greg Hands]

I will make some progress and respond to the points made in the debate. My hon. Friend the Member for Darlington and the hon. Member for Weaver Vale (Mike Amesbury) raised the really important point of skills. I chair the newly established green jobs delivery group with Michael Lewis, CEO of E.ON UK. In 2021 the Government invested £6 million in a BEIS skills training competition, resulting in 7,000 more training places for heat pumps and insulation. The hon. Member for Weaver Vale also commended an event about skills attended by Andy Burnham and Andy Street. It is good to see constructive cross-party work. I only wish that the Mayor of London would follow such a constructive approach to cross-party work, as the Mayors for Manchester and Birmingham often do.

The hon. Member for Stockport (Navendu Mishra) asked about using legitimate builders, not cowboys. All insulations under Government schemes, including ECO, the social housing decarbonisation fund, the home upgrade grant and the local authority delivery scheme, must be completed by TrustMark-registered businesses, adhering to the latest requisite standards. These requirements are based on the recommendation of the “Each House Counts” review, an independent review of consumer protections and standards.

Draft Contracts for Difference (Allocation) and Electricity Market Reform (General) (Amendment) Regulations 2022

Debate between Greg Hands and Alan Whitehead

Tuesday 28th June 2022 General Committees

[Greg Hands]

I thank the hon. Members for Southampton, Test and for Kilmarnock and Loudoun for their good, detailed questions and contributions.

I welcome the broad support of the hon. Member for Southampton, Test. It is worth noting that arrangements for one CfD application can be rolled over, but that does not obligate a supply chain plan to be unamended. Most would probably evolve their supply chain over the period, which is valid for nine months and not 12, to reflect the move to annual auctions. That will ensure that applicants reflect changes in their commercial arrangements, and seek to innovate year on year, and not simply roll over supply chain plans. Industry acknowledged that and were supportive of the Government’s proposals.

The hon. Gentleman asked why floating offshore wind generation has been brought into the supply chain process. I think that is incredibly important. It is a relatively nascent industry, and ensuring that there is a good supply chain right from the beginning, and doing what the Government can do to steer it in that direction, is really important. Contrary to the hon. Gentleman’s suggestion that perhaps we should adopt a laissez-faire approach, I think there is a good reason for Government to be there right at the beginning to make sure that there is a strong supply chain for the UK to cement its place as a world leader in floating offshore wind, as we have been a world leader in fixed-bottom offshore wind, with Europe’s largest installed capacity.

[Dr Whitehead]

For the sake of clarity, I certainly do not wish to propose a laissez-faire regime for floating offshore wind generation. I am not arguing that there should not be a good regime, but how that regime is brought in as that nascent industry develops. I certainly think it should be subject to either a reduced threshold or it should conform with the 300 MW. I would entirely support that, because supporting the supply chains as the industry develops is clearly a positive and good idea—as the hon. Member for Kilmarnock and Loudoun said.

[Greg Hands]

I am glad that we are in alignment on the need for supply chain plans. It is key to note that in its first phases, floating offshore wind will typically consist of significantly smaller projects. Therefore setting a different limit at which the supply chain must be submitted makes perfect sense if we are to capture floating offshore wind projects and make sure that there is taxpayer value for money. That is in all of our interests, not just the Government’s. We must make sure that we able to develop and cement our advantage in the UK. We have a fantastic technological advantage when it comes to wind. To start with, we have a fantastic geographic advantage, and making sure that we can cement our world leader position will depend upon making sure that there are good supply chains for those projects, which are necessarily smaller than fixed-bottom offshore projects. That is the reason for the different threshold.

Floating offshore wind is a technology on the verge of significant commercialisation and deployment within the next five years. Being at a key juncture in terms of its deployment means that certain emerging technologies, like floating offshore wind, have the potential to play a really important role in helping us to meet net zero. Bringing those projects into the supply chain process will allow BEIS to support the development of the associated supply chain at the earliest stage, by encouraging the industry to invest in competitive supply chains and accelerate cost reduction.

The hon. Member for Southampton, Test asked about engagement with the Crown Estate. I engage with it all the time, probably on a weekly or almost a fortnightly basis. I am happy to consider his specific point about the Celtic sea. That sea will be very important for us. At the moment, offshore wind has been a huge success for this country, but it has been predominantly an east coast and Irish sea phenomenon. It is very strong in Scotland, the north-east of England, Yorkshire, Humberside, East Anglia, the Irish sea, and north Wales gets a piece of the action. But the developments in the Celtic sea enable us to bring extra places around the United Kingdom, most importantly south Wales and the west country of England, into the offshore wind industry. Our position as the world leader, and as Europe’s largest installed capacity for offshore wind, is one of this country’s really great success stories of the past 10 years. To bring the Celtic sea into that development will help to level up and make this an all-UK effort.

Low-carbon Off-gas Grid Heating

Debate between Greg Hands and Alan Whitehead

Thursday 16th June 2022 Westminster Hall

[Greg Hands]

Insulation is only one part of the picture when it comes to energy efficiency. I am delighted that the hon. Gentleman has recognised, and reminded us all, that energy is reserved to the UK Government. That is always refreshing to hear. I keep telling people in Scotland, “Thank God it is reserved, so that we don’t have to embark on the anti-nuclear policies of the SNP, or the anti-oil and gas sector policies,” even though the main emphasis of the oil and gas sector is indeed in Scotland.

On the regulator of the gas grid, as I have said, the CMA can intervene. Gas and electricity markets are considered natural monopolies when it comes to the grid. They are characterised by high fixed costs and start-up costs. For those reasons, these markets fall under the remit of Ofgem regulation. The heating oil market—

[Dr Whitehead]

On the subject of support for these measures, the Minister does not appear to have spent any time talking about what support there might be for heat pumps. I am sure that the right hon. Member for Clwyd West (Mr Jones) would be interested to know how the support that has been put forward so far— 90,000 heat pumps installed up to 2025 under the boiler upgrade scheme—relates to the turnover of boilers in off-grid properties. Replacing all of those with heat pumps would take up the entire support scheme for heat pumps in one go, when that support is supposed to be for the whole United Kingdom. By the way, the target of installing 600,000 heat pumps by 2028 will clearly fail miserably.

[Greg Hands]

The hon. Gentleman raises a good question. It is born out of a common misconception, particularly in the Labour party, of what the boiler upgrade scheme is all about. He is expecting—maybe because that is ingrained in the Labour party—that it is the role of the Government to come by and install a new heat pump for everybody across the country. That is not the role of the Government. The role of the Government here is to help stimulate the market and ensure that the private sector makes the adjustment and provides the heat pumps. That is what it is about—not dividing up a £450 million boiler upgrade scheme by the number of people in Britain and working out that it is not enough money for every person to get a new heat pump.

The idea is to provide enough stimulus to the market so that it responds, and also to go with the grain of human nature; the phase-out date is 2035, because people’s gas boilers will naturally come up for renewal in the course of the next 12 years, and during those 12 years, they will be incentivised to purchase a heat pump, rather than a replacement gas boiler. The idea is to stimulate the market. I remember the response of the market when we announced the heat and buildings strategy. I clearly remember Octopus Energy saying that the grant should quite soon enable the cost of a heat pump to be comparable to that of a gas boiler, and to become competitive over the lifetime of that installation.

[Dr Whitehead]

Will the Minister give way?

[Greg Hands]

I need to leave a few minutes for my right hon. Friend the Member for Clwyd West to respond, so I will not take a further intervention.

The basis behind the boiler upgrade scheme is not to provide everybody with a new heat pump. The idea is for the Government to prime the private sector to be able to do exactly that. The hon. Member for Southampton, Test says that heat pumps do not always work, but they frequently do. They are the only proven, scalable technology to decarbonise heating, although there might be hydrogen and other technology developments in the future. As I have said, Sweden and Norway have done this at scale. We will ensure that heat pumps can only be installed on suitable properties, and that there is a greater degree of choice for less suitable properties.

The hon. Member for Southampton, Test said that off-grid properties are suffering more from the current price rises. If he is saying that off-grid properties are facing a bigger increase in their energy costs than on-grid properties, I invite him to send me some firm evidence of that.

To conclude, I reiterate that decarbonising buildings off the gas grid will be key to delivering on Government priorities. It will protect rural consumers and businesses from high and volatile energy costs, and further strengthen our energy independence. We are taking action, and will continue to act to ensure the transition is smooth, fair and affordable for off-grid households, and rural customers and businesses.

Draft Warm Home Discount (England and Wales) Regulations 2022

Debate between Greg Hands and Alan Whitehead

Wednesday 15th June 2022 General Committees

[Greg Hands]

We may just disagree on rounding. It would not be the first time that 2.8 has been rounded up to being around 3. We can agree to differ. My point is that there are not 200,000 missing people; there are 600,000 extra people.

[Dr Whitehead]

Could we not say 3.2 million and round it down to 3 million?

[Greg Hands]

Again, I will return to my point. If the hon. Gentleman wants to make a proposal on behalf of the Labour party on how to restructure the warm home discount and how it should be paid for, I am all ears.

The extra number of households is actually leading, per constituency, to a much more considerable sum than the hon. Gentleman was suggesting. The amount of money going into the scheme means that our constituents are benefiting from a considerable increase in the amount of money coming into our constituencies—not a reduction, as he claimed. On the 3 million against the 2.8 million, I have just been reminded that it is not so much about rounding. The differences is about Scotland, because a different scheme will be announced for Scotland. The Scotland scheme will also reach around 200,000 households. That accounts for the difference.

While energy efficiency measures provide long-term assistance in reducing energy bills, there remains a clear need for direct financial support now. This scheme will ensure that 2.8 million households in England and Wales receive a rebate off their energy bill each winter until 2026 at least. The Government remain committed to helping low-income and vulnerable households to heat their homes over the winter. This is largest expansion of the scheme since it began in 2011. In 2021-22, the spending envelope was worth £354 million across Great Britain. In 2022-23, that is rising to £523 million. The expansion of the scheme will mean that around a third more households—not fewer, as the hon. Member for Cardiff West was claiming—will receive a rebate each year. These ambitious reforms to better target households in fuel poverty. The reforms enable the Government and energy suppliers to provide the support automatically and focus the support—the increased support—to those most in the need.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Warm Home Discount (England and Wales) Regulations 2022.

Future Hydrogen Economy

Debate between Greg Hands and Alan Whitehead

Tuesday 14th June 2022 Westminster Hall

[The Minister for Energy, Clean Growth and Climate Change (Greg Hands)]

It is a pleasure to serve under your chairmanship, Sir Edward. I congratulate my hon. Friend the Member for Redcar (Jacob Young) on securing this important debate, on his incredible work and passionate advocacy for hydrogen ever since he arrived in the House, and on his chairing of the APPG on hydrogen.

This Government recognise that now, more than ever, we must focus on generating cheaper, cleaner power in Britain to support our long-term energy security and to achieve net zero by 2050. Hydrogen has the potential to help decarbonise vital UK industry sectors and to provide flexible energy across power, transport and, potentially, heat. Our drive for renewables makes hydrogen especially valuable. Excess renewable electricity can be used to produce hydrogen, which can be stored over time and used to generate electricity when there is less sun or wind to power the grid.

That is why in the British energy security strategy, published this April, we committed to doubling our ambition, as my hon. Friend the Member for Redcar and others have pointed out, to up to 10 GW of low-carbon hydrogen production capacity by 2030. As the hon. Member for Southampton, Test (Dr Whitehead) mentioned, at least half of that will come from green hydrogen, or electrolytic hydrogen, drawing on the scale of the UK’s offshore wind ambitions.

The energy security Bill announced in the Queen’s Speech will deliver on the commitment to build a sustainable homegrown energy system that is more secure, clean and affordable, and will include measures to facilitate the delivery of the hydrogen business model, driving investment across the UK.

The enormous potential of hydrogen for our economy is plain to see. In the UK alone, the sector could support 12,000 jobs by 2030 and unlock over £9 billion in private investment in the UK. By 2050—net zero date—the UK’s hydrogen economy could be worth up to £13 billion and support up to 100,000 jobs, many of which will be in our industrial heartlands.

I will address the specific points made by my hon. Friend the Member for Redcar, which were delivered with passionate advocacy in his excellent speech. On blending, we are on track to make a policy decision in 2023 and we are exploring whether to enable blending of up to 20% of hydrogen into GB gas networks.

We have invested £25 million in the BEIS Hy4Heat programme to develop hydrogen-ready boilers. We have to have certainty around the safety and efficiency of these systems, and assurances that consumers will not face a premium from the introduction of these boilers, but that remains an area of active work.

My hon. Friend the Member for Redcar passionately advocated for bringing the hydrogen village trial to Redcar. We expect the final location to be selected in 2023 and for it to become operational by 2025. We expect the trial to last a minimum of two years.

I heard directly from National Grid about Project Union a few weeks ago. It is a fascinating project that we will continue to study. My hon. Friend’s plea to extend the gas storage at Rough is a live conversation with Centrica, and it would not be appropriate for me to comment on that today.

[Dr Whitehead]

Will the Minister give way?

[Greg Hands]

I want to try to respond to the different contributions, but I will give way to the hon. Member for Southampton, Test.

[Dr Whitehead]

This is a very friendly intervention. For the record, will the Minister state the importance of the role hydrogen will play in industrial decarbonisation, particularly in industries such as steel, ceramics and cement? I am sure he will want to put that into the mix, as it were, as far as the deployment of hydrogen is concerned.

[Greg Hands]

The hon. Gentleman is absolutely right about the importance of industrial decarbonisation. That is one reason why we are following the cluster approach, to make sure that those hard to decarbonise industry sectors are close to those clusters.

I will group my response to the two contributions from the HyNet group—the hon. Member for City of Chester (Christian Matheson) and my hon. Friend the Member for Warrington South (Andy Carter)—if I may call them that. The hon. Member for City of Chester also mentioned powered aircraft and maritime, which are very much in the mix for using hydrogen for transport. I had an excellent visit to the constituency of my hon. Friend the Member for Warrington South towards the end of last year, when I saw the potential for the Novelis canning factory to use hydrogen and other means. I have just come from meeting my co-chair of the green jobs delivery group to make sure that the skills are there. On the caps and the impact on companies in the HyNet process, my Department is in regular contact with major cluster projects, including HyNet, about how the Government and the industry can work together to realise our 10 GW ambition as part of the CCUS cluster sequencing process. I am happy to write to my hon. Friend with further details about the companies in HyNet.

My hon. Friend the Member for Waveney (Peter Aldous), who is a passionate supporter of green energy right the way across the board, told us about the clean hydrogen cluster in East Anglia and the Lowestoft power plant project using hydrogen for municipal buses and the refuse fleet, which was also mentioned by the hon. Member for Aberdeen South (Stephen Flynn). On one of my many visits to Scotland, I was really excited to see the Whitelee wind farm just south of Glasgow, which is the second largest onshore wind farm anywhere in Europe. Last autumn, we launched a £9.4 million project with Scottish Power to take the excess onshore wind power generated at Whitelee and turn it into hydrogen for Glasgow’s buses and refuse carts—similar to the scheme mentioned by the hon. Member. By the way, I am looking forward to being in Aberdeen again this week for the fourth time in my nine months as Energy Minister.

The hon. Member for Birkenhead (Mick Whitley) made some good points about hydrogen. I think he also managed to squeeze in a quick swipe at the nuclear industry, so I urge him to think again. I am a bit surprised that he took a swipe at the nuclear industry, as I know that he is sponsored by Unite and other unions. The unions are among the biggest supporters of nuclear in this country, so I urge him to listen a bit more closely to his union sponsors’ support for the nuclear industry. I also note that he is on the Liverpool city region freeport management board, so he is clearly able to embrace new Government policies and take advantage of them bringing things to his district. I urge him to think again on nuclear.

My hon. Friend the Member for Broxtowe (Darren Henry), who is co-chair of the midlands engine APPG, is absolutely right to say that we need to lead on low-carbon hydrogen technology. The technology side of this issue is incredibly important.

As it happens, today I have talked about renewable and low-carbon energy with Gordon Lyons, the Northern Ireland Economy Minister and a party colleague of the hon. Member for Strangford (Jim Shannon), who is absolutely right to say that Northern Ireland will play a key role in the production and export of hydrogen.

In the brief time available, I will outline the next steps. We recently published a hydrogen investment package, which set out the key policy detail that industry has been waiting for, and paved the way for the launch of two significant funding mechanisms: the net zero hydrogen fund, and our hydrogen business model. The net zero hydrogen fund will be coming this summer, and we aim to run annual allocation rounds for electrolytic hydrogen as soon as legislation and market conditions allow, moving to price-competitive allocation by 2025. In July, we will announce the blue hydrogen projects that we will negotiate with the CCUS cluster sequencing process.

We have developed an investor road map to give more clarity on what we have done, what we are doing and what we are committed to doing in developing the UK hydrogen opportunity. We have already mentioned hydrogen transport storage infrastructure, and we have committed to design new business models for that by 2025. We have published a UK low-carbon hydrogen standard, because it is really important that we have a standard for what defines low-carbon hydrogen, and we have also published a hydrogen sector development action plan on supporting the UK supply chain for hydrogen.

I hope that my hon. Friend the Member for Redcar agrees that the Government have provided a clear long-term signal that we are committed to building a world-leading UK hydrogen economy. I thank him again for securing this timely and informative debate, and for allowing us to explore the role of hydrogen in our clean and affordable UK energy system.

My final point is that I was in Berlin in January and met my German opposite number, whose name is Stefan Kaufmann. I found out in advance that his expertise in hydrogen is so extensive that he is called Mr Hydrogen. I said to him, “Stefan, one day I want to be called Mr Hydrogen,” but then I thought that, actually, the person who really deserves the title of Mr Hydrogen in this country is my hon. Friend the Member for Redcar.

Draft Electricity Supplier Payments (Amendment) Regulations 2022

Debate between Greg Hands and Alan Whitehead

Wednesday 16th March 2022 General Committees

[Greg Hands]

I thank the hon. Member for Southampton, Test for living up to the name of his constituency—he set some testing questions for us. Let me deal with the five questions that he asked.

First, why are there two companies? It is worth stating that the two functions are very different: the capacity market and running the contracts for difference auctions. I am sure the hon. Gentleman is fully aware of that. The idea is also to separate out the liabilities of the two companies. During the consultation on electricity market reform, investors and other stakeholders believed that it would be better to have two legally separate companies to keep the liabilities separate. We rolled them together because, in essence, they are funded in a similar way, but they have two different functions. However, I appreciate the hon. Gentleman’s testing question about that.

The hon. Gentleman is right that the report due under the Energy Act 2013 has been delayed. That is, essentially, because of the pandemic and to ensure that it did not get in the way of the recent contracts for difference auction by taking people off that. The recent CfD auction that started in December is the largest ever—in fact, larger than the previous three auctions put together. We will publish the report in due course. I expect to see advice on it shortly.

The hon. Gentleman asked why the Secretary of State and/or I recommended increasing the amount that was bought at the recent capacity market auction. It was a prudent decision, in these times of high and volatile energy prices, to ensure that we were as covered as we could be going into next year. The Secretary of State and I very much took the same view—we always take the same view in the Government; there is never such a thing as different views—that it was a very prudent decision to be able to maximise that. The hon. Gentleman asked whether that resulted in a higher price. The answer is no. There was obviously a very high price going in to that auction, reflecting high energy prices at the moment.

[Dr Whitehead]

Is the Minister saying that the exact comparability of the pre-qualifying amount of capacity for the T-1 auction and the amount of capacity that the Ministers decided was the right thing, which was an increase in the recommendation, was a coincidence? Or is he saying that that was carefully designed to ensure that the capacity available and the capacity bid for was the same?

[Greg Hands]

I thank the hon. Gentleman for that further question. I would not say that it was a coincidence, but what we wanted to do was make sure that the British consumer had the maximum positive protection looking forward, particularly at a time of high and volatile gas and electricity prices combined with the previous parts of the auctions and the previous years rolled into that one period. For example, the previous T-4 auction meant that, overall, the ’22-23 capacity market year, which we are about to go into, is the second cheapest yet because of the cheaper prices in previous auction years. Although there was a high price paid in the T-1 auction this year, when we look at the whole period, we took advantage of lower prices to have the second cheapest delivery overall in terms of the capacity market for ’22-23.

The hon. Gentleman asked some fair questions about the budget increases. The budgets overall put less than 50p on the average electricity bill in the previous year, 2020-21. He is right that there is a significant increase; I have laid out why and shall do so again, but this is not a big part of consumers’ electricity bills.

The hon. Gentleman made the perfectly reasonable point that surely we should do everything we can to make bills cheaper, and that is exactly why the Chancellor announced on 3 February the package of measures to help households and bill payers through council tax payments and the different support funds for those who do not qualify for the council tax rebate but none the less have high energy prices.

The budget increase reflects the increase in the number of CfDs. Over this budget period, there has been a 400% increase as a result of the success of the Government’s renewables policy and of more renewable energy providers wanting to take part. That will mean a necessary increase in the number of people needed to go through all the bids in the CfD process. There are also more capacity market providers and the development of new technologies such as power CCUS. I also remind the hon. Gentleman that during the consultation, no one was against this proposal. I do not think that we received a response from him—

[Dr Whitehead]

rose—

[Greg Hands]

But it is never too late to make one.

[Dr Whitehead]

I wonder whether the Minister would like to reflect on the numbers taking part in the consultation. Does he have an answer as to how many people responded to that? What conclusions does he think can be drawn from the total number of responses?

[Greg Hands]

I am happy to answer that. We had one response during the consultation, which was not from the hon. Gentleman but was from one of the power companies. The one response was not principally against the increase in the cost of the scheme. The increase in the cost, particularly in the LCCC, reflects a hugely increased workload with the 400% increase in the number of CfDs during the course of the budget period.

Finally, on the LCCC paying back the money, to put it more in the vernacular, when it comes to the strike price referencing the reference price, I do not think that it is practical to take that into the LCCC’s budget or in some way to pay for the LCCC that way. This is the right way to pay for the LCCC. The scheme is working in the way that it is designed to.

[Dr Whitehead]

If the Minister does not think that that is the case, does he think that some method of making sure that those repayments go back directly to customers rather than indirectly, as is the case at the moment, might be a better way of doing things?

North Sea Oil and Gas

Debate between Greg Hands and Alan Whitehead

Wednesday 9th February 2022 Commons Chamber

[Greg Hands]

I entirely agree. A very important announcement on fusion is being made today by the Under-Secretary of State, my hon. Friend the Member for Mid Norfolk (George Freeman). My hon. Friend the Member for Harrow East (Bob Blackman) is quite right about the progress we are making in this place, which is opposed by the hon. Member for Brighton, Pavilion (Caroline Lucas), her party and various other Opposition parties. We are moving forward on nuclear. Money is going into the Rolls-Royce small modular reactors programme; Hinkley Point C is being built; we are moving towards a final investment case for a further nuclear power plant in this Parliament; and we have a future nuclear enabling fund. We are moving forward on nuclear, which is an essential part of this country’s future energy needs and energy security.

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

The truth is that the Government are thrashing around after what we now know has been a decade of failure on energy, particularly on the transition to a low-carbon energy economy. They have no answer to the energy crisis that millions of families in our country face.

This is not a long-term answer either. The energy price crisis is a fossil fuel crisis, so the long-term answer must be to go further and faster on zero-carbon energy, energy efficiency and clean energy storage. On energy security, the Opposition believe that the long-term answer lies in zero-carbon energy. We need a phased and just transition in the North sea, but that cannot be an excuse for business as usual and pretending that the climate crisis does not exist.

There is one crucial climate test that should be applied to the current proposals and other proposals: whether they are compatible with keeping global warming to 1.5°. In the energy White Paper, the Government said that they would

“develop the existing checkpoints in our processes before proceeding with future licensing rounds.”

Is the Minister saying that the proposals he describes are exempt from that statement in the energy White Paper? Can he explain how what he has said today is consistent with its approach? Can he tell the House whether he believes that any future licensing decisions must be compatible with keeping global warming to 1.5°? Can he tell us how that assessment will be made?

Nuclear Energy (Financing) Bill

Debate between Greg Hands and Alan Whitehead

Report stage & 3rd reading
Monday 10th January 2022 Commons Chamber

[Dr Whitehead]

That is precisely why we wish to put in the Bill that there should be a direction in which the Government should go. Of course they should have flexibility in how they work, but we think this is an important backstop that will ensure customers do not lose their shirts in a company that goes bust after they have invested large amounts of money in its operation.

We will seek to divide the House on amendments 2 and 3 in the absence of any clear further Government commitments today in relation to. We may well be minded to support amendment 9, tabled by the SNP, should that also be put to a Division. However, I emphasise that we are happy to support the Bill overall. We want it to go through Third Reading, but we would like it to be strengthened as much as it can be by the addition of the amendments we have put forward today.

[The Minister for Energy, Clean Growth and Climate Change (Greg Hands)]

First, may I minute my condolences on the death of Jack Dromey? I shared his 12 years here and he made an enviable contribution to the House. Particular condolences to the right hon. and learned Member for Camberwell and Peckham (Ms Harman).

I am thankful for the excellent contributions we have heard today, and over the past few weeks during the passage of the Bill through the House, from Members throughout the House. I will attempt to address all Members’ comments and explain why the Government do not believe that today’s amendments should be accepted.

I turn first to new clause 1, tabled by the hon. Member for Kilmarnock and Loudoun (Alan Brown) for the SNP, regarding the special administration regime, but before I deal with his amendments, let me reflect a little bit on the contribution by my hon. Friend the Member for Gloucester (Richard Graham). The SNP, as we know, is talking today about transparency, but its real agenda is a hardcore anti-civil nuclear power agenda. This comes, ironically, just a few days after the closure of the Hunterston power station, which had its life extended by two decades beyond what was predicted and provided 31 years—31 years—of zero-carbon electricity to every home in Scotland. The Bill would make things cheaper, but I do not think that the SNP has got Scotland’s best interests at heart here for Scottish electricity or Scottish consumers.

Nuclear power has been a massive success story in Scotland, which is what I hope the Bill will also enable. New clause 1, tabled by the hon. Member for Kilmarnock and Loudoun, would severely risk the effectiveness of the special administration regime by delaying the speed at which an administrator could access funding to continue a nuclear RAB project construction or a plant’s generation of electricity. That could result in significant sunk costs for consumers and is not in the public interest.

I will turn now to Labour amendments 1 and 2, tabled by the hon. Member for Southampton, Test (Dr Whitehead), while responding to some of the points made in the debate. The hon. Member and I are aligned in our concern that foreign investment in our critical infrastructure should not come at the cost of national security. However, I want to be clear that the Bill is not about decisions on individual future projects; it is about widening the pool of potential investors and financing while reducing our reliance on state-owned developers to build new nuclear power stations. As the House is aware, we have committed to taking at least one project to final investment decision in this Parliament, subject to value for money and all relevant approvals. We are in active negotiations on the proposed project at Sizewell C. The hon. Member argued that the approval of Hinkley Point C would inexorably lead to the approval of other projects. That is simply not the case. Decisions on nuclear projects in this country are made on a case-by-case basis, and subject to a number of robust approvals from both Government and independent regulators.

Nuclear Energy (Financing) Bill (Sixth sitting)

Debate between Greg Hands and Alan Whitehead

Committee stage
Thursday 25th November 2021 Public Bill Committees

[The Minister of State, Department for Business, Energy and Industrial Strategy (Greg Hands)]

May I welcome you to the Chair, Mr Gray? It is a pleasure to serve under your chairmanship. I will be brief.

Clause 31 is the first clause of part 3 of the Bill, which establishes a special administration regime for relevant licensee nuclear companies, or RLNCs. In the unlikely event that such a company becomes insolvent during the construction or operation of the power plant, the Secretary of State, or the authority—that is, Ofgem—with the Secretary of State’s permission, may apply to the courts for the appointment of a special administrator. The objective of the administrator would be to ensure that electricity generation commences, or continues, until it is unnecessary for the administration order to remain in force for that purpose.

The introduction of a special administration regime will reduce the risks of customers being deprived of the benefits of the building of a nuclear power plant using a regulated asset base model compared with normal insolvency proceedings. It also reduces the risk of requiring a replacement source of electricity generation, which may further increase the cost of electricity to consumers. The clause defines the relevant terms for this part, which are necessary for the effective functioning of the legislation. I therefore urge that the clause stand part of the Bill.

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

I thank the Minister for setting out what the clause is about. Hon. Members will recognise that the clause is deeply embedded with the rest of the clauses in this part of the Bill. Further clauses spell out in greater detail what clause 31 talks about. Hon. Members will also be aware that we have an amendment to the following clause to be discussed, which, were it to be agreed, would have implications for clause 31. Although we do not wish to oppose clause stand part, we would like it to be noted that when we discuss the amendment to the next clause we will refer back to clause 31 as one of the reasons why the amendment was tabled and the difference that might make to the whole part, should it be passed.

--- Later in debate ---

[Greg Hands]

I thank hon. Members for their speeches for and against amendment 18. I remind the Committee that a relevant licensee nuclear company, or RLNC, is one that has had its licence modified under part 1, clause 6(1) of the Bill and has entered into a revenue collection contract. An RLNC administration order is made by the court in relation to an RLNC and directs that, while it is in force, the company is to be managed by a person appointed by the court. That is defined in part 3, clause 31(1), which we have just debated.

Amendment 18 addresses the course of action that the Government must take if an RLNC administration order is in force, but an RLNC cannot be rescued or a transfer envisaged by clause 32(4) effected, namely a transfer of the undertaking of the RLNC to a subsidiary that results in a going concern. The amendment seeks to ensure that, in this scenario, the plant will commence or continue electricity generation under public ownership. The amendment would require the Secretary of State to move the assets, liabilities and undertakings of the RLNC to a Government-owned company, even if a transfer envisaged by clause 32(3) to one or more companies would achieve the objective of the administration order. The amendment would put in place a new process. Although the amendment does not address who must make the assessment that the objective cannot be achieved by the means specified, it appears to limit the available options before the power plant is moved into public ownership.

First, obviously, I thank the hon. Members for Southampton, Test, and for Greenwich and Woolwich for their clear desire to ensure that a nuclear power station will commence or continue the generation of electricity—on the face of it, that seems a very reasonable objective—and for recognising that the special administration provisions add a valuable layer of protection in this area. Ultimately, that is why they are in the Bill. However, I do not consider it necessary to place a statutory requirement on the Government to take ownership of a plant in the unlikely event that a special administration fails in its objectives, because the provisions for the energy transfer scheme, applied by clause 33, already serve this purpose. The amendment may even inadvertently lengthen the period of an RLNC administration order, as one assumes that the Government-owned company would, for example, need to apply for a new nuclear site licence.

In the unlikely circumstance where rescue cannot be achieved and it is unnecessary for the administration order to remain in place, the Secretary of State—or the authority, Ofgem, with the consent of the Secretary of State—may apply to bring the administration order to an end. Once the administration has ended, the Secretary of State may prepare a nuclear transfer scheme, which would bring the plant under the control of a public body, or, for example, the Nuclear Decommissioning Authority. In such a scenario, it is envisaged that the plant would then be decommissioned and cleaned up. However, the Government would still retain the option to move the power plant into public ownership and, if deemed in the best interests of consumers and taxpayers, commence or continue the operation of the plant.

Let me say in response to comments made by the hon. Member for Kilmarnock and Loudoun that there may be circumstances in which discontinuing the project and having it safely decommissioned is in the best interests of both consumers and taxpayers. That will ultimately be down to a value-for-money process that asks: what is the best deal here for consumers and taxpayers? The Office for Nuclear Regulation may have shut down the plant for safety reasons; there may have been an environmental or security incident, or maybe something else happened that meant that trying to make that plant commence or continue to generate electricity was not in the interests of consumers or taxpayers. It is important, then, that the Secretary of State retains discretion to act in whatever way will achieve the best outcome for consumers and taxpayers during the insolvency of a relevant licensee nuclear company.

I stress to the Committee that the likelihood of those scenarios is, of course, very remote, as indeed is the likelihood of a nuclear administrator ever being appointed. I thank the Opposition for their forward thinking and consideration of what would happen in such a scenario, but I hope that I have assured the Committee that it would not be sensible to tie the hands of the Government in such a way that they had to commit further taxpayer money to a project without being able to balance that against the merits of doing so. The amendment would create an automatic process, but the Bill provides sufficient flexibility to allow the Government to pursue the option that the amendment provides for if they consider such a decision to be in the best interests of consumers and taxpayers. I therefore ask the hon. Member for Southampton, Test, to withdraw the amendment.

[Dr Whitehead]

I thank the Minister for his consideration of the processes by which a power plant might need to be rescued and/or decommissioned and/or discontinued. I think he will recognise, however, that the circumstances in which he says ministerial discretion would need to be exercised are an unlikely part of an unlikely scenario of an unlikely future.

The Minister gave the example of an accident, or something else, closing the plant down, so that it would have to be decommissioned and could no longer produce power. That would need to be done anyway, even if the company was placed in Government hands, so I do not think that those circumstances affect the path I have set out relating to Government interest in a plant that could not be bought out of administration because it was a going concern, or because it had been sold to another company—unless the Minister has it in mind that the sale of a nuclear company to another company would be done on a peppercorn basis, in which case the nuclear plant would lose all the value that the bill payer had invested in it.

In any event—this is what concerns me about the intervention by the hon. Member for Kilmarnock and Loudoun—the whole purpose of the RAB model is to produce a working nuclear plant that was invested in up front by members of the public and bill payers. That plant would then produce power as a reward for that up-front investment. If we easily closed a plant down because it was insolvent, we would be overthrowing the whole purpose of the RAB scheme, which is for the public to get something back, and we would be back to the instance that we talked about early on in Committee.

--- Later in debate ---

[Dr Whitehead]

I have a brief question for the Minister on clause 33(7)(b), concerning the application of section 171(1) of the Energy Act 2004. It says:

“omit the definition of ‘non-GB company’.

I am slightly mystified as to why that is in the clause, because so far as I can see, the definition in section 171(1) of the 2004 Act of a non-GB company is perfectly reasonable and should continue to exist. Perhaps the Minister can shed some light on that.

[Greg Hands]

I have to confess that I am not able, at this moment, to shed light on subsection (7)(b) and why section 171 of the 2004 Act should be so amended. I pledge to write to the hon. Gentleman—I will copy in Committee members—to clarify why omission of that part of the 2004 Act is proposed.

--- Later in debate ---

[Dr Whitehead]

I suspect that the Minister may also want to write to me on this. Paragraph 4 deals with consequential repeals. I am familiar, as I am sure everybody is, with the works at the back of any Bill amending various Acts to bring them in line with the amendments made in the Bill, or in some instances repealing measures that are replaced by provisions in the Bill. I have no dispute with the way that various Acts are to be amended in the schedule.

However, the consequential repeals—I have tried to follow them through in the way I described to the Minister in our recent discussion on form guides—include repeals of section 6(10)(b) of the Smart Meters Act 2018 and section 11(2) of the Domestic Gas and Electricity (Tariff Cap) Act 2018. These actually do the same sort of thing: delete sections of various Acts regarding licence modifications. Having looked through how these two provisions apply and why they are being repealed, I cannot see what on earth they have to do with nuclear energy financing. While I am sure that this would not have anything to do with somebody trying to put a couple of repeals in the back of a Bill even though they are not strictly in scope, I would like some assurance that these repeals are actually relevant to the forthcoming Act. If they are relevant, how? Why is it necessary to repeal two provisions that, on the face of it, do not appear to have anything to do with the Bill? I am sure the Minister will be happy to write to me to set out why that is the case.

[Greg Hands]

Yes, I think I will write to the hon. Gentleman, if I may. I am told that it is to remove a double label in the legislation, so it is purely a tidying up exercise. I will write to him, copied to members of the Committee, and for convenience I may combine it with the letter mentioned in the previous debate. It would be convenient for the Committee to have that letter well in time for Report, in case Committee members wish to consider following up with an amendment on Report.

Question put and agreed to.

Schedule accordingly agreed to.

Clauses 43 to 45 ordered to stand part of the Bill.

New Clause 1

Report on expected costs

“(1) Prior to exercising the power under section 6 (1), the Secretary of State must lay a report before Parliament.

(2) The report must set out—

(a) the expected overall capital cost of the prospective projects;

(b) the expected up-front cost of the prospective projects.” —(Alan Brown.)

This new clause would require the Secretary of State to set out (a) the overall capital cost; and (b) the expected up-front cost of the prospective projects prior to exercising the power under Clause 6 (1).

Brought up, and read the First time.

--- Later in debate ---

[Greg Hands]

On a point of order, Mr Gray. I would like to thank you and Ms Fovargue for your excellent chairing of the Committee, getting us through this important process efficiently and effectively. This has been a very interesting debate on a very interesting Bill on a very interesting topic, which attracted broad interest across the House. I have to confess that this has none the less been a relatively uneventful Committee, but for connoisseurs of the topic, it will provide many future years of reading as to how nuclear financing was scrutinised by the House of Commons so effectively and in significant detail.

I thank the excellent witnesses whom we heard from last week and all members of the Committee for their constructive debate. That has allowed the Bill to go through significant scrutiny, and facilitated important discussions. I also thank the Whips—the Whips must always be thanked—on both sides for their efforts and their effective management of the time. I offer my thanks to the Clerks, the Hansard reporters, the Doorkeepers and, indeed, all the parliamentary staff, and to my excellent team of Department for Business, Energy and Industrial Strategy officials, for the smooth proceedings and ensuring that we have all been well looked after and have finished with the Bill well scrutinised, but in good time. I look forward to the next stages of proceedings on the Bill and the continued insight from colleagues across the House.

[Dr Whitehead]

Further to that point of order, Mr Gray. I would like to associate myself with the Minister’s remarks about the passage of the Bill and with the thanks that are due to the many people who took part in its processes, from witnesses to hon. Members here today. A number of them were, I know, somewhat tested on occasion by the detail into which some amendments went. But overall, we have had good scrutiny of the Bill, facilitated by the courteous way in which the proceedings were conducted. I thank the Minister for those courtesies in how our debates proceeded, and I thank you, Mr Gray, for your excellent chairing of our proceedings.

Nuclear Energy (Financing) Bill (Fifth sitting)

Debate between Greg Hands and Alan Whitehead

Committee stage
Tuesday 23rd November 2021 Public Bill Committees

[The Minister of State, Department for Business, Energy and Industrial Strategy (Greg Hands)]

Welcome back to the Chair, Ms Fovargue. For the benefit of colleagues, I will speak briefly on the clause, which introduces part 2 of the Bill, and what that is all about. The clause gives a power to the Secretary of State to make regulations about revenue collection contracts, which operate between a revenue collection counterparty and a designated nuclear company, referring back to part 1. Contracts will require the revenue collection counterparty to collect payments from Great Britain electricity suppliers and pass them to the licensee nuclear company so that it can receive its allowed revenue. Subject to consent being given, we expect the Low Carbon Contracts Company to take on the role of the counterparty.

Clauses 16 to 24 set out in further detail what the regulations may cover in relation to the contracts. They could include, for example, the duties of the counterparty, the amounts that electricity suppliers must pay and how the authority will enforce the contract. The legislation will enable payments to flow in the opposite direction if necessary, such as in circumstances where the nuclear company receives more than its allowed revenue. The regulations will ensure that the nuclear company can receive its allowed revenue in a consistent and stable flow. Importantly, the regulations throughout this part are based on existing regulations governing the revenue model under the contracts for difference regime, taking precedent from the Energy Act 2013. Regulations relating to clauses to 16 to 22 and the first regulations made under clauses 23 or 24 will be made using the affirmative procedure. They will therefore be subject to a greater level of scrutiny, as we know, as such statutory instruments must be approved by a resolution of both Houses of Parliament.

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

It is a pleasure to serve under your chairmanship, Ms Fovargue. Like the Minister, I would like to spend a moment announcing, as it were, this part of the Bill, which I hope we can get through in an orderly and suitably speedy fashion. It is however important to share an understanding of what we think this part is about. As the Minister said, it concerns the setting-up of revenue collection contracts; the setting-up of a counterparty to hold the revenue collected from suppliers to underpin action by the nuclear company in terms of construction; and, importantly, as he said—he seemed a little concerned when I mentioned this in our previous sitting—revenue collection and distribution during both the construction and production phases of a nuclear project.

My understanding is that during the production phase, the nature of the revenue collection changes. During the construction phase, within the overall allowable costs architecture, the nuclear company is likely to absorb whatever comes its way from the counterparty for the purposes of underpinning the construction costs of the nuclear plant. Obviously, there are debates to be held on that and further regulations to be put in place concerning how the revenue stream for a nuclear company is carried out and the requirements of the construction at various phases.

We have debated to some extent the instance whereby the allowable costs ceiling is breached because of rising costs, particularly during production; whether the regulator would have the opportunity to revisit the allowable costs ceiling; and what effect that would have on the run through the regulated asset base process to customer bills as a result of those recalculations. However, there are issues with what revenue stream goes into the nuclear company, and at what stage during construction, but that is within the overall costs ceiling, or should be, in the first instance.

During the production phase of a nuclear plant, the relationship between collection, distribution and re-disbursement becomes a little more complicated. I would be obliged if the Minister could shed a little light on some of the things that happen during the production process, which are still slightly unclear. That is important because, in the production process, the receipt of funding under the RAB process becomes a comparative issue. The company is making money and producing electricity, and one would expect that, as a result of the RAB model, the money that is being made by the company would sit within the parameters of what has been agreed for the regulated rate of return under the RAB model. If the company is making more money from its production of electricity than is allowed within the overall model’s parameters, that money starts coming back to the counterparty or, at least indirectly, through to customers.

Conversely, if the company is making less money from its production than is allowed within the RAB model for production purposes, money continues to come in under the allowable costs ceiling. The best explanation is given on page 21 of the consultation document on a RAB model for nuclear, which suggests:

“Suppliers could pass the cost of the payment obligation onto their consumers, as they do with other regulated costs and could likewise reimburse their consumers (as happens under a CfD) in periods where suppliers receive payments from the project company (e.g. when the Allowed Revenue is lower than the project company’s revenue from power sales). The design process would need to consider how these charges could be made in more detail, in consultation with suppliers and consumer representatives.”

That is essentially the model during the production phase: it is potentially a two-way process.

That issue reflects, at least to some extent, the amendments that we wish to discuss this afternoon —an understanding of how the money goes into the counterparty, what the counterparty does with the money, what the counterparty does when the money is held, and what the counterparty does if that money may not be needed, or money has been paid back into it by the nuclear company during the production phase. Consideration of how that happens, where that money goes and what sort of requirements one should place on that process are at the heart of some of our amendments.

I thought it important to check whether we have a shared understanding with the Minister of how the process works. Assuming that we do, we can discuss the amendments on the basis of that shared understanding of what this part of the Bill sets out to do. That is essentially a contribution to the clause stand part debate, but I hope that it clarifies how we will proceed with part 2 as a whole, and that it will be helpful to the Committee.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship again, Ms Fovargue. It was interesting that the hon. Member for Southampton, Test spoke about a shared understanding. I wish I had one; I do not think that the Bill is good enough to have any shared understanding of what it is about. Part 1 is clearly all about the definition of designating a nuclear company, and then a blank cheque in terms of defining costs. It seems to me that part 2 is all about how the blank cheque moneys are recouped in revenue collection.

I have one point to put to the Minister. Explanatory note 119 states:

“The terms of a revenue collection contract will be bilaterally negotiated between the Secretary of State and an eligible nuclear company to be designated under Part 1.”

Would he enlighten me on what expertise the Secretary of State has in negotiating a revenue collection contract for a new nuclear power station, how that will be undertaken in a transparent manner, and what options are available for scrutiny of that?

[Greg Hands]

I thank both hon. Gentlemen for their contributions. I will try to be as helpful as I can. Rather than setting any hares running, it is essentially a very similar process to how contracts for difference work under the Energy Act 2013. There is nothing essentially different here, other than the fact that it is about nuclear power generation and has the RAB model. What we are talking about in this part of the Bill is essentially the same process that is being used for contracts for difference under the 2013 Act. I am always slightly reluctant when an Opposition Member asks whether we have a shared understanding. It strikes me as often being slightly dangerous to give a blank cheque on that. My understanding of the process, and I think the Opposition would agree, is that it is essentially the same process that we have been using for contracts for difference through the collection company.

[Dr Whitehead]

I substantially agree that that is essentially how the process works, except that of course with CfDs the customer contribution does not change at all once the CfD has been implemented because there is a constant price. The difference is in the company getting the difference between the reference and the strike price, not what the customer pays for electricity bills or pays into the process itself.

[Greg Hands]

Here there will be a frequent resetting, which is likely to be twice yearly, in terms of the amount of money that has been collected, followed by a reconciliation at the end of the period, but a lot of the detail will be set out in the draft regulations. The hon. Member for Kilmarnock and Loudoun asked what expertise the Secretary of State has to negotiate such a deal. As I said, this has been a tried-and-tested methodology over the past eight years. When we say “the Secretary of State”, we mean that the individual who is the Secretary of State is the decision maker, but acts with the advice of a group of excellent officials at the Department for Business, Energy and Industrial Strategy. That is the normal way in which any reference to a Secretary of State is made in primary legislation. As I say, the legislation is very much based on the Energy Act 2013 and how it looks at the contracts for difference regime.

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[Greg Hands]

The power in clause 16 will enable the Secretary of State to designate an eligible and consenting company or public authority to be the revenue collection counterparty for revenue collection contracts. As stated earlier, the Government intend that the Low Carbon Contracts Company should fill that role. The counterparty will be responsible for collecting payments from electricity suppliers and making payments to the relevant licensee nuclear company, as well as collecting any payments from the licensee and making payments back to electricity suppliers.

Unlike contracts for difference, the authority will be solely responsible for determining amounts to be paid to or by the revenue collection counterparty, and would be responsible for communicating that to the counterparty. That responsibility is facilitated by regulations making provision to require information to be shared by the authority, a revenue collection counterparty, and the national system operator under clause 23, on information and advice. The power to designate a counterparty will commence at the point of Royal Assent to support the Government’s aim of bringing at least one large-scale nuclear project to the point of final investment decision within this Parliament.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17

Duties of a revenue collection counterparty

[Dr Whitehead]

I beg to move amendment 14, in clause 17, page 14, line 31, leave out “may” and insert “must”.

Although I have set out some of the shared under- standings that I think necessary for the three amendments that we will move this afternoon, this is not one of them. Amendment 14 addresses the text of the Bill, and puts in place small question marks about what that text means for the Secretary of State’s responsibilities, particularly in relation to the duties of a revenue collection counterparty.

At the moment, clause 17(1) states:

“A revenue collection counterparty must act in accordance with…any direction given by the Secretary of State”

and

“any provision included in revenue regulations.”

That theme of “must” continues in subsection (4), which states:

“A revenue counterparty must exercise the functions conferred by or by virtue of this Part so as to ensure that it can meet its liabilities under any revenue collection contract”.

It is an imperative. And subsection (5) states:

“Revenue regulations must include such provision as the Secretary of State considers necessary so as to ensure that a revenue collection counterparty can meet its liabilities under any revenue collection contract to which it is a party.”

Clearly, those “musts” are imperatives for the revenue collection counterparty to undertake. It “must” act in accordance with directions given by the Secretary of State; it “must” ensure that it can meet its liabilities; and it “must” meet its liabilities under any revenue collection contract.

Then we go to subsection (2) and look at the provision for the regulations themselves, which logically should follow on from the imperatives that I have set out, but we see this statement:

“Revenue regulations may make provision”.

The regulations that carry out the imperatives of the other provisions of the clause do not appear to have the same imperative applied to them.

I appreciate that the word “may” in legislation is a perfectly reasonable and acceptable term where something can be done as part of a series of powers that perhaps a Secretary of State has. A Secretary of State may decide to do various things under those powers. Indeed, we get some enlightenment on that in subsection (3), which refers to the

“provision that may be made by virtue of subsection (2)”.

That is a proper use of the word “may”.

However, in this case, what the word “may” appears to suggest is that the regulations that follow from the imperatives do not have to make provision for these particular things; they “may” make provision. There is no direction from the senior Bill to secondary legislation to actually follow the imperatives in the Bill. If the regulations do not happen to make provision, they simply do not, because they “may” make provision; they do not have to do so. That appears to me to be not a very good way of ensuring that the things that should happen under this clause actually do happen.

I know that we are all good Members of the House—I am sure that if legislation suggested that we should do particular things, we would do them—but that is not quite the point. Legislation from this place is supposed to stand the test of time, cope with the vicissitudes of Administrations as they come and go, and ensure that what the legislation intended will actually be done, so either this legislation intends that these regulations do not have to be made or the word “may” is a little less than robust, hence the very modest and small amendment that we have suggested. It would replace the word “may” in subsection (2) with the word “must”, so that there was consistency throughout the clause. It would not be a major change to the Bill, but might strengthen it a little and give a little more certainty about its operation.

[Greg Hands]

As the hon. Gentleman outlined, the amendment addresses what the regulations relating to revenue collection contracts may or must contain. The amendment relates to the duties of the revenue collection counterparty in clause 17. The counterparty will be the body responsible for channelling funds between the designated nuclear company and suppliers. Currently, the Bill gives a discretionary power to make regulations that can ensure that the revenue collection counterparty, first, enters arrangements or offers to contract for the purpose of a revenue collection contract; secondly, must, may or may not do certain actions; and thirdly, undertakes or does not undertake actions specified in the regulations or the direction by the Secretary of State. The legislation further clarifies, for example, that the directions may cover, among other things, the enforcement, variation or exercise of right under a revenue collection contract. Amendment 14, moved by the hon. Member for Southampton, Test, seeks to make it obligatory that the revenue collection contracts will cover these areas whenever they are made. I welcome the hon. Member’s engagement with the detail of the revenue collection regulations, which will play a key role in the functioning of the RAB. However, I do not believe that the approach suggested by the amendment improves our arrangements for the regulations.

First, it is the Government’s intention that the regulation made to establish the RAB revenue stream would likely contain all of the topics set out. Obliging them to be included would be unnecessarily restrictive at a point where we are still developing the structure of the regulations, which will be brought forward by the affirmative procedure in due course. It is therefore important that the power remains discretionary, to allow for sufficient flexibility as we progress the policy. Secondly, the amendment seeks to override the original intention of the clause, which was to provide an indicative, non-exhaustive list of what the regulations may cover. That approach is precedented by the Energy Act 2013, particularly in section 21, as well as in other clauses in this Bill. It is entirely regular to use the word “may” for things that we think will be likely to be included.

Finally, as currently drafted, the amendment appears to be in conflict with subsection (3), because the change from “may” to “must” is not reflected there—subsection (3) builds on the subsection that amendment 15 addresses. That leads to an inconsistency in drafting, where subsection (2) would state that the topics “must” be covered, whereas subsection (3) limits it to “may”. I welcome the hon. Member’s scrutiny of, and engagement with, the detail of the revenue provisions in part 2 of the Bill; I recognise the Opposition’s concerns around ensuring that regulation is sufficiently robust. However, I do not believe that the amendment is the way to achieve that, and I hope that hon. Members will withdraw it.

[Dr Whitehead]

I appreciate that this is a habitual piece of drafting in legislation, found not just in this Bill but in a number of others. One of my hopes with legislation has always been that a group of Members might be courageous enough on one occasion to say, “This is lax writing of legislation and we should not put up with it. We should have what it means included in the Bill.” I appreciate that the lax writing of the legislation may not be lax at all—it may be deliberately giving the Secretary of State a lot more leeway where things are not entirely sorted out. When we look at this clause, we can see that there already is, in subsection (2)(c), substantial leeway for the Secretary of State to take

“further powers to direct a revenue collection counterparty to do, or not to do, things specified in the regulations or the direction.”

That is pretty wide leeway for the Secretary of State to have in the Bill already.

What the “may” does in this subsection is to cast further uncertainty on what sort of things the Secretary of State may do. I am sure that the Secretary of State will actually want, on this occasion, a “must” for what is conferred on the Secretary of State with further powers. That is very helpful to the Secretary of State for precisely the reasons that the Minister outlined a moment ago. The “may” that is in subsection (3) is a different sense of the word “may”. How it would read fully is, “the provision that may well be made by virtue of subsection (2).” It is used in the conditional, whereas the “may” in subsection (2) is a dilution of the imperative. I am sure that the Minister will be pleased to know that that is the case, but I am afraid that it does not accord with what he had to say about the use of “may” and “must” in this provision.

I am not going to press the amendment to a Division, but I think we need to be more careful about how we draft our legislation overall, to make sure that it does what it says on the outside. I am sure this will not be the last opportunity to raise this issue in the Bill. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 ordered to stand part of the Bill.

Clause 18

Direction to offer to contract

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[Greg Hands]

Clause 18 builds on clause 17. Subsection (1) explicitly gives the Secretary of State the power to direct a revenue collection counterparty to offer to contract with a designated nuclear company on terms specified in the direction. Those terms will be the outcome of negotiations between the Government and the project company. This power is again replicated from the contract for difference, namely section 10 of the Energy Act 2013, but has been adapted to account for the nature of the revenue collection contracts as a bespoke arrangement.

Regulations can set out the circumstances in which a direction to contract can or must be made, as well as the terms that may or must be attached to the direction. If the Secretary of State does not have the ability to specify when a contract should be offered under the legislation, there could be delays in the offering of a contract to a project company. That could damage investor confidence and slow progress on the project at a crucial time.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Supplier obligation

[Dr Whitehead]

I beg to move amendment 15, in clause 19, page 16, line 11, at end insert—

“(4A) Revenue regulations may make provision to prevent electricity suppliers from recovering the costs of paying a revenue collection counterparty from customers who qualify for the Warm Home Discount Scheme.”

This amendment would mean that electricity bill payers who qualify for the Warm Homes Discount scheme would not be liable for levies on their bills that pay into the RAB revenue collection fund.

Amendment 15 relates to the latter end of clause 19. Hon. Members will see that the clause suggests that revenue regulations may make provision for electricity suppliers to pay a revenue collection counterparty for a number of purposes, including

“to hold sums in reserve; to cover losses in the case of insolvency or default of an electricity supplier.”

According to our shared understanding of how the RAB would work, the regulations would require electricity suppliers to pay into a revenue collection counterparty for those purposes. Thereby, as the RAB consultation makes clear, if that company has been required to pay into the revenue collection counterparty, the company could make restitution for the money it had paid into the revenue collection counterparty by adjusting its bills to reflect that fact.

We are in exactly the same territory as contracts for difference, where there is a levy on customers and the supply company recovers the money that it has paid into the levy fund by passing that levy on to customers in their bills. We have a problem with placing additional levies on already sky-high bills, but that is how this arrangement will work. We question how that process will work. As hon. Members will also know, we currently have within our electricity supply arrangements a warm home discount scheme, which provides for a number of bill payers to get £140 off their bills each year if they qualify. There are some issues about the size of the company relating to that obligation but, in principle, pretty much all customers on a low income or a guaranteed credit element of pension credit will, or should, receive that warm home discount.

The energy company has to supply that discount to its customers. It may socialise the costs through its overall bills as a sort of secondary levy, but it gives a proportion of electricity customers a permanent reduction in their bills due to their particular circumstances, such as—as the discount suggests—particular fuel poverty-type issues in heating their homes and meeting their fuel bills.

The effect of a levy—in this instance, quite a substantial levy—to customers under these circumstances, particularly during the construction phase of a regulated asset base operation, would be to put, say, an extra £10 on the bill of someone who is already receiving a warm home discount, so that their fuel bills go up. A number of people would be placed in fuel poverty as a result of that difference, and therefore, ironically, it is quite possible that more people would be eligible for the warm home discount as a result.

When and if this levy comes on stream, we do not think that the process should include the supply company passing on that increase to those people who are already paying their bills but have a warm home discount. Those companies should not be able to recover the cost of payment into the revenue collection counterparty by passing it to those people receiving warm home discount. This would mean a socialisation of that cost to other bill payers, but the warm home discount would nevertheless remain at the right proportion of the bill, not diminish in value because that person was required to pay that levy to the energy company so that it could recoup its costs related to the revenue collection counterparty.

This is quite a simple amendment to try to return that warm home discount to the position that it would have been in before that levy was introduced. I would suggest that it is in line with what the Government intended for that warm home discount in the first place. Although other customers may pay a little more on their bills, it would maintain the relative billing position for the poorest and most vulnerable customers, including those in receipt of a guaranteed credit element of pension credit, helping those who have considerable difficulties in paying bills and are perhaps in fuel poverty as a result. We would like this power to ensure that energy companies do not incorporate those customers into the arrangements for collection and distribution of money coming into the revenue collection counterparty.

[Alan Brown]

I will just say a couple of things. I was listening to the arguments and if the amendment goes to a vote, I will be happy to support it and do anything I can to try to support the most vulnerable and not create any more fuel poverty. Listening to the arguments, they seem to confirm that the concept as a whole is a costly burden on consumers. As the shadow Minister said, it creates a levy that will put more people into fuel poverty. The levy will not just last for a few years; it starts with a construction period of 10 to 15 years in all likelihood and then a 60-year contract. Rather than tinkering at the edges, protecting some people and pushing other people into fuel poverty, the heart of the matter is that this is a costly white elephant exercise. That said, I would still support the amendment for what it aims to do.

--- Later in debate ---

[Greg Hands]

The hon. Gentleman asks a fair question, which I would answer in a couple of ways. First, this issue is best considered in the round as part of the process we have outlined, with the consultation and decisions to be made next year. Secondly, the actual amount would depend very much on the nuclear project in question. What we have shown is that we believe the RAB model will make bills overall less expensive to the consumer by roughly £10 a year for an average dual-fuel bill payer, as the hon. Gentleman has rightly pointed out. However, that amount will ultimately depend on the size and scope of the nuclear plant that is proposed. I think a better way to deal with this issue is to deal with it in the round, in the way the Government are proposing. I stress that the RAB is designed to save consumers money over the life of the plant; that is one of the key reasons why we are proposing it.

I am grateful to the hon. Member for Southampton, Test for tabling this carefully considered amendment and for raising the important issue of energy costs for low-income households. Nevertheless, I hope that I have shown both that the Government are already taking action to help this group and that this clause forms part of a wider conversation about how we transition our energy system away from fossil fuels in a way that is fair and affordable for all. I therefore hope that the hon. Gentleman will withdraw his amendment.

[Dr Whitehead]

I am not sure that the Minister quite gets this. The warm home discount was introduced in 2011 and has been at the level of £140 since then, so the Government suggesting that it should be increased to £150 is not an action of unparalleled generosity: it actually just catches up with inflation over the period that the warm home discount has been in place. That discount has been decreasing in value in real terms over the years, so increasing it is simply a matter of reasonable housekeeping, rather than innate generosity.

--- Later in debate ---

[Dr Whitehead]

Indeed, and that is why we need better clarification from the Minister. Is there a distinction between cash up front in general—that is, one pays before getting any result from a nuclear plant that is being built—or cash up front in the sense of taking all the stuff in the agreed revenue allowance? Would that be taken either mostly up front, all in one go, or at level that an energy company would find unaffordable during particular elements of the process? There is still some uncertainty about exactly how that process would work.

I have a lot of sympathy with the argument of the hon. Member for Kilmarnock and Loudon. If the revenue counterparty decided that it was going to take a very large amount of levy early in the process to have lots of money in the bank and to be able to cover any eventualities connected with the construction process, that would be a pretty unreasonable imposition on energy companies, particularly in the present circumstances. However, I think there are least implied elements of regulation in the Bill that would prevent that from easily happening, and I would be interested to hear whether the Minister thinks that is the case. If he does, where in the Bill is that, and which arrangements would be preferrable in terms of the revenue collection counterparty operating on a more equitable basis as the construction period progressed?

[Greg Hands]

I thank the hon. Members for Kilmarnock and Loudoun and for Aberdeen North for tabling their amendment. Of course the Government welcome all Opposition parties tabling amendments; that does not necessarily mean that we will agree with the aforementioned amendments, but it is a useful process to test and probe the Bill, and I think our publics would like to see a process whereby all Opposition parties tabled amendments to test the Government’s proposition. I fully buy into that process, but I do not happen to agree with this amendment.

The amendment addresses how the interests of suppliers and their customers should be considered when making provision in regulations for the supplier to pay the revenue collection counterparty. It would also require the Secretary of State to have regard to the other liabilities of electricity suppliers—the hon. Member for Kilmarnock and Loudoun talked with topicality about that—as well as to the impact that collateral requirements will have on a supplier’s operation. I thank the hon. Gentleman and the hon. Lady for ensuring that the Government consider the impact on suppliers and consumers when establishing the RAB revenue stream.

I reassure Members that the Government intend to act in a way that effectively manages the payment obligations on suppliers and, through them, consumers. We do not believe, however, that the amendment is the best way of ensuring that. First, the provision of collateral by electricity suppliers is a form of security that has been administered very successfully in the contract for difference regime. As I said on clause 15, the regime seeks to replicate that tried-and-tested regime, which has functioned effectively to bring investment into new energy projects for the last eight years.

We have been clear that in designing the RAB revenue stream we are seeking to replicate many of the provisions of contracts for difference to help to provide a familiar and workable framework for suppliers, but it is not just about supporting investment. We will protect suppliers from paying unreasonable amounts of collateral and ensure that overpayment of collateral is returned to suppliers.

--- Later in debate ---

[Dr Whitehead]

I beg to move amendment 16, in clause 19, page 17, line 2, at end insert—

“(10) Persistent non-payment of sums owed to the counterparty by an electricity supplier may be referred to OFGEM, which may in such circumstances place the electricity supplier’s licence under review.”

This amendment would allow cases of persistent non-payment of sums owed to the counterparty by an electricity supplier to be referred to OFGEM.

The amendment follows on quite well from our previous debate. Although the issue is not entirely certain, the collateral expected to be paid by energy supplier companies would be required in a measured way. The Secretary of State would make sure that the revenue collection counterparty did not try to scoop up huge funds in one go—not that I think that very likely—and would regulate the collateral so that it was more or less allied with the calls on it by the nuclear company at that stage.

If the revenue collection counterparty had a large pot of money sitting in its bank account at any stage, one would expect that money to be redistributed to the supplier companies from which it had been collected, and one would hope that in the end it would be redistributed back to customers. I think that there is still some way to go in deciding how exactly the regulation is to be set up, but I welcome the Minister’s statement that that is roughly how the Government assume the process will be undertaken. That being the case, there is then the question of what happens if supplier companies do not pay what the revenue collection counterparty has required of them, assuming that it is a reasonable payment. That leads on to some existing issues with how levies are collected by counterparties.

There has already been some mention of what happens with Ofgem’s collection of the renewables obligation, and of the collective obligations of energy companies to supply the right amount in buy-outs, renewables obligation payments or whatever. For those who think that the renewables obligation is done and dusted and that it came to an end in 2017, I should mention that it is still alive in a ghostly fashion and is collecting money until 2027, I think, so the obligations continue.

If one were being very unkind, one might say that a barometer of the health of some of the smaller energy companies that have recently been involved in the struggle to stay afloat has often been whether their renewables obligation payments were outstanding at the time of closure, which I think is the end of each October. There were reports from Ofgem, I think in September, that x number of companies had not paid their renewables obligation levies, and that if they did not do so by the closure date, it is conceivable that action would be taken—which could include, in the end, the removal of the company’s licence to operate.

One could say that that is what happened over the recent period, in that companies that knew they were in some difficulty with their renewables obligation payments at the end of October folded pretty soon afterwards because they were not going to pay them. That has had the unfortunate side effect that that non-payment has had to be socialised among other energy companies in order to ensure that the fund is the right amount to meet the renewables obligation certificates going around. Nevertheless, the regime appears to have a sanction relating to an energy company’s licence, so that we can ensure that payments are brought in, or that there is fairly swift closure relating to the outstanding amount, so we at least know roughly where we are regarding the payment pool at a future date.

As the Bill stands, that does not appear to be the procedure that will be adopted regarding levies into the revenue collection counterparty. Indeed, the Bill states that if payment is not received, collection will be a civil matter. In the amendment, we suggest that we adopt a similar procedure to that which is in place with Ofgem concerning non-payment of renewables obligation payments. In the case of persistent non-payment, a sanction should be available regarding the continuation of the company’s licence. The Minister may say that going through the civil courts is just as good. What concerned me about the arrangements in respect of renewables obligations was that some energy companies were borrowing their payments in order to stay in business. That is not what a healthy energy company should do, long term; it will not result in a secure landscape as regards collateral inputs to a counterparty.

A better way of proceeding would be to have in place the sort of regime that we have for the RO. The amendment would allow the Secretary of State to introduce that kind of arrangement, if he thought it a good idea for the stability of collateral payments. It gives him an extra option, and goes beyond the regime set out in the Bill, so that we can ensure that payments are properly levied, paid on time, and not resisted.

[Greg Hands]

As the hon. Gentleman outlined, amendment 16 addresses how the obligations of suppliers under revenue collection contracts should be enforced. Clause 19 deals with suppliers’ obligations in relation to the RAB. It lays out what the revenue collection regulations may provide for. This includes how the obligations placed on suppliers by RAB revenue collection contracts can be enforced by the revenue collection counterparty. The powers in clause 19 are supported by clause 22, entitled “Enforcement”, which states:

“regulations may make provision for”

obligations under revenue collection contracts to be enforced

“by the Authority as if they were relevant requirements…for the purposes of section 25 of the Electricity Act 1989.”

This means that a breach of such a contract can be treated as if it were a breach of a licence condition, and this allows the authority to obtain an order to secure compliance and impose financial penalties.

The amendment would set up a different enforcement route, outside the regulations, by allowing the revenue collection counterparty to refer suppliers who persistently fail to meet their obligations to the authority—that is, to Ofgem. Ofgem could then consider whether to remove a supplier’s licence. Of course, I welcome the Opposition’s focus on ensuring adequate protection from non-compliance. Creating strong enforcement procedures will be vital to give investors confidence that the RAB will function and that the project will receive the funds to which it is entitled. However, the amendment leaves out much of the detail necessary for a clear understanding and the smooth functioning of the enforcement procedure. For example, it does not clarify what should be classed as “Persistent non-payment”, or the process for referral. It also does not make clear what Ofgem would take into account when reviewing a supplier’s licence, or the process for appeal.

The hon. Gentleman feels that a supplier’s failure to make payments to the counterparty should have consequences for their licence, but those concerns are adequately addressed by clause 22, which states that the regulations may make provision to treat non-compliance as if it were a breach of a licence condition, and to allow the imposition of suitable penalties against suppliers through tried-and-tested, long-standing legislation. This will ensure compliance, and will mean that obligations under revenue collection contracts are met.

I welcome the hon. Gentleman’s constructive contributions, his proposing the amendment, and his recognition of the need for strong enforcement provisions, but I hope I have convinced all hon. Members of the appropriateness of the Government’s approach, which already treats non-compliance in the way that is suggested in the amendment, but in a far more watertight way, and that the hon. Gentleman therefore feels able to withdraw his amendment.

[Dr Whitehead]

The Minister talks about taking action in a more watertight way, and suggests that we look at clause 22, which relates to clause 25, which relates to a series of clauses relating to the Electricity Act 1989. It is a sort of Marx brothers’ “A Day at the Races” form guide arrangement, whereby in order to understand a guide, a person needs another one, and so on endlessly—and they end up missing the race.

The Minister will be aware that there are a number of instances in which we are asked to go way back, via regulations, into Acts such as the Utilities Act 2000 and the Electricity Act, and we are reluctant to do that. Indeed, there are a couple of quite incomprehensible repeals at the end of the Bill, to which I might draw the Committee’s attention; one has to go through four or five stages before one can understand what on earth those are about.

In this instance, it is possibly true that we could, by regulation, apply the provisions of section 25 of the Electricity Act 1989 relating to licence modification or removal; but that provision is not in the Bill, but possibly applied by regulation. In the Bill there is one remedy, and one remedy only. The Minister may say, “Trust us; we may produce regulations that have the effect that I have suggested.” However, it probably would have been wiser for some of those things to be in the Bill. Of course, the amendment does not do all those things that the Minister mentioned. I fully accept that it is deficient from that point of view, because it does not mention the four or five other pieces of legislation that have to be taken into account, amended or consequentially changed. It merely allows us to make the point that these things ought to be in the Bill, so it is a probing amendment.

I hope that the Minister will think about whether there are better ways of getting those different forms of regulatory certainty than this extended process of referring to other pieces of legislation, which may become more or less opaque as one reads them. It would be much more straightforward for this provision to be in the Bill and clear for everyone to see. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 ordered to stand part of the Bill.

Clause 20

Payments to electricity suppliers

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

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[Greg Hands]

Clause 20 seeks to ensure that electricity suppliers can be reimbursed in cases where the counterparty has overcharged suppliers or overpaid a licensee nuclear company. The clause is similar to the approach in section 17 of the Energy Act 2013. It is proposed that suppliers will be charged their share of a RAB payment based on their expected market share. Where their actual market share is less than expected, reconciliation processes will be carried out and the revenue collection counterparty will repay them the difference.

Likewise, when the relevant nuclear licensee company’s forecasted market revenue exceeds its allowed revenue over a given period, the counterparty could be required to repay any overpayments to suppliers. Again, that would replicate the approach used in contracts for difference. Subsections (1) and (2) allow regulations to be made requiring the counterparty to make payments to suppliers in such instances. Regulations made will be subject to the affirmative procedure, given the effect they will have on electricity suppliers and other relevant bodies.

[Dr Whitehead]

I do not oppose the clause, but I want to ask the Minister about what it actually says. At first sight, it appears to say—this was the shared understanding that we established—that there were circumstances where a revenue collection counterparty could pay collateral back to electricity suppliers. We are not clear over how long a period the collateral might be repaid, or at what point it might be considered that there was sufficient additional collateral in the funds of the counterparty to warrant a repayment.

The funds might be held for quite a long time while consideration is given to whether the nuclear company is likely to overperform on its revenue generating activities in the production phase so consistently that the money can be safely restored to the supply company. The counterparty might hold the money over a considerable period, thinking there would be variations or fluctuations in the revenue stream obtained by the nuclear power company, and that the money might therefore need to be called on, if it dipped below the range implied by the overall allowed costs arrangements. There is that question of the likely length of the period over which repayments take place.

However, the second question, which is also quite important, is what would happen to that money once the counterparty had restored it to the electricity supplier. There is nothing in this clause that says anything other than, “That money is restored to the electricity supplier, and the electricity supplier is very pleased about that and puts the money in its bank account.”

However, the electricity supplier has collected that money from the customers—albeit at the direction of the counterparty—in the form of an additional levy placed on their bills. If the electricity supply company is getting that money back again, then as night follows day, the company should give that money back to the customers and not just hold it in its bank account. There is nothing in this clause to ensure that that happens. I would be interested to hear whether the Minister thinks that such a requirement ought to be added to the regulatory procedure that will be undertaken. He may want to go away and think about whether he can at least indicate to the Committee that it will be assumed, and probably will happen, that as long as the surplus funds can be distributed back to suppliers by the counterparty, they should be given back to the customers.

Essentially, we have a couple of questions, but we do not oppose this clause standing part. I am sure that the Minister will be able to reassure us about his intentions with regard to making this clause operate as well as it can.

[Greg Hands]

I will try to deal with the two questions that the hon. Gentleman raised. First, he asked whether the funds can be held for a long time, and about the period over which they can be held. Obviously, the regulations will be laid before Parliament in due course, and will be subject to the affirmative procedure. However, I point him to how the contract for difference regime works under the 2013 Act. My belief is that in this case, the reconciliation takes place after a period of months—that is probably the best way to describe it. It depends on what the hon. Gentleman means by somebody holding on to funds, or indeed having a shortfall of funds, for “quite a long time”, but we always have to strike the balance between what is operationally straightforward and what prevents somebody from holding on to funds, or from having a shortfall of funds over a period of time. However, the workings of the contract for difference regime might give the hon. Gentleman the most likely pointers as to what the regulations may look like; they will obviously be subject to consultation in due course anyway.

The hon. Gentleman also asked what happens to the money, and whether the supplier is obliged to return the money to the customer. He raises a fair point. The difficulty is that there is no obligation on the supplier to take the money for the RAB from the customer in the first place. The assumption is that the supplier will bill the customer for the cost of the RAB, but there is not an obligation to do so, so I am not sure that creating an obligation in this legislation to send back money the other way would be appropriate. Again, I refer the hon. Gentleman to the workings of the contract for difference under the 2013 Act.

[Greg Hands]

First, the whole process will be regulated by the authority—in this case Ofgem—which would have oversight. Secondly, that would also be a matter for the regulations that are to be published in due course. Thirdly, the frequent reconciliations would obviate risk of that happening in the way the hon. Gentleman describes.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Clause 21

Application of sums held by a revenue collection counterparty

[Dr Whitehead]

I beg to move amendment 17, in clause 21, page 17, line 34, leave out from ‘are’ to end of line and insert ‘not to be paid into the Consolidated Fund unless there is no other alternative.’

This amendment would require the Government to consider alternatives to the absorption into the consolidated fund of sums held by a revenue collection counterparty on behalf of energy bill payers.

Amendment 17 takes aim at a different part of the undergrowth we are dealing with in the often fairly complex arrangements related to the revenue collection counterparty and all that goes with it. In this instance, we have two subsections in italics because they include a Treasury implication. Clause 21(5) says:

“The provision that may be made by virtue of subsection (4) includes provisions that sums are to be paid, or not to be paid, into the Consolidated Fund.”

In that regard, subsection (4) states:

“Revenue regulations may make provision about the application of sums held by a revenue collection counterparty.”

Effectively, that subsection allows regulations to be made about the sums held by a revenue collection counterparty. We have already discussed how long they may be held for and the circumstances under which they may be paid back—[Interruption.] The Minister and his Whip are discussing when we will finish, I suspect. They must not worry; we will finish on time.

The clause adds a new dimension to the question of where the sums held by the revenue collection counterparty may go and, indeed, suggests where they might go, presumably, after the process outlined by the Minister. At a certain stage, the existence of surplus amounts held by the revenue collection counterparty is established and then there is an issue as to where that money goes. Clause 21(5) says that the money may be paid into the Consolidated Fund, which is the Treasury. It therefore gives rise to the idea that money could have been raised from customers and paid into the revenue collection counterparty by suppliers. Levies are raised on customers and possibly overpaid, as my hon. Friend the Member for Greenwich and Woolwich has just said. The money sits in the account of the revenue collection counterparty for a time and then, when the decision is made about what to do with the money, the Treasury nicks it. That is not right and it is not what should be done. As we have established, if there are surpluses in those funds, they should certainly be returned to the supplier and the supplier should make sure that they are returned to the customer.

As we have said on a number of occasions, the customer is at the heart of the process as they are funding it through their bills. They are not paying free money into the Treasury but paying into the process on a reasonable basis of allowed costs. If those allowed costs prove to be more than is required, the least they should reasonably expect is to get their money back.

There should be no talk of the Consolidated Fund in the Bill; I do not think it is right that it should be in the Bill. We have sought to suggest in the amendment that only if there are no other recourses for the payment of those funds should it even be considered that money go into the Consolidated Fund. I can conceivably imagine circumstances in which nothing else could be done with the money but put it into the Consolidated Fund, but it is a real squeeze for me to think that.

The Secretary of State must be able to think of better purposes for the money than for it to go in that direction. The amendment strengthens the Secretary of State’s ability to do that. I hope that the Secretary of State—the Minister; I am promoting him again—will be happy to accept it as a clear understanding of what we want to do with the money unless absolutely pressed to do otherwise.

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[Greg Hands]

We will just have to agree to disagree. I think the amendment unnecessarily narrows the scope of the power in a way that we would not wish to see in terms of protection of the taxpayer. I therefore ask the hon. Member for Southampton, Test to withdraw it.

[Dr Whitehead]

I thought that this was the most reasonable amendment by far that we have tabled. I am sorry that the Minister has responded in the way that he has. He made the point that some money that had come from the taxpayer might be sitting in the funds of the revenue collection counterparty, and should therefore be paid out of it. That would actually be covered by the amendment, which would insert:

“not to be paid into the Consolidated Fund unless there is no other alternative.”

If someone were trying to pay back a loan that they effectively got from the Consolidated Fund in the first place, there is no alternative other than to pay it back to the Consolidated Fund, so the amendment would cover that. We want circumstances in which the Treasury—I am sure that the Minister does not particularly want to be a high-ranking Treasury Minister in the future—

[Greg Hands]

Again!

[Dr Whitehead]

Again—indeed. I think the Minister will know from his previous experience that the Treasury is not above, shall we say, treating all Government money as essentially its own. In circumstances in which the Treasury thinks that it can get hold of certain amounts of money, it may well do so. Obviously, the purpose of Bills is not to be written to keep the Treasury’s hands off money that it really should not have, but it might not be such a bad idea at least to put that in regulation so that it would be fairly hard for that to happen. As the amendment is drafted, however, it is not a prohibition; it just says that there needs to be a pretty good argument—the argument made by the Minister about the loan, for example—for that money to be paid into the Consolidated Fund. That, really, is all the amendment says, and I think that is a wholly better construction than what is in the Bill.

Nuclear Energy (Financing) Bill (Fourth sitting)

Debate between Greg Hands and Alan Whitehead

Committee stage
Thursday 18th November 2021 Public Bill Committees

[The Minister of State, Department for Business, Energy and Industrial Strategy (Greg Hands)]

Welcome back to the Chair, Ms Fovargue.

I believe that the intent of the amendment is already captured in the approvals framework for the regulated asset base. That includes the process for designating a project and then modifying its licence, and wider due diligence on the project. The Government simply would not allow a company to enter into a RAB revenue collection contract if there were cause to doubt the ability of the company to complete construction, a point made slightly more pithily by my hon. Friend the Member for Bridgend in his intervention on the shadow Minister, the hon. Member for Southampton, Test. We expect to say more about how the Secretary of State will make this judgment in our statement on the designation criteria, which we will publish in advance of any consultation on designation.

Before considering the matter of licences, let me return to the question asked earlier by the hon. Member for Kilmarnock and Loudoun. Sizewell C does have a licence, as within the terms of clause 1(2). He said that he could not find the link to the licence on the Ofgem website, so I will commit to write to him, copied to the Committee, with that link.

Designation is very much the first step in the process of amending a developer’s licence to include the RAB conditions. At the point of designation, no commitments have been made; a project will be under development, and further negotiation is required between the developer and the Government. The process is open and transparent and includes consultation at several stages, meaning that a project will be designated only at an appropriate point.

Let me deal with the points raised about various RAB projects in the United States. It is not unreasonable to look at foreign experiences, but it is important to separate the experience of another country in developing and delivering a nuclear power plant from what part of that experience was due to a RAB model. There were several unique circumstances linked to the failure of the South Carolina Virgil C. Summer project, which was referred to, and the parent company, including—[Interruption.] I beg your pardon?

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

Sorry. I was just wondering to myself whether the Minister had looked all this up during lunchtime. If so, I congratulate him on doing so.

[Greg Hands]

I thank the hon. Gentleman for that intervention—I think it was an intervention—from a sedentary position. As the Energy Minister, I have to be aware of what is going on in the world of nuclear globally, so no, I did not look it up during lunchtime, actually; I have looked into this and other US plants. The failure of the Virgil C. Summer project—I think that is the one he was referring to—and the parent company included arrests and a conviction for fraud. There were also issues linked to design and supply chain immaturity, as well as a lack of experience with the construction of new nuclear projects. Those issues are pretty far removed from its status as a RAB project. I do not think those risks in South Carolina are applicable to the UK.

[Dr Whitehead]

I fully accept that the Minister did not look that up at lunchtime and that he is fully apprised of the circumstances surrounding the South Carolina project. However, does he not accept that the issues that he has mentioned as relevant to the failure of that project—it was entered into without proper consideration of a lot of things that, as he said, were at least in part responsible for its failure—are precisely the sorts of issues that we would expect him to take into account and sort out before deciding on the designation of a project in this country?

[Greg Hands]

Broadly speaking, the answer is yes. I think that all of those factors, if known at the time, would be considered when the Secretary of State makes the designation. That is the point. Of course they would be factors, were they to be known. I cannot put myself in the shoes of the governor of South Carolina—if indeed it was the governor of South Carolina who made the decision—but if he were or had been of the opinion that the project could not have been completed, he would surely not have made the designation at that time. I am slightly hesitant to stray into the politics of South Carolina, but doubtless the governor was of the opinion at that time that the project would have been completed. The hon. Gentleman uses South Carolina as an example, but I do not think that his amendment would have helped the governor make that decision.

This is not just a question of the factors, which are already covered in the Secretary of State’s determination of a RAB designation. The timing is also important. A project has to go through many stages and approvals post designation of a RAB. To include the hon. Gentleman’s additional definition at this stage might be premature, though I doubt it is needed at all, for the reasons pithily put by my hon. Friend the Member for Bridgend about the chances of the person making the decision being of the view that the project might not be completed. If that were the case, I think it would be a highly material fact in determining whether to designate a RAB. I do not believe that this amendment is necessary in order to meet the laudable objectives that Opposition Members seek to achieve. I therefore ask the hon. Gentleman to withdraw the amendment.

[Dr Whitehead]

I hear what the Minister says about the amendment, but I am not entirely convinced that he has made the case that he thinks he has made as to why this addition is not necessary for the designation process. After all, we are not talking here about a particularly adept and alert Minister in a particular Administration taking a decision on Sizewell C. As the Minister has said, this Bill is supposed to deal with decisions that might be taken under other circumstances, for other projects, at other times, with other Ministers, and possibly other Administrations. It is important that we put in legislation everything that we think could go wrong with a project and its designation process, so that the legislation is robust for the future.

On South Carolina, the Minister is right. The project failed as a result of a series of interlocking issues. Those issues were not necessarily associated with the RAB process, which is what we are considering in this Bill, but there were wider concerns that should have been apparent to legislators in South Carolina when the project was commissioned and went ahead. Many of the things that the Minister alluded to that occurred in South Carolina were not unforeseeable events. They were events that could have been analysed out at the time of the designation of the plant. Essentially the amendment seeks to address that issue.

We will not press this amendment to a vote—indeed, we will withdraw it—but we have put on the record our belief that the Secretary of State should have a very substantial hand in ensuring, as far as possible, that the project really can come to completion. I am sure that the Minister is with me on that and agrees that that should be the process by which we conduct designation.

Even if it is not explicitly in the Bill, the fact that the Minister has indicated that he thinks that a number of these issues can be covered within the designation elements is perhaps a step along the path to ensuring that these processes can be carried out properly. I do not wish to proceed with the amendment on that basis, but we need to do a proper job at the point of designation, for the protection of investors, for the project and for the customers who pay for it.

[Greg Hands]

Just to probe the hon. Gentleman on this, if I may, one of the criteria is whether the project is sufficiently developed to warrant a RAB. At what point does he think that the fact that the person making the decision might not necessarily think it would be completed would mean that they do not think it is sufficiently developed to start the process? Surely, if they did not think it was going to finish, they would not think it was ready to start either?

[Dr Whitehead]

The Minister puts that as a binary choice, but it is not because there are circumstances. That is essentially what happened in South Carolina. A number of people thought that it was a fine project that would go ahead; they put forward impossible timelines for the project to work on, there were very difficult financing arrangements and the RAB was placed on top of that. Yes, they may have thought that the project could come to completion, but it was not a very well-founded thought, and nor was it arrived at on the basis of the sort of diligence we should expect from the approach to a project the size of, say, Sizewell C.

The amendment’s intention is not to make the Secretary of State make a choice based on a potential view, when designating a project, that it might not be completed. He should do all that work, and indeed be publicly accountable for it, when ensuring that his view is as well founded as possible and that it will stand the test of time as the project progresses. There are points of landing between knowing whether a project is not going to be completed, and being sure that it is going to be completed. When making a designation, the Secretary of State should be held accountable for arriving at an informed position, which can be scrutinised in future, on whether it is reasonable and realistic to say that a project is likely to be completed. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Greg Hands]

This clause, through subsection (1), gives power to the Secretary of State to designate by notice a nuclear company to benefit from a RAB. The later provisions of this part mean that the designation power can only be exercised with appropriate protections and transparency of decision making. Subsection (3) sets out the criteria a company must meet to be eligible for designation: that the Secretary of State must be of the opinion that, as previously debated, the nuclear project is sufficiently advanced to justify the designation, and that designating the company in relation to the project is likely to result in value for money. In considering value for money, it is expected that the Secretary of State will take into account considerations such as the cost to consumers and the impact on our net zero obligations. As set out in clause 3, the Secretary of State will be obliged to publish details on the process that he will follow when assessing whether the criteria are met.

The eligibility criteria offer important protections for consumers and taxpayers. A company can have access to a RAB only when the Secretary of State is convinced that it is a good project and sufficiently advanced, and where the likelihood of cost overruns is remote. The Secretary of State will also need to consider whether using the RAB to fund the project is likely to represent value for money.

--- Later in debate ---

[Dr Whitehead]

Indeed. The hon. Member has drafted her own, perhaps more succinct, amendment on the fly. I would welcome hon. Members tabling amendments if they feel that they can do it better, or more succinctly, than we can. She is right that it is a test of the relevance of the consultation process. Her suggestion does not quite cover the point because I would like the Secretary of State to say why those people are being consulted. Essentially, the amendment requires the Secretary of State to not just think that people are relevant but tell us why. It is not a big point, but I think that would improve the Bill a little were it to be accepted.

[Greg Hands]

I thank the hon. Members for Southampton, Test and for Greenwich and Woolwich for amendment 4, which amends the clause governing the process by which the Secretary of State can designate a company. As part of the process, the Secretary of State must consult a named list of persons, including the authority, Ofgem, the Office for Nuclear Regulation and the relevant environment agency. The Secretary of State will also be able to consult, of course, such other persons as they deem appropriate at that time. The amendment would require the Secretary of State to publish the reasons for consulting those persons not named in the legislation.

Of course it is important for us to be transparent, and I welcome the intention of the amendment to increase transparency and accountability throughout the process, but it might help if I set out the intention of the consultation requirement in clause 3. The Government have agreed a set of persons that they feel must be consulted: the Office for Nuclear Regulation, Ofgem, the relevant environmental agencies and the devolved Administrations in the event that all or part of one of the plants be located in one of the devolved nations of the United Kingdom. The ones who must be consulted include the key regulatory bodies for nuclear generators in Great Britain.

Alongside that, for each designation, there may be other relevant parties that the Secretary of State thinks it is reasonable to consult to inform the draft reasons for designation. That sort of provision is standard practice. The clause is modelled closely on existing consultation obligations in the Energy Act 2013, which allows the Secretary of State to consult other persons without the requirement to publish a justification.

I do not seek to reject the amendment because of concerns about transparency. The designation process takes several important steps to ensure transparency, including the publication of a statement on how the designation criteria will be assessed and the publication of the designation notice.

The hon. Member for Southampton, Test says that those consulted ought to be relevant, but I think that the Secretary of State will consult only with those who ought to be relevant rather than, in the terms of the hon. Member for Southampton, Test, a random set of people off the street. The way that governmental processes work is that consultations are supposed to be with people who are relevant. I do not think that including a relatively unprecedented amendment to publish a statement about why it is relevant to consult those persons will help the transparency or the understanding of the decision made by the Secretary of State.

I hope that I have shown hon. Members that the legislation already takes the necessary steps to ensure transparency and that the amendment would go against the established precedent for this kind of provision, which has generally worked well for big Government infrastructure decisions. I therefore ask the hon. Member for Southampton, Test to withdraw the amendment.

[Dr Whitehead]

I am certainly happy to withdraw the amendment, but in passing I mention that the Minister has drawn attention to the word “must” in clause 3(2), which precedes the people who the Secretary of State is listed as consulting. I am glad that he drew attention to that, because it may reflect on an amendment that I will move later concerning the words “may” and “must”. The Minister will know that a regular concern of mine is that legislation needs to be written in the right way concerning the imperatives on the Secretary of State rather than the allowances. We have made progress from that point of view.

Although this clause contains a fairly standard way of putting things, that may just mean that legislation has been slightly lax in the past, which may be considered less than satisfactory in future. I take the Minister’s point, however, that it is not an exceptional way of putting things, and I take his assurance that a question of relevance would be in the Secretary of State’s mind when he consulted anybody under such circumstances. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Greg Hands]

Let me lay out the purpose of clause 3, which is to set out the procedure that the Secretary of State must follow to designate a nuclear company for the purposes of the nuclear RAB model. The clause requires the Secretary of State to undertake various transparency and consultation obligations before a company is designated.

The clause sets out the process. By putting the process in the Bill, the Government are showing their commitment to transparency and openness when designating a company. Prior to the designation of any company, subsection (1) requires the Secretary of State to publish a statement setting out the procedure they expect to follow in determining whether to designate a nuclear company and how they expect to determine that the designation criteria are met.

The Government anticipate that a nuclear company with a generation licence, and which thinks that its project should be funded through a RAB, would approach the Secretary of State. The Secretary of State will then assess the project against the factors set out in the statement, before consulting expert bodies on the designation. That provides opportunities for those directly affected by the potential designation, or with special expertise relevant to the decision, to provide their views on the matter. That includes the Gas and Electricity Markets Authority, the governing body of Ofgem—I will refer to it generally as Ofgem in the course of this debate, for the sake of time—whose primary statutory duty is to protect the interests of consumers.

--- Later in debate ---

[Greg Hands]

I thank the hon. Members for Kilmarnock and Loudoun and for Aberdeen North for their contributions on clause 3. I will try to deal with their points.

It is important to understand the different parts of the process and the transparency involved in the process. The rules are published first; then comes the rationale for the designation, which is consulted on. It is standard practice in a consultation, of course, to take into account the results or the responses made to the consultation. Perhaps the hon. Member for Kilmarnock and Loudoun was trying to characterise it as superfluous or part of a process that would not add any additional information, but a Government consultation is there specifically to seek out and find more information. We then publish the final rationale for the designation. I hope that is helpful in setting out a little of the process involved.

The question about stating the length of the consultation is one that would be appropriate to the project itself. Let us not forget that we are trying to design a process here that would take into account a number of different possible future nuclear power stations. It would be difficult for us today to be prescriptive about the length of time that a consultation should take. We have set out those who we think must be consulted, and we have also left it open for the Secretary of State to consult other interested parties, which is quite reasonable considering that this legislation is supposed to encompass various forms of future nuclear power plants. We would be in danger of becoming too prescriptive about things such as the length of the consultation and the earlier amendment about stating reasons for particular people to be consulted.

[Dr Whitehead]

I do not want to be accused of trying to be too helpful to the Minister but, as I understand it, this part is about the designation of an existing nuclear company for the possibility of receiving RAB payments for a project it has not yet undertaken. That is it. It seems to me that what we are concentrating on in this part of the Bill—although not later on in the Bill—is just the designation process. I hope the Minister will agree that that is not the project or the RAB process itself, on which we would expect considerable transparency as it goes through, but not necessarily at this particular stage.

[Greg Hands]

The hon. Gentleman makes a fair point, and he is right that that is the purpose of this clause. None the less, the purpose of the clause is also to allow designation for a potential variety of timeframes within those projects, so it is still important not to be over-prescriptive, for example with the suggestion that we lay out today what the length of time for a consultation should be.

In terms of the costs, the whole purpose of the Bill is to reduce costs. The hon. Member for Kilmarnock and Loudoun is probing on the costs and what they actually mean, but the point is that this is a reduction in the costs that would otherwise be the case under a contract for difference model. That is ultimately getting to the heart of the Bill. I appreciate that he is against nuclear power, but he would surely have to recognise that the Bill is about reducing the costs of nuclear power. That is the purpose of the Bill. He says it is going to be very expensive—we acknowledge that it can be very expensive, and the purpose of the Bill is to make it less expensive.

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[Greg Hands]

I am not going to give way again, because I have set out clearly that the Secretary of State is ultimately accountable to Parliament, and Parliament would find a way of examining the reasons that he or she laid out under this clause.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4

Expiry of designation

[Dr Whitehead]

I beg to move amendment 5, in clause 4, page 3, line 24, leave out “5” and insert “4”.

This amendment shortens the maximum time allowed by the Secretary of State for the designation period of a nuclear company.

[Dr Whitehead]

The amendments are grouped because one follows directly from the other—amendment 6 is consequential on amendment 5. The previous debate about the designation process was helpful for discussion of this clause, because clause 4 looks at how long a designation may last once the process has started. That is important because the process can cease to have effect either on the expiry of the designation—that is, a company has been designated for moving along the path to eligibility for a RAB and various negotiations will take place as the company develops its plant—[Interruption.]

[Greg Hands]

The House has adjourned.

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[Dr Whitehead]

Hon. Members have such Pavlovian responses these days, automatically running out of the door whatever the circumstances.

The expiry date of a designation could well arrive because the company has received a designation, but has done nothing about it, or because the Government have got a designation through, but are a bit lax in pursuing the subsequent process. Alternatively, as the clause suggests, it could be because a project is under way, the revenue collection contract starts biting, investment is secured and the project goes ahead.

However, I am a little concerned that the expiry date is set at a period of five years, beginning on the date of the designation notice in question. As such, both the nuclear company and the Government have five years to get their act together on the RAB process, although that could lead to a going slow or delays. We already know that nuclear projects have a habit of running over time, sometimes due to construction issues and so on, but we do not want projects to be further delayed because people have not got themselves organised for a proper RAB process or because the Government cannot be bothered to get things going at a certain time and believe that they have five years to sort that out.

We have made the modest suggestion that that period should be four years; that might concentrate minds a little on moving from the process of hopefully being designated to the process of having a revenue collection contract and getting under way properly. There would not be that time to mess about between the two ends of the process, as might be the case under the five-year designation period.

I agree that we could pick any one of a number of different dates; the four-year period is just to suggest that we should concentrate minds a little. The amendment does not lay down the law: if the Government think it could be reconstructed in a different but more concentrated way, we would be happy with that. The amendment just suggests an indicative new date so that the point is borne in mind. I hope the Government will be able to accept it on that basis.

[Greg Hands]

Amendments 5 and 6 would seek to reduce the length of time a designation remains valid from five to four years and they would reduce the period for which the Secretary of State may extend the designation notice for a designated nuclear company to four years.

First, I thank the Opposition for their consideration of this matter. The hon. Member for Southampton, Test spoke to his amendment in a probing way—trying to get to the bottom of why the period should be five years rather than some other period. I am glad that the Opposition recognise the importance of the designation notice period and the fact that it should strike the right balance between providing enough time for the Government and the company to undertake all the processes necessary to inform a decision on licence modifications without leaving a designation in place for an unreasonable length of time. That is, as it were, the exam question here.

I believe that we have achieved that balance in the Bill. Currently, if negotiations on a project are successful and a relevant licensee nuclear company becomes party to a revenue collection contract, the power of the Secretary of State to modify its licence ceases, of course, outside some limited circumstances. That is vital to give investors confidence that the Secretary of State does not have an open-ended power to further amend the generation licence.

On the other hand, if negotiations are not successful after a project has been designated—the point here is to give enough time for those negotiations to be successful—it is necessary for the Secretary of State’s modification powers to lapse rather than continue indefinitely, so a sunset clause to the designation is also needed. That sits alongside the provisions in the Bill that revoke designation if the designation’s criteria or conditions are no longer met.

However, a decision to take a financial close on a nuclear power station may not happen overnight; robust processes must be followed, extensive due diligence must be carried out and there must be rigorous negotiations to ensure value for money for both the consumer and taxpayer. That is the case with many large infrastructure projects.

Take the negotiations at Hinkley Point C as an example: discussions and eventual negotiations on the project took a number of years to complete. I believe therefore that a five-year window is a reasonable period to expect negotiations to have run their course, recognising that a project for RAB must be suitably advanced to be designated in the first place—that goes back to the earlier debates. That window provides time for negotiations to achieve a successful outcome without providing the Secretary of State with licence modification powers for an inappropriate period. The ability to extend the designation presents a backstop provision that allows the designation to be continued when the designation criteria continue to be met and negotiations are ongoing—in other words, it builds a certain amount of flexibility with a positive decision to extend negotiations. It is therefore appropriate that the extension period should mirror the initial designation period.

I do not consider that the amendments would provide any enhancement to that rationale. I did not hear any specific argument for four years rather than five years, so I am minded to continue with five years. I consider the provisions within this clause, which will permit the Secretary of State to revoke a designation notice at any point if he considers that the criteria are no longer met, mitigates the risk that negotiations—or, indeed, the modification power—will continue for longer than they should. I therefore invite the hon. Gentleman to withdraw his amendment.

[Dr Whitehead]

As the Minister has said, the amendment was essentially a probing amendment to seek a little more clarification on why five years is considered to be the appropriate time. I am not sure that the Secretary of State has fully answered the question about the extent to which that might allow people not to get on with things as quickly as they might otherwise do, but I appreciate that in a complicated project such as those we are considering, there are processes that take quite a lot of time; it may well be that getting on for five years is the time necessary for such projects to be completed.

The overall point is that we want to make sure that, once designation has been undertaken, we move to the next stage as quickly as possible. I am sure that the Secretary of State would concur with that particular aim. 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.

[Greg Hands]

Clause 4 sets out the circumstances in which the designation of a nuclear company would expire. As set out in subsections (1) and (2) of the clause, the designation of a nuclear company will be limited to a period of five years from the date of the project designation. If a designation expires, the Secretary of State must publish the details of that fact under the provisions in subsection (5). However, the Secretary of State will have the power under subsection (3) to extend the designation period before the five-year period lapses.

Subsection (4) of the clause requires that prior to granting an extension for a maximum of five years, the Secretary of State would need to consult the company, the authority, the ONR, the relevant environment agency, and the devolved Governments if relevant. Before exercising that power, the Secretary of State would also need to continue to be satisfied that the criteria for designation are met. This would allow for any circumstances in which the negotiations with the designated company and engagement with the financial markets last beyond the five-year designation period, but the Secretary of State believes that the project both represents value for money and is sufficiently advanced to warrant a RAB.

The designation will also expire if the company enters into a contract with a revenue collection counterparty. That is to provide confidence to investors that once the RAB licence conditions have been inserted into the company’s electricity generation licence, the Secretary of State will no longer be able to modify that licence except in the limited circumstances set out in clauses 7 and 35 of the Bill. This is a proportionate approach that balances the need for investor certainty with the ability to flexibly apply the RAB model to individual projects. On that basis, I commend the clause to the Committee.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

Revocation or lapse of designation

[Dr Whitehead]

I rise to speak to amendment 7, in clause 5, page 4, line 16, leave out “either” and insert “any”.

This amendment is consequential on amendments 2 and 3.

This amendment was tabled to deal with the possible eventuality that we would have three designation criteria in clause 2(3), rather than two, as is the case at the moment. We moved an amendment to try to place three criteria into that clause, which the Committee did not accept. The statement, therefore, that either of those two criteria are relevant stands as far as the Bill is concerned, and the word “either” should therefore not be replaced by “any”. On that basis, amendment 7 logically falls, so I have no wish to move the amendment.

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

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[Greg Hands]

Clause 5 provides the Secretary of State with the power to revoke the designation of a nuclear company and sets out the applicable circumstances and procedure for doing so, as well as the circumstances and procedure whereby a project designation could lapse. The revocation power is tightly constrained by subsection (1). It applies only where a nuclear company ceases to hold a generation licence in respect of the nuclear project for which it was designated or it no longer meets the designation criteria. It is important that only the right projects are able to benefit from a RAB where they are sufficiently advanced and likely to provide value for money.

As set out in subsection (2), revocation of a designation would follow a similar process to project designation. The Secretary of State must prepare draft reasons, consult the named persons and publish a revocation notice, where relevant; they can attach additional conditions to a designation notice, as set out in subsection (3). If a company fails to comply with the conditions set out in the designation notice, the Secretary of State will notify the company that it has failed to comply, which will result in the designation lapsing. Such a notice must be published by the Secretary of State under subsection (5).

Such a model is a common feature of similar RAB models. The procedures envisaged allow time for consideration and consultation before any decision to revoke is taken. Given that the ability to continue to meet any of the conditions attached to designation is within the control of the company, there is no consultation requirement for the Secretary of State before a designation lapses.

Taken together, these routes to ending a designation provide an important layer of protection for consumers before a designated company enters into a RAB. In essence, they allow for a designation to end in any circumstance where it is no longer appropriate for a company to benefit from a RAB before project funding begins.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

Licence modifications: designated nuclear companies

[Dr Whitehead]

I beg to move amendment 8, in clause 6, page 5, line 3, at end insert—

“(2A) Prior to exercising the power under subsection (1), the Secretary of State must publish a statement setting out how the exercising of the power will facilitate investment in the design, construction and commissioning of nuclear energy generation projects.”

This amendment requires the Secretary of State to justify the exercise of a power to modify the electricity generation licence of a nuclear company.

The clause concerns modifications to the licences of companies that have entered into a designation with regard to the RAB process. It sets out a number of powers enabling the Secretary of State to make modifications to licences in order to square the designation process with the licence process. It occupies a lot of other areas, but would be particularly relevant to the licence as it applies to, say, the Sizewell C project.

Subsection (2) states that the Secretary of State is able to exercise the power under subsection (1)—to modify licences—

“only for the purpose of facilitating investment in the design, construction, commissioning and operation of nuclear energy generation projects”,

which restricts the powers of the Secretary of State to modify the licences, concentrating it in the field of the design, construction and operation of the nuclear project.

Hon. Members will notice that that restriction stops there—that is, the Secretary of State may exercise that power for that purpose, but no one else needs to know about it. The Secretary of State may consider doing that, or restricting himself or herself to that particular designation, and may consider that he or she has done that, but it is a completely opaque process.

This amendment seeks to ensure that the Secretary of State publishes a statement setting out how his decision does indeed facilitate investment in the design, construction, commissioning and operation of nuclear energy generation projects, so that when he is considering exercising that power, it is a publicly exercised power, and information on what he has done is in the public domain.

The publication of the statement does not restrict what the Secretary of State can do; it sheds a light on what they can do, and ensures that they are carrying out that particular power correctly, as laid out in the legislation. We think that would be a good, safe addition to the Bill. It does not fundamentally alter its direction, but sheds a little more light on the process as the directions of the Bill are undertaken.

[Greg Hands]

As the hon. Gentleman says, this amendment addresses the process for modifying a designated nuclear company’s licence, particularly which documents should be published before the power is exercised. We recognise that designating a nuclear company and subsequently modifying its licence is a significant decision. That is why the legislation lays out a clear process, which provides transparency and builds confidence in the decisions that the Secretary of State will make when exercising these powers. The process in the Bill is strongly based on existing licence modification powers; it is well precedented.

The amendment obliges the Secretary of State to publish a document setting out how the licence modification would facilitate investment in nuclear projects before modifications are made. I do not believe that is necessary. The Government have already set out a clear process and strong transparency provisions in the legislation. Currently, the Secretary of State is required to consult named persons prior to making any licence modifications, and must then publish the details of any modifications as soon as reasonably practicable after they are made, with material excluded only when necessary—for example, for purposes of commercial confidentiality or national security.

[Greg Hands]

The process is as described. It is based on a very good precedent on these sorts of licence modifications. This would not be the first Bill to come along to look at how to modify a licence, and we have based that entirely on existing precedents. There is nothing unusual in this process or this structure.

The approach of consultation followed by publication is well precedented, as I said, in other licence modification powers. We think that the amendment proposes an unnecessary additional process. Moreover, the consultation provisions will allow expert voices to input on whether the licence modifications are effective in facilitating investment, which, of course, is exactly the purpose of the clause. I therefore hope that the hon. Gentleman will withdraw the amendment.

[Dr Whitehead]

We do not intend to press the amendment to a vote, but I will say that we think it is a good idea, which adds to the Bill’s transparency. The Minister has given examples where certain elements of that transparency would be facilitated by other components of the Bill, but I would note that most of those are post hoc rather than before the process. Nevertheless, I take some assurances from what the Minister has said about the proper transparency of the process, so we will not pursue that this afternoon. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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[Dr Whitehead]

It is at the conclusion of the construction stage because the construction stage gives way to a production stage. That is the point at which electricity is produced, when the customer—I am assuming we can describe the consumer and customer as an entity—or those acting on behalf of the customer can start to think about the extent to which some of that money may come back as a result of the way that production is carried out within the ceiling set for overall RAB programme costs.

There could be circumstances under which, as the RAB process comes to an end, the customer recoups—in lower bills, dividends and so on—a lot of the money that was put in. There will always be excessive production over the allowed costs level, so money will come back to the customer. We will see later in the Bill the methods by which that money might be restored to the customer. Yes, there is a real interest, post the construction phase, in recouping those costs.

A second issue for the consumer is the eventual outcome of the ownership of the plant at the end of the RAB period, as it goes into production. As it is a regulated asset base, by the end of the RAB period, the company that has undertaken the construction and run the production of the plant will have received all the money it should have received through the regulated asset base arrangement, and will have worked successfully as a result of the support that the RAB process provides.

Depending on how many years are set out for the RAB process to take place, if it reaches its end within the working life of the nuclear plant, the question then arises of who owns the nuclear plant at the end of that period. Does the consumer own it at the end of that period? If they do, that is a little bit like a mobile phone contract, whereby the consumer would expect the charges to reduce substantially after paying off the cost of the phone in their contract. Clearly, it is in the interests of customers to have an active involvement not just in spending their money wisely, but in recouping or changing it into a different form as the RAB process sets its course. Indeed, under those circumstances, the Secretary of State might need to consider the length of the RAB contract, and how far it goes into the operating life of the nuclear power station, to carry out the terms of the contract and to consider what arrangements might be made for life at the end of that contract.

I suggest that those are all things that the Secretary of State ought to have regard to over and above the passive involvement of consumers that is set out in subsection (4). That is why we tabled the amendment, which states that the Bill should take account of

“the interests of existing and future consumers of electricity in relation to their prospects of recouping their contribution at the conclusion of the construction phase of the project”.

That is an active consideration in the management of customers’ contracts, not just a passive one where the customer stands by and waits for the money to be deducted from their account to pay for these projects forever. The Secretary of State should have an active view on that in terms of how to get the best value for the customer from the project overall, over and above the best value for the project itself.

[Greg Hands]

Amendment 9 addresses how the interests of consumers, which are vital in this process, will be taken into account and what the consequences of that would be. In the Bill as currently drafted, the Secretary of State must have regard to a number of matters when modifying a designated company’s licence. That includes the UK’s net zero ambitions and the interests of existing and future consumers in relation to the future cost and security of electricity supply.

The amendment requires the Secretary of State also to have regard to the prospect of consumers recouping what I think the shadow Minister described as their “investment” at the end of the construction phase. I appreciate hon. Members’ enthusiasm for ensuring that consumers will benefit from any RAB project, and, in that sense, I welcomed their support on Second Reading. However, the amendment is not compatible with how the RAB model works.

The hon. Member for Kilmarnock and Loudoun got to the heart of this: the amendment would make RAB effectively inoperable. It treats consumers as investors, but they are not investors. Consumers will benefit from a new nuclear power station. He and I might disagree on whether that should have happened in the first place, but none the less, the benefit to consumers is in electricity rather than in a return on any investment.

Fundamentally, the amendment misunderstands how the RAB model will work. The RAB model will mean that consumers contribute to meeting project costs from the start of construction and reducing the cost of capital, which is the main driver of project costs. That is why we are seeking consumers’ contribution. What they get in return is a nuclear power station that produces low-cost, low-carbon electricity.

--- Later in debate ---

[Greg Hands]

Again, I thank the hon. Member for that intervention. The cost of different forms of power generation is a very interesting part of the energy debate. Obviously those costs move around and will be based on any number of factors, including global market prices and the cost of extracting and producing particular forms of energy. Nuclear’s advantage is its ability to provide a steady, constant baseload, which is not always the case with some of the other technologies the hon. Lady is comparing it with.

I hope I am not digressing too far, but when it comes to offshore wind, the UK has had enormous success. We have the world’s largest capacity. None the less, when the wind is not blowing and the sun is not shining, we have to have something else to provide that baseload. That is the purpose of nuclear power. The Bill is about making it more cost-effective and reasonable for consumers. That is the Government’s position.

I hope I have convinced hon. Members that this amendment would not achieve their goals of helping consumers. The concept of consumers investing in a plant and then recouping their money somehow is incompatible with the RAB model. There are mechanisms in place to give confidence that any RAB project will successfully lead to the means of delivering large amounts of stable, low-carbon energy to consumers. I hope the hon. Member will withdraw the amendment.

[Dr Whitehead]

This really worries me. What does the Minister think consumers are doing in contributing to a RAB process? If the Minister does not think that that is in any way a form of investment in the plant and that consumers are just completely passive recipients—that they are good for whatever money is required to get the system through and should have no interest in the proceedings, other than being a milch cow for the process—I am afraid that we differ.

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[Dr Whitehead]

Yes, indeed. This is perhaps a separate debate, but we have a position not just on this particular instance of nuclear power, but on similar arrangements that relate to the RIIO process for energy distribution and network companies, whereby they are enabled to charge an additional amount on bills in order to secure assets that they own and that consumers or the public do not. The consumers, however, are expected to pay for the privilege of having that piece of technology at their disposal subsequently, but the question of ownership never comes into it, because they pay collectively for someone else to have an asset to call its own. That is exactly the situation with the nuclear plant.

We therefore need to take the consumer rather more seriously than just being a passive contributor in the way often set out in such processes—“Oh well, the customer will pay an additional levy in the bill. As long as it doesn’t look too serious at any particular time, that’s okay.” Not only is that not okay, in particular for levies with no consequences if applied to customers, but it is not okay to have a cumulative set of levies that put a lot of money on electricity and gas bills over a period for particular purposes that the consumer has no hand in at all.

I agree that the concept of the consumer being a part investor in the process might sound a little odd to those who have a traditional view of an investor and how an investor works, it is nevertheless a real thing: the consumer is in effect investing in the success of the plant. The Secretary of State—the Minister; I have promoted him already—has set out how he sees the customer being involved in the process, but that completely ignores the proper interest and protection of the consumer and bill payer as far as the overall process is concerned.

The amendment would not make the RAB process impossible; it merely states that as part of that process—we will come to the debate about where allowable costs have been exceeded—yes, the customer invests in it, but the customer also has reasonable expectations of some quid pro quo for that investment. That ought to be looked after. The quid pro quo in this instance, as I set out—I am sure the Minister agrees that this takes place in the RAB process—is that in the production process, if there is an excess over the allowable costs of production, the fact that it is a regulated asset means that that money goes back to someone. In this instance, it should be the customer.

That is what I mean by the customers’ interests being protected in recouping their investment. The Minister surely cannot deny that that is part of, not instead of, the RAB process in the production period. That is actually set out in the notes that accompany the Bill. I am therefore a bit mystified as to how the Minister takes the position that he does, given what is in his own Bill and in the arrangements for RAB that he himself is putting forward. I see no reason why he should not accept the amendment if he has the customers’ interests at heart, because it does not detract from RAB; it adds to it by recognising who is paying the money, what their interests are and how they should be protected.

I will not press the amendment to a vote, but I want to record my disappointment in the Minister’s apparent lack of either understanding or empathy for the customer’s position. We are discussing a Bill in which the customer is central, because they are bankrolling a substantial part of the project as it goes forward. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Greg Hands]

I will try to speed up a little. As we know, the clause allows the Secretary of State to make the necessary licence modifications to apply a RAB model to a designated nuclear company. Subsection (2) clarifies that the effect of a licence modification is that the company would benefit from being able to receive an allowed revenue to construct, build, commission and operate a new nuclear power plant. Subsection (3) requires that the power be exercised only in relation to a nuclear company that is designated in accordance with the provisions of the Bill.

Licence modifications will not take effect unless the nuclear company whose licence has been modified subsequently enters into a revenue collection contract with a revenue collection counterparty, as set out in subsection (9). The modifications will be subject to negotiation between the Government and the nuclear company. It is therefore not possible to describe the exact modifications that would be required; however, subsection (5) highlights possible examples, such as the revenue that a company is allowed to receive, how that revenue is to be calculated, and the kinds of activities that may be undertaken by the company.

When making any modifications to a licence, subsection (4) requires the Secretary of State to take into account both our commitment to decarbonising the power sector and the interests of existing and future consumers with respect to the cost and supply of electricity. Alongside that, and to ensure that any RAB project is financeable, the Secretary of State, when making modifications under the clause, must have regard to the costs incurred in delivering the project and the need for the company to finance that activity. Together, those obligations will ensure that the modification powers are used so that the project contributes to a transition to a low-carbon, low-cost energy system.

As set out in subsection (3), the power to make modifications to a licence will last while the designation for a nuclear company is in effect. That is important to allow the Secretary of State to make modifications to the licence to take into account developments in negotiations and engagements with the financial market. When making any modifications in that period, the Secretary of State will need to continue to take account of the consultation that he undertook with all bodies named in clause 8. In addition to the modification of the designated nuclear company’s licence, subsections (7) and (8) allow him in very limited circumstances to modify the standard conditions of generation licences if necessary. The Secretary of State can make those modifications only if he considers it appropriate for consequential, supplementary or incidental purposes.

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[Greg Hands]

I thank the hon. Member for his contribution. The Government are satisfied that the amount of information included in the Bill is sufficient. Far be it from me to suggest that Members table amendments, but perhaps he might seek to do so if he wants to see more transparency and more information. I realise I was not quite right earlier in saying that the SNP had not tabled any amendments; I know that it has tabled some new clauses. If he wants additional publications, he might table some amendments on Report to be a little more precise about what additional information he thinks the Secretary of State should publish.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7

Licence modifications: relevant licensee nuclear companies

[Dr Whitehead]

I beg to move amendment 11, in clause 7, page 7, line 8, at end insert—

“(3A) When exercising the power in subsection (1), the Secretary of State must not cause the excess of expenditure being incurred over the allowable revenue cap to lead to further charges upon revenue collection contracts.”

This amendment prevents the Secretary of State from allowing the levy of further consumer charges should an increase in allowable revenue be agreed following increases in costs or timescale of a nuclear project.

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[Dr Whitehead]

With these amendments, we get to the heart of the consumer interest in the Bill. They are closely related, so it is appropriate that they are grouped and spoken to together.

As I think hon. Members know, when the RAB process gets under way, one of the first things that will happen is that Ofgem will be required to draw up a programme of allowable revenue. That is the sum total of the amount that is considered to be within the RAB process. Much of the rest of the Bill is about how that allowable revenue is collected from customers, placed with the counterparty and allocated out to the nuclear company that undertakes the construction and subsequent production of a nuclear plant, and about the safeguards and concerns surrounding that process. The question of allowable revenue is crucial to the rest of the Bill.

Allowable revenue is made up of a number of building blocks. The return on capital must be assessed, as must depreciation, operating costs, the project’s taxation, grid costs, the funded decommissioning programme, incentives and other adjustments. Those all go into the pot of the allowable costs regime, which sets a ceiling for the amount of money that can be taken from the consumer, albeit that that is a contribution towards the process made by lots of people in small amounts on their bills over a period of time. It sets out the quantum of those contributions, and many adjustments can be made to how that works, in relation to the timescale of the process, the part of the allowable costs element that is placed into construction and the part that is placed into production. That is set out later in the Bill as part of the process of allocation from the counterparty body to the body that carries out nuclear construction and production.

As was mentioned earlier, it is not always the case that nuclear power plants are constructed exactly to cost and exactly to time. Indeed, if we look at the construction of nuclear power plants across the world, we find that all but one has run over time or over cost or both—in some instances by very large amounts. The allowable costs ceiling is therefore important for us to get a clear scope of what the customer will have to bear in this process. However, there is also a process in the Bill that allows that allowable costs ceiling to be raised, on the Secretary of State’s consideration, if the circumstances change. If the costs rise or the timescale slips, the Secretary of State can allow the allowable costs ceiling to be raised.

What that means in principle for the consumer is potential catastrophe, because the consumer thought they were in for a particular allowable costs ceiling that had been determined. We have heard already about the rather heroically optimistic cost assessments provided for in the Bill, and on that sort of allowable costs arrangement consumers would have about £1 put on their bills in the design phase, with a lot more—perhaps £10—on their bills in the construction phase. The amount would then taper down as production gets under way, with the possible payback of some money in the process. The overruns on construction costs or time costs could double or treble that amount, particularly during the construction period, in a way that the consumer would not have anticipated.

In the amendments, we suggest that the consumer should be in for the initial allowable costs ceiling estimate—and that is it. In circumstances where the Secretary of State is contemplating what should happen with the allowable costs ceiling, he should not cause any excessive expenditure simply to be plonked on to customers’ bills. At that point, if the costs or the timescale have changed, there are a number of options open to him as to how to deal with the new cost ceiling; that need not necessarily be done by simply raising the allowable costs ceiling. For example, it could be by adding a particular taxpayer’s investment to the project, or it could be by issuing nuclear bonds, which puts additional money into the company but does not impact on customer bills.

We are seeking to cap the RAB in terms of what the customer expectation of it is. That does not necessarily mean that the function of the RAB is determined by that cap; it just means that the exponential milking of the customer to fund the RAB does not take place and that the Secretary of State has recourse to other means and should publish, as amendment 12 says, what the plans would be in the event of an excess over the ceiling to make the project a success.

That is a very important part of the new deal as far as RAB is concerned. The customer is now being asked to invest, in the first instance, in the hope for a plant, well before the plant has been established; that is new—the CfD process is post the construction of the plant. They are being asked to underpin the expensive costs that are incurred during the construction period. They are also being asked to engage in a two-way process whereby, yes, they get cheaper bills but they are still potentially contributing to a RAB process as the production phase continues. So the very least we should expect on behalf of the customer is that they know what they are letting themselves in for at the time of the outcome of the project.

We are not talking about capping costs necessarily; we are talking about how those additional costs are paid for under the circumstances where they do rise. We obviously hope that, as the project progresses, those costs and timescales do not increase, but if they do we do not see that the customer needs to foot the additional bill; there needs to be other recourse. That is what we have put in these amendments, and should the Secretary of State consider in any way that the customer is an investor in this process, we hope he would consider that a reasonable way of dealing with the investment that the customer is undertaking in the process as a whole.

[Greg Hands]

I will speak for a little longer than I might ordinarily do, because this is an important question of consumer protection. I will try to deal with all the points raised by the hon. Member for Southampton, Test.

Amendment 11 would limit the ways in which the Secretary of State could exercise the powers under clause 7. As we know, clause 7 allows for a nuclear company’s allowed revenue to be increased should its financing cap be exceeded in construction, but only in certain circumstances and where a clear procedure is followed. The amendment seeks to prevent the Secretary of State from creating any additional recourse to consumer funding in the exercising of his or her powers under the clause. Amendment 12 proposes that the Secretary of State should be transparent about the funding of a nuclear RAB project were they prohibited from funding an extension to the allowed revenue through a revenue collection contract.

First, I draw the House’s attention to the remoteness of the scenario under which the Secretary of State may choose to exercise the power under clause 7. Under a RAB model, the licence would determine a risk-sharing mechanism, whereby construction cost overruns up to the agreed financing cap are shared between investors and consumers. We expect that any RAB structure will ensure that financial incentives are in place to ensure the company’s investors manage project costs and schedules. The financing cap will be based on robust risk analysis, including best-practice, reference-class modelling, and set at a level that is sufficiently remote that there is a very low chance that it would be reached.

However, in the event that the financing cap is reached, investors would not be obliged to provide the capital to complete the project and this risks considerable sunk costs to consumers if the project is discontinued. Given the size and importance of the project, the Government consider it crucial that there is a mechanism in place to allow the additional capital to be raised to ensure completion of the project, and that decisions to extend the project’s revenue rest with the Secretary of State.

I would emphasise at this point that any decision taken by the Secretary of State to adjust the allowed revenue is one that is subject to a robust process of scrutiny and transparency. The Secretary of State could exercise the power to extend the allowed revenue only following consultation with the licensee, the ONR and Ofgem, which, I remind the Committee, has as its primary statutory duty the need to protect the interests of existing and future consumers with respect to the cost and security of the supply of electricity.

In exercising the power, the Secretary of State must continue to have regard to those matters detailed in clause 6(4), which includes the interests of existing and future consumers with respect to the cost of supply of electricity. As is consistent with our approach across the Bill, we have sought to ensure a transparency process whereby the Secretary of State is required to publish a statement setting out the procedure to be followed when exercising this power. That is set out in subsection (6).

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[Dr Whitehead]

I beg to move amendment 10, in clause 7, page 7, line 17, after “operations” insert

“and have generated power for placement onto the National Grid”.

This amendment amends the definition of the completion of construction of the nuclear project to include initial generation of power.

The amendment relates to statements made, for the purpose of licence modifications, about the completion of the construction of a nuclear project. Clause 7(5) states that completion of the project should be based on

“successful completion of such procedures and tests relating to the project as constitute, at the time they are undertaken, the usual industry standards and practices for nuclear energy generation projects in order to demonstrate that they are capable of commercial operations.”

I wonder whether hon. Members can spot what is missing from that subsection. This is not a quiz, and I think hon. Members have long gone to sleep—but in case not, the answer is that there is no suggestion in it that the nuclear power station actually has to produce anything. Construction could be regarded as complete provided that all the hoops have been jumped through, even if no button has actually been pressed. Presumably what one would regard as the original purpose of the whole operation is that it should produce some power that goes into people’s homes, buildings and so on.

The amendment simply says that not only must all those things be completed, but the project must do what it was originally supposed to do: generate power. As the amendment describes it, the project must

“have generated power for placement onto the National Grid”.

That seems a very modest amendment, but it would put right what I think is rather a serious omission in clause 7(5) with respect to the whole idea of what a nuclear power station is for. Surely we must agree that generating power is the purpose of a nuclear power station, and that completion must therefore be based on that purpose.

I cannot see any great reason why the amendment should not be accepted, but I am sure that the Minister has a very good argument why not.

[Greg Hands]

I thank the hon. Gentleman for moving his amendment. It is important that we consider that the scenario is remote; before allowing any project to have a RAB, we will obviously have conducted robust due diligence, using best practice benchmarking analysis to set the financing cap at a remote level. The project’s investors will be incentivised to control costs below that level and will be penalised for project overruns. We are clear that this power of modification should be exercisable only during the construction of the plant, and have sought to do this in clause 7(4). This determines that this power cannot be exercised at any point once construction has been completed. For the purposes of this clause, we have defined the construction phase in clause 7(5).

The amendment would provide further qualification to the definition of the end of a project’s construction phase. It seems to make it explicit that the purpose of the construction phase of the nuclear project is to build a plant that will contribute electricity to the national grid, and that might appear fair enough. However, the clause is intended to cover both the period of construction and the testing of the plant, to ensure that it can operate commercially to provide power. An early part of this testing is the connection of the plant to begin to provide power to the national grid. However, there is further testing that follows, to ensure that the plant can operate effectively throughout its life. We consider it appropriate that the option to increase funding to complete the project should run until all testing completes.

In a nutshell, I think the cut-off point proposed by the hon. Member for Southampton, Test is too early in the process. The point at which the power station connects to the national grid is not the point at which one can have 100% confidence in the project from there. Therefore, I thank the hon. Gentleman for his interest and concern, and of course we would not wish to see consumers being penalised, but unfortunately I think he strikes the wrong point in the process at which this clause would kick in. I urge him to withdraw the amendment.

[Dr Whitehead]

I concede that I may not have fully understood all the various tests that are undertaken to usual industry standards, but nowhere in this clause does it say that those tests include the production of power. That is my central point. It is a bit like going into a car showroom and being shown a really nice vehicle. It has all the bells and whistles on it, and all the guarantees; it looks greats and the paint is really good. But when one asks to go for a test drive, the person in showrooms says, “I’m sorry, you can’t do that, Sir; it hasn’t got an engine in it.” Surely it must be about producing power. That ought to be explicitly in the Bill. That is my only point. If the Minister thinks that, concealed in all these various tests is the production of power, which does not seem to be the case to me, then maybe that is not needed on the face of the Bill. I think it would be rather good if it were on the face of the Bill.

--- Later in debate ---

[Greg Hands]

The financing cap will be set out at the beginning of the project by the Secretary of State. It will be available to be scrutinised. The purpose of the power in the clause relates to what happens in the event that we approach the financing cap.

The clause would have relevance in the very unlikely situation that, during construction, the project is likely to breach its financing cap under a RAB. The financing cap is the point at which investors are no longer required to put money into the project. What happens then? The cap is set at a remote overrun threshold. This means that before committing to a company having a RAB, the Secretary of State should be confident that the prospect of costs hitting that threshold is really very unlikely. Under the RAB licence, mechanics will be in place to incentivise investors to minimise costs and schedule overruns, such as overrun penalties. That will ensure that the breach of the financing cap is a remote risk.

When deciding whether to exercise the powers, subsection (3) means that the Secretary of State will need to have regard to the achievement of carbon targets and the interests of consumers, and whether the company is able to finance its activities. Those are the same considerations as when deciding whether to amend the company’s licence to insert the RAB conditions in clause 6. Given the strategic importance of a new nuclear plant, and the wider considerations, such as our need to secure resilient low-carbon energy, it is more appropriate that such a decision is made by the Secretary of State in this instance.

The Secretary of State is also the most appropriate person to balance the interests of consumers, taxpayers and investors. It is not about putting additional burdens on consumers. The RAB is designed to protect consumers by giving them a more cost-effective nuclear power plant, as shown by the steps that we have taken in the Bill. That includes robust due diligence before the final investment decision to be confident that the project will be effectively managed, incentives on the project in construction, penalties for investors in any overrun scenario, and the option for the Government to step in if the project hits extreme overruns.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8

Procedure etc relating to modifications under section 6 or 7

[Dr Whitehead]

I beg to move amendment 13, in clause 8, page 8, line 11, leave out from “power” to end of line.

This amendment strengthens the requirement on the Secretary of State to publish details of license modifications.

Ms Fovargue, as there are no amendments or objections to the clauses from this one to the end of part 1, I suggest that it might be possible to dispose of them collectively to get to the end of part 1 this afternoon. The Opposition would have no objection to that.

I will be brief. Amendment 13 simply says that if the Secretary of State is going to publish something, they should get on and publish it. As it stands, the clause states:

“The Secretary of State must publish details of any modifications made under a relevant power as soon as reasonably practicable after they are made.”

That is a weaselly dilution of the “must” at the start of the line—if the Secretary of State must publish details, they should just get on with it. Hon. Members will see that the following subsection states:

“If…the Secretary of State makes a modification…the Authority must…publish the modification.”

That does not have the little weasel phrase at the end, so why is that weasel phrase in subsection (5) and not subsection (6)?

--- Later in debate ---

[Dr Whitehead]

Yes, that might have been a good idea, but unfortunately it is not on the amendment paper this afternoon. My amendment is, so I hope the Minister will consider ensuring that subsections (5) and (6) are consistent, so that both modifications made under both are required to be published, full stop.

[Greg Hands]

Amendment 13 addresses how soon the Secretary of State should be obliged to publish the details of any modification made under the relevant powers, as already referred to. We think the clause already provides a clear and transparent process, which includes consulting the named parties before exercising these powers and modifications, and then publishing medications made

“as soon as reasonably practicable”

after the fact. Of course, publication can exempt matters that are commercially sensitive or that relate to national security.

The purpose of the amendment is to remove the obligation on the Secretary of State to publish the details of any modifications as soon as practicable after they are made. The Secretary of State would therefore not be subject to an express time obligation on when the details of the modifications must be published. I welcome the Opposition’s focus on ensuring transparency throughout the process of setting up a RAB for a project. We recognise that decisions to modify licences are important, and we believe it is necessary to provide a transparent decision-making process in legislation, as the Bill seeks to do.

I believe the amendment would reduce transparency, not increase it. I do not consider that it will help us to achieve the objective of a clear and transparent decision-making process. Removing the express obligation on the Secretary of State to publish details of any modifications as soon as reasonably practicable could result in uncertainty about when they should be published, which might cause the Secretary of State to unnecessarily delay the publication informing the public, stakeholders or industries of the modifications made. I hope that the hon. Members for Southampton, Test and for Greenwich and Woolwich will agree with that position; the amendment would reduce transparency, not increase it. I therefore ask that amendment 13 be withdrawn.

[Dr Whitehead]

I think we perhaps have a slight divergence of opinion here. We were seeking to simplify and create an imperative for publication by reducing the qualifications on that publication. The Minister has sought to suggest otherwise. We will have to disagree on that; however, we do not wish to push this to a vote this afternoon, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 ordered to stand part of the Bill.

Clause 9

Expiry of modifications made under section 6

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

[The Chair]

With this it will be convenient to discuss clauses 10 to 14 stand part.

Nuclear Energy (Financing) Bill (Third sitting)

Debate between Greg Hands and Alan Whitehead

Committee stage
Thursday 18th November 2021 Public Bill Committees

[Greg Hands]

To be fair, I also listened carefully to Sizewell C’s evidence, and the company will be as aware as we are that this is an active negotiation. I was not in any way surprised that Sizewell C’s representative did not wish to be drawn on the question of exactly where the £1.7 billion would be deployed. We have outlined in the Budget document the sorts of areas that would be in scope. None the less, this is an active financial negotiation.

[Dr Whitehead]

Does that mean that the evidence that was given to us in our session with Sizewell C was not correct, or was ill-informed? Or was it informed, but matters have moved on since then? Or was it—

[Dr Whitehead]

Was it, indeed, as the hon. Member for Bolsover suggests from a sedentary position, diplomatic? If so, was that diplomatic answer given after any sort of instigation from the Government, or was it just diplomatic on the basis that Sizewell C did not want to tell us?

[Greg Hands]

I do not think the hon. Gentleman is correct. It is not fair to conclude that the evidence from Sizewell C was incorrect, or that it was ill-informed in any other way. This is an active commercial negotiation. We have laid out the parameters of the £1.7 billion, and is in no way surprising that our negotiation partners may not wish to comment on what they think it is likely to be spent on. After all, it is taxpayers’ money, which will be deployed by this Government to move forward a nuclear project.

--- Later in debate ---

[Greg Hands]

As I have made clear, we think that the Bill adequately addresses these issues, particularly in combination with the National Security and Investment Act, so I do not see it as necessary for us to make any further clarification. Ultimately, the Bill is about bringing in more financial options for future nuclear power, not cutting them.

The hon. Member asked about Bradwell. To reiterate, that is not a decision for now. CGN does not have regulatory approval for its reactor, nor has it submitted any applications to build a nuclear plant in Essex. We are in negotiations for Sizewell C, as the most advanced nuclear project in the UK.

[Dr Whitehead]

I am afraid the Minister cannot have it both ways. Either the Bill is about financing Sizewell C or it is about financing nuclear power more generally, in which case Bradwell surely has to come into the equation. We could be committing today to a RAB model that could, in principle, help to fund Bradwell, if it goes ahead. It is part of the linked sequence that has already been agreed in heads of terms by the UK Government and the Chinese Government, effectively. He says that it is not a discussion for today, but that is true only if the Bill is just about Sizewell C, in which case his statement that the Bill is potentially about other things is not correct. Which is it?

Although the Bill is effectively about financing Sizewell C, it has implications elsewhere. The Minister says that it is not relevant because the Hualong reactor does not yet have generic approval. That is not a question of making a decision about the involvement of foreign powers or anything like that; whether the reactor gets generic approval for use in UK nuclear markets is just a technical issue. I presume that he would want the nuclear authority to take that line and to give approval, or not, on the technical merits of the Hualong reactor, not on who is running it. That is the issue, however, concerning Bradwell. It has nothing to do with generic commissioning or otherwise; it is a much bigger issue, and he needs to recognise that.

[Greg Hands]

The hon. Member is correct that this is about future nuclear projects, but I stress two things. The original question from the hon. Member for Greenwich and Woolwich was about the future of Bradwell. I am reflecting on the specifics in relation to Bradwell. Of course, nuclear projects going forward are what the Bill is all about, but I will not comment on specific projects potentially going into a RAB process, because that, as we will discover later, is a properly defined process, set out with approvals from the Secretary of State after consultations. The Secretary of State will make essentially two determinations: will the project provide value for money, and is it sufficiently advanced? It would not be proper to comment on whether a specific project that we discuss today will have the ability in future to meet the two most important criteria laid out in the Bill.

Let me say a few extra things about amendment 2. The legislation gives the Secretary of State the power to designate a nuclear company and to modify the company’s licence subsequently to include RAB conditions. The Bill requires the Secretary of State to consider the two criteria that I just mentioned when deciding whether to designate a nuclear project. The two criteria are that the development of a project is sufficiently advanced to justify the designation and that the project is likely to result in value for money.

The amendments seek to include additional criteria for the Secretary of State to consider before designating a project. As I said, amendment 2 requires that a nuclear company may not be owned by a foreign power. I have already raised concerns about the unintended consequences of that for our ability to pursue new nuclear projects in this country.

Oral Answers to Questions

Debate between Greg Hands and Alan Whitehead

Tuesday 16th November 2021 Commons Chamber

[Greg Hands]

My hon. Friend is absolutely right that we will always prefer British gas production to foreign imports. Some 50% of the gas we currently consume comes from the UK continental shelf, with an additional 30% from Norway. My hon. Friend is right to mention the transition; I know how much he fights for his constituency’s huge extent and variety of energy producers. Earlier this year, we were delighted to agree the North sea sector transition deal, which will offer a fantastic future for my hon. Friend’s constituents and those right across north-east Scotland.

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

I think the technically correct answer to the question posed by my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) is (a) none and (b) none.

The Secretary of State claimed that he was in talks with the Treasury about assistance for energy-intensive industries a month ago; it turns out that he was not, and nothing has happened since. Meanwhile, wholesale gas prices remain at around 200p per therm, compared with 39p per therm a year ago. Industry is suffering grievously and 40% of energy companies have now gone bust, leaving more than 2 million customers without a supplier and forced to take on new suppliers, often at great cost to their bills. Even with the price cap, bills are likely to rise by a further £200 in the spring. This is a train wreck, so what is the Minister doing now to rescue passengers from the carriages and put the rolling stock back on the lines? Or will he just continue to act the part of a disinterested bystander?

[Greg Hands]

That allegation is rather unfair. We are engaging continuously with the Treasury on these matters. We have already put in place £2 billion of funds to help with the cost of electricity and to protect jobs. We have the £350 million Industrial Energy Transformation Fund, and the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for North East Derbyshire (Lee Rowley), meets regularly—and has done so very recently—with the Energy Intensive Users Group.

Climate Change Committee Progress Report 2021

Debate between Greg Hands and Alan Whitehead

Thursday 21st October 2021 Westminster Hall

[The Minister of State, Department for Business, Energy and Industrial Strategy (Greg Hands)]

Let me begin by thanking the Backbench Business Committee for nominating this important debate today, and I also thank my hon. Friend the Member for South Cambridgeshire (Anthony Browne) for his very able introduction to it. We were sitting in exactly these seats yesterday during his last Westminster Hall debate, which was on the interesting subject of carbon capture and storage, a subject that has also cropped up in today’s debate.

Of course it is vital that we focus on clean growth and the Government’s vision for transitioning to a net zero economy. This has been a very useful debate, with a very high degree of consensus, which of course the Government welcome.

First, the Government welcome the Climate Change Committee’s 2021 “Progress in reducing emissions” report, which highlights our successes in setting an ambitious climate mitigation agenda while also providing healthy challenge to our progress to net zero by 2050. The point of having this kind of Committee is for it to keep challenging the Government and to ensure that the Government are straining every possible muscle to get to that target and get there in good time.

The report correctly emphasises that the journey to net zero is not yet half-completed and that this decade is the decisive one for tackling climate change, which Britain must take a leading role in. Of course, that is why on Tuesday we published our net zero strategy, which has been referred to many times; I welcome the Opposition’s praise for my officials and my ministerial team for the work that they have put into it. I know that a lot of my team have been working very long hours to get the strategy out there and to do so on time.

The strategy delivers a comprehensive set of measures to support and capitalise on the UK’s transition to net zero by 2050. It outlines measures to transition to a green and sustainable future, and to help businesses and consumers to move to clean power, supporting hundreds of thousands of well-paid jobs and leveraging up to £90 billion worth of private investment by 2030.

We have already set out a lot about our journey to net zero. Over the past year alone, we have published the Prime Minister’s 10-point plan for a green industrial revolution, the energy White Paper, the North sea transition deal, the industrial decarbonisation strategy, the transport decarbonisation plan, the hydrogen strategy and, most recently, our heat and buildings strategy.

[Dr Whitehead]

Would the Minister be able to provide us with some helpful guidance on the production of those documents, and set it against what the Climate Change Committee has been doing with its carbon budgets and so on? Does he consider that as a result of those documents being published and their contents, we are now on course to meet the terms of the sixth carbon budget?

--- Later in debate ---

[Greg Hands]

Again, that is a temptation down a particular road, but let me say this. The Government are absolutely clear that all further airport expansions must be consistent with our climate change obligations. Government policy is absolutely clear on that.

[Dr Whitehead]

Will the Minister give way?

[Greg Hands]

I will make a bit more progress.

Nothing in a trade agreement prevents our ability to regulate environmentally or prevents the UK fulfilling its climate change obligations. The hon. Lady asked about COP26 leaders, and I can give her an update. We have a stellar array of world leaders coming for COP26, including President Biden and the four Ms—Prime Minister Modi, Prime Minister Scott Morrison of Australia, President Macron and Chancellor Merkel. We have leaders of medium-sized economies who will be really important. I spoke earlier today with the Vietnamese Energy Minister Dien and the Vietnamese Prime Minister Chinh is coming. Vietnam is an important player, as well as an important ally and friend to the UK. Its current plans are to double coal usage over the next decade, which will not set the right tone at COP26. We are looking forward to welcoming a wide variety of leaders, some of which are close friends and allies of the UK, and developing economies, of which Vietnam is just one, are also coming.

In terms of the carbon border adjustment mechanism, we watch all the proposals very closely. We need to make sure they are World Trade Organisation compatible, that they are not a disguised form of protectionism and that they do not discriminate unnecessarily against developing countries. Departmental policy decisions are consistent with net zero. We have established two Cabinet Committees dedicated to climate change. The Environment Bill requires the Government to reflect environmental issues in national policy making through consideration of the five environmental principles.

Where are the two EV buses? We have delivered the national bus strategy, investing £12 billion in local transport systems over the current Parliament and delivering 4,000 new zero-emission buses.

The hon. Member for Leeds North West (Alex Sobel) spoke of a scenario where one person on a street puts in solar panels and everybody else says, “I want a piece of the action.” That is a great example of the Government simulating demand. It does not mean that the Government should come down the road and install everybody’s solar panels, though. It shows the effectiveness of Government policy in getting people to sit up, take notice and want to take advantage of something. That is what the role of the Government can be. Heat pumps will be exactly the same.

[Greg Hands]

I have already outlined the support we are giving to the housing sector overall. If the hon. Gentleman or any other hon. Member wants to write to me with a specific proposal, I am happy to look at it. I have to say, I was not entirely sure about his recent history—he mentioned COP21 in relation to the election of Donald Trump, which of course came after that, but I may be misremembering his speech, so I will not go down that road.

How many people have been trained in heat pumps so far? We want more to be trained. The figure is around 3,000 and we require 35,000, so that is definitely a challenging position. We have set out Government policy and the direction of travel on heat pumps very clearly and we are waiting for the market to respond.

[Dr Whitehead]

Will the Minister give way?

[Greg Hands]

I am going to make progress. On Germany’s net-zero strategy, I shared a platform with the German ambassador last night, and both of our countries are very supportive of each other’s policies on net zero and the environment. We consider ourselves to be world leaders in this space. On retrofitting, we are committed to supporting businesses and households to upgrade energy efficiency in buildings.

--- Later in debate ---

[Dr Whitehead]

Will the Minister give way?

[Greg Hands]

I am going to make a bit more progress. We intend to upgrade as many homes as possible to energy performance certificate band C by 2035.

The hon. Member for Kilmarnock and Loudoun (Alan Brown) talked about the heat pump grant scheme. I am amazed by that. It is a devolved matter, but there have been discussions with the Scottish Government about the Scottish Government joining up with us and participating in this scheme; but if I understand the situation correctly, they have refused. The irony is that the Ofgem team that will be administering the England and Wales scheme will be based in Glasgow, with more than 100 new members of staff. Unless they have a very long commute, they will not be able to benefit from the scheme that they are helping to administer, due to the fact that the Scottish Government have said that they will not be joining the UK Government in the scheme. That is a great pity.

--- Later in debate ---

[Greg Hands]

The Barnett consequentials will of course be enacted in the usual way as we would expect, but why not join with a scheme that has been very well received, that I think will be a market leader and that will, ironically, be administered out of Glasgow? It makes perfect sense for the Scottish Government to come on board with us.

We have made huge investments in offshore wind and other renewables in Scotland. The hon. Member for Kilmarnock and Loudoun mentioned the 5 GW target for hydrogen being less than in Germany. It is the same as Germany’s target—they have exactly the same target. On wave and tidal, we have already put down more than £175 million in innovation funding across this country, with 10 MW already deployed. In many senses, they are still pre-commercial technologies, but we are making the investment to increase the optionality that will be available in wave and tidal.

I welcome the hon. Gentleman’s overall support for the UK’s targets and ambitions. He mentioned reforms to the electricity market. We recently published a call for evidence on actions to align capacity markets with net zero and actions to encourage the participation of more low-carbon capacity. We are committed to accelerating the deployment of low-cost renewable generation through the contracts for difference regime and by undertaking the review of the frequency of CfD options.

The hon. Member for Southampton, Test, in a comprehensive speech, congratulated us on our success in decarbonising electricity generation. I go back to the commitment given to complete that process by 2035. He said that we are ignoring other areas. I do not think that is fair and I do not think that is the case. He talked about adaptation. We are currently developing a national adaptation programme, which is due in 2023. DEFRA published the response to the Climate Change Committee’s adaptation report, which goes into more detail on our progress on adapting to climate change.

On fossil fuels and net zero, of course net zero does not necessarily mean zero residual emissions in all sectors of the economy. It is, after all, a net zero figure. In aviation, agriculture and industry it may not be feasible, practical or cost-effective to eliminate all emissions.

I thank the hon. Member for Southampton, Test for his praise for the hard work put in by my officials on producing the reports.

The hon. Member for Kilmarnock and Loudoun asked, “Where is the Treasury review of the cost of net zero?” I have news for him—I emailed it to him about 15 minutes ago. It was published on Monday night. It is entitled, “Net Zero Review: Analysis exploring the key issues”. There are 135 pages for him to digest before I see him next, when he can ask me questions about it. It was published at the same time as, or just before, the net zero strategy.

In the past few years, the Government have gone further than ever before to ensure that the climate is at the heart of our decision making. We have taken new approaches to embed net zero in spending decisions, including requiring Departments to include greenhouse gas emissions in their spending review bids and their impact on meeting carbon budgets and net zero. As I already said, we have established two Cabinet Committees. The integrated review reflects that and ensures that it is the Government’s No. 1 international priority. We are also using the Environment Bill to require the Government to reflect all these issues in national policy.

We are committed to taking a whole-system approach to the net zero challenge, ensuring that we understand and can navigate the complex ways that our climate goals will interact with other priorities for the country. As I mentioned, we published the heat and buildings strategy, which sets out the required actions to decarbonise buildings over the next decade, helping meet near-term carbon budgets and getting us on track for net zero by 2050.

[Dr Whitehead]

Now that he has almost finished, will the right hon. Gentleman give way?

[Greg Hands]

I will finish, as I have been speaking for almost half an hour. The net zero strategy sets out clear principles on how we will engage the public and support them to make green choices. We will explore how to enhance public-facing climate content and advice on gov.uk and our Simple Energy Advice service to provide homeowners with advice for decarbonising their homes, including tailored retrofit advice in local areas.

I thank the CCC once again for its expertise and advice in producing its annual report. The Government are committed to delivering a net zero economy, and we welcome the committee’s contribution to this obligation. The net zero strategy sets out a roadmap to cut emissions and create new jobs across the whole country. It comes as the UK prepares to host the UN COP26 summit next week, where the Prime Minister will lead by example and call on other world economies to set out their own domestic plans for cutting emissions. Through the strategy, we are accelerating towards more resilient futures, towards our green recovery and towards protecting our planet for this generation and those to come.

Oral Answers to Questions

Debate between Greg Hands and Alan Whitehead

Tuesday 21st September 2021 Commons Chamber

[Greg Hands]

Yes, of course we take community renewable initiatives very seriously indeed. We also take the Environmental Audit Committee very seriously indeed and I look forward to appearing before its Chair, my right hon. Friend the Member for Ludlow (Philip Dunne), in due course.

The hon. Gentleman is wrong to say that the CCC progress report was damning. For example, the report says:

“The UK has a leading record in reducing its own emissions”,

and:

“The UK has been a strong contributor to international climate finance”.

Recently, John Kerry himself, the President’s special envoy on climate, praised the UK approach.

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

I too welcome the Minister to his new post, my opposite number in the Department, and hope that he will last a little longer in the post than his immediate predecessor.

The Climate Change Committee’s report to Parliament highlights how little progress has been made with the upgrading of insulation in buildings and points out that

“insulation rates remain well below the delivery achieved in 2012 before key policies were scrapped.”

Does the Minister accept that, had those insulation policies been pursued, energy customers would have been in a much better position to cope with the energy prices rises and the cost of living crisis that we have currently. Does the Minister now take responsibility for the abject failure of the Government’s home insulation policies, and, most importantly, what will he now do about it?

[Greg Hands]

The hon. Gentleman has managed to pack a lot into that question. Let me try to answer it in three ways. First, when it comes to the heat and buildings strategy, he will just have to wait until we publish it. We are doing the right thing. Secondly, when it comes to energy price rises, my right hon. Friend the Secretary of State pointed out at great length the action we are taking to protect customers, including vulnerable customers, with the rest of the support that the Government provide. Thirdly, when it comes to the Climate Change Committee, we have done very well on achieving, for example, last year’s recommendations. Actually we have achieved in full or in part 40 of the Committee’s 92 recommendations last year; 32 are already on their way. We are looking forward to responding as well to this year’s recommendations.