Electricity Supplier Payments (Amendment) Regulations 2017

Lord Grantchester Excerpts

Tuesday 21st March 2017 Grand Committee

[Baroness Maddock (LD)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Deben, on these issues. I agree with much of what he has said. I had not intended to speak, but he reminded me, as did the Minister in his opening comments, of how complicated the Bill that put all of this into place was. To this day, some of us still find it quite difficult to get to grips with. I thank the Minister for trying to explain it as well as he did. I miss Lord Jenkin who saw us through that Bill. I was saying to my noble friend Lady Featherstone, who was not here at the time, that Lord Jenkin was the man who really understood what was going on and helped us all through a difficult Bill. I put that on the record.

[Lord Grantchester (Lab)]

I thank the Minister for explaining the amendments to these regulations. They seem eminently sensible, drawn from the experiences of operating the regulations, which are vital to reforming the electricity market and encouraging low-carbon electricity generation to ensure the UK’s security of supply. I also express my gratitude to the noble Lord, Lord Deben, for his helpful remarks as background to the regulations, and for underlining the importance of the progress we have made.

The amendments to the regulations should increase the cost-effectiveness of the two main measures, the CFD scheme and the capacity market, since they reduce the heavy-handedness of the belt-and-braces approach of the CFD counterparty, the Low Carbon Contracts Company, and that of the Electricity Settlements Company for the capacity market. The Minister’s introduction eloquently explained the improvements. These companies exist only to make payments for low- carbon generation or demand-side responses, and to collect these payments from suppliers. The companies must also cover their costs. The regulations set up the system to do this in as transparent, equitable and cost-effective a way as possible, allowing for a sensible amount of reserves as some guarantee. One would hope and expect these payments to balance out through the reconciliation process.

Much of the debate on these regulations in the other place focused on the probability of error. I could join in and tease the Minister by asking him about 20 scenarios, any one of which could be the one occurrence that could not be reconciled. However, that would be facetious. The modelling looks robust, indicating that the companies have the ability to raise the funding necessary in a modern, technologically efficient manner and make the payments required.

The regulations merely deal with the process of funding. The bigger question is the accuracy of the strike price, which is relevant to the setting up of this compulsory regime. Noble Lords will know that that is contained in the contracts agreements and is not part of these regulations. The two most controversial applications relate to nuclear power and the Hinkley Point C plant, and onshore wind.

The Government have shown how quickly they can alter their assessments and mechanisms for adjustment through Part 2 of the Energy Act 2016 in relation to onshore wind and the compensation payments in the FIT regime. On the prevention of double-counting of exemptions in the measure, exemptions from payments are available to suppliers which import renewable electricity from EU member states. This green excluded electricity—GEE—will not count towards electricity suppliers’ market share for calculating their CFD liabilities. This raises questions about security of supply; whether government policy is blind, whether British-based or not; the relative pricing of renewable energy in the UK and in the EU; and whether security-of-supply policy should seek to encourage import substitution. It also begs questions relating to Brexit; I could ask the Minister various hypothetical questions about the internal energy market and any likely scenarios of tariff applications. I imagine he would say that further amendments can be made as circumstances change.

I am grateful for the clarity provided regarding the operational budgets of the two companies and the professional fees increase, brought about by the inquiries of your Lordships’ Secondary Legislation Scrutiny Committee. I very much agree with the Government’s financial policy to expense rather than capitalise software upgrade costs.

I have a few questions about the regulations. First, on the amendment to allow CFD reconciliation determination after the 10th quarter to be classified as non-generation payments, is a longstop provision of time envisaged, or is that included in the general retrospective provisions? Could this be one of those 20 unknown unknowns? Secondly, following the onshore wind provisions in last year’s Energy Act and given that onshore wind is now so much cheaper, are the Government any closer to allowing onshore wind to participate in future CFD auctions now that the threat of UKIP has receded? Can the Minister update the Committee on the position following the consultation on onshore wind in November 2016? Thirdly and lastly, I understand that the net savings to be passed on to electricity consumers are not a cash item and cannot therefore be shown or guaranteed in some way. However, the memorandum states that the operational costs budget of the two companies will increase, resulting in an increase, albeit minimal, in household electricity bills. Will these two features balance out and the net effect on consumers be neutral?

Having said that, I am content to approve the regulations.

[Lord Prior of Brampton]

My Lords, I begin by echoing the comments of the noble Baroness, Lady Maddock, about Lord Jenkin. I was reminded of the Schleswig-Holstein question, to which the Duke of Wellington said that only three people knew the answer—and one was dead, one had gone insane and the other one had forgotten it. Fortunately, my noble friend Lord Deben has not forgotten it and spoke very eloquently about broader issues than those raised by the statutory instrument before us.

It was interesting to hear my noble friend’s story about how shopping for a freezer had changed in the space of a year—from being able to buy one rated from A to G, to one now rated A++ to B. That is just one small illustration of how technology has helped hugely in reducing the use of electricity. He is absolutely right that technology has significantly reduced bills.

Electricity and Gas (Energy Company Obligation) (Amendment) Order 2017

Lord Grantchester Excerpts

Tuesday 21st March 2017 Grand Committee

I end where I began: I am disappointed that here I am, 20-odd years in Parliament later, in one of the richest countries in the world and we are talking about fuel poverty. We can find lots of money for all sorts of things, but somehow we seem to find it impossible to find the money to help those who live in cold homes.

[Lord Grantchester (Lab)]

I thank the Minister for his comprehensive introduction and explanation of the order. The ECO is now the only government instrument to increase overall carbon emissions reductions targets for households and overall home heating cost reduction targets by a statutory obligation on the largest energy suppliers to install energy-efficiency measures for households in Great Britain. I approve of the order today and support the measures, as far as they go, to promote energy efficiency and the reduction of fuel poverty. Improving the quality of the housing stock is a highly cost-effective way in which to reduce carbon emissions, save energy, improve the lives of the fuel poor and capture substantial national economic benefits. However, I cannot disguise the widespread disappointment in the Government for their inability to meet their legal target to end fuel poverty by 2017. Comments around the Committee today have reflected that view.

The Government are now extending the ECO scheme in this intermediary fashion for a further 18 months, to September 2018, before introducing further measures to end fuel poverty by the end of the scheme in 2022. The increasing focus on fuel poverty is to be encouraged, but reducing the annual spend by 25% from £860 million to £640 million reveals a lack of political will and the required proper funding. The Committee on Fuel Poverty has estimated an investment requirement of £20 billion to improve fuel-poor homes in England to at least EPC rating C by 2030. The Committee on Climate Change considers that the current funding is less than half that which is required to meet these now delayed commitments.

The Green Deal has been a failure, improving only 15,000 homes. Last year, the Conservative Government scrapped the 2016 zero-carbon homes policy. The UK ranks bottom, 16 out of 16, in western Europe for the proportion of people who cannot afford to heat their homes adequately. While welcoming the change on balance towards better funding of energy efficiency measures, the cap on the installation of mains gas qualifying boiler replacements under the affordable warmth arrangements leaves a big gap in the provision needed to replace or repair existing gas boilers.

A big factor for being in fuel poverty is living in a home off the gas grid. The worst properties are located off the grid and are more likely to be located in rural areas. Over the last Parliament, the number of major energy-efficiency measures installed in homes fell by 76% as total investment fell by 53% between 2010 and 2015. The implications have been particularly crucial to the NHS. Of the 43,900 excess winter deaths calculated for 2014-15, at least 14,000 deaths can be attributable to the cold homes crisis.

Are the Government confident that electricity companies can access the necessary data to target expenditure effectively? The data-sharing powers need critical assessment. Hospitals need to join up outpatient care with fuel poverty initiatives for patients at risk of recurrent visits. Local authorities must act on their duties to enforce and monitor housing standards, and basic energy-efficiency standards should form a critical part of existing licensing requirements. Additional national energy-efficiency programmes are urgently needed to support the upgrading of lower rated properties, notably for the installation of first-time central heating. My noble friend Lord O’Neill and the noble Baroness, Lady Maddock, have highlighted how the Government are alone among UK Administrations in not providing additional funding towards this important policy. The National Infrastructure Commission and the Government must respond and act on the strong case for domestic energy efficiency to be regarded as a nationally important infrastructure policy.

I shall ask only one or two important questions on this order. These amendments are an extension to the present scheme and delays to meeting targets have been recognised. Will the Minister make clear how the statutory fuel poverty commitment will be met, with milestones along the way? Lastly, what additional energy-efficiency programmes are under consideration by the Government? What is the timing of any policy plan development between April 2017 and the end of this intermediary period in September 2018? In approving the order, I urge the Government to recognise their shortfall in ambition in tackling fuel poverty and the energy efficiency of homes.

[Lord Prior of Brampton]

My Lords, I accept that noble Lords who have spoken regard this order as a curate’s egg and that it does not go as far as they would like. I will try to address the more general questions raised by all three noble Lords. The Government feel that the supplier obligations have proven to be remarkably successful, but we have probably pushed them as far as they can go. That is why we have decided to cap the supplier obligation at £640 million. The noble Baroness, Lady Maddock, and the noble Lord, Lord O’Neill, think that we should go further. If I might slightly oversimplify it, I think I am right that the noble Lord, Lord O’Neill, feels that we should consider raising taxation more generally to solve this issue, whereas the noble Baroness, Lady Maddock, thinks that we could take money from other areas that we are spending money on to put more money into this area.

To start with the noble Lord’s point, our response is not to increase central taxation. He mentioned a figure of £12 billion, and the noble Lord, Lord Grantchester, came up with a figure of £20 billion to 2030. That level of increased taxation is simply not an option—at least not for our Government. Our response to the issues that the Prime Minister has focused on is not to raise general taxation, but to try to address the issue by improving the productivity of the country, which is why we have an industrial strategy. Frankly, to load a lot more general taxation on to our economy cannot be a way to improve productivity. I do not know whether that view will be shared by the leader of the Opposition—who knows these days?—But it is certainly not an option for us to raise central taxation. The noble Baroness, Lady Maddock, said that there must be other areas that we could take money from.

Shale Gas

Lord Grantchester Excerpts

Tuesday 7th March 2017 Lords Chamber

[Lord Grantchester (Lab)]

I thank the noble Lord, Lord Truscott, for initiating this debate on fracking. It concerns the important question of the nature of the UK’s future energy mix and whether fracking has an acceptable role to play. The continuing debate and your Lordships’ contributions tonight are serious matters. I commiserate with the noble Lord, Lord Truscott, should he consider that being positioned between stages of the European Union (Notification of Withdrawal) Bill does not do justice to the importance of this subject, but tonight’s debate has been excellent. I thank all noble Lords who have contributed at this important juncture in our deliberations on the UK’s future role in Europe. I am disappointed that the contribution of the noble Lord, Lord Howell of Guildford, has been noticeably absent tonight, but I am pleased to see his conversion to a more critical stance in his contribution to the Journal of Energy Security, in which he calls for a change of direction in fracking policy and says that the view coming from Ministers is much too optimistic. I agree, despite some of the contributions tonight.

Labour recognises the dominance of gas in the UK’s energy supply and the concerns for the nation’s security of supply while the UK transforms into a low-carbon economy. While the Government are coming forward with every assistance to further the role of fracking as a game-changer, we have some critical questions from a different, more realistic perspective. Is it likely to be the game-changer? Is it safe, and are there special places like national parks that need special protection? Is it wanted and recognised as really needed? Is it really a low-carbon bridge to a sustainable future?

I am grateful to the noble Baroness, Lady Featherstone, for her recognition tonight that maybe this debate does not reflect widely held, less assertive views. The debate has recognised some issues between the competing views on this question. It has been mostly positive towards fracking and, as the noble Lord, Lord MacGregor, has said, has largely regretted that progress, even towards the exploratory drilling stage, has been slow, suggesting that speed is certainly to be welcomed. However, Labour has always been sceptical about fracking’s supposed benefits. The geology and geography of the UK are different from those of the United States. Theoretical reserves are not the same as recoverable reserves. At present the evidence points to the likelihood of rather disappointingly low recovery rates of shale gas from wells, with rapid depletion and the need to establish large numbers of wells and pads in concentrated areas of the country that are not largely unpopulated, all to extract even a modest amount of gas for the UK’s energy system. Shale gas is unlikely to be able to replace the returns from conventional natural gas as they diminish. The exploratory evidence has yet to be produced to support the estimates from the British Geological Survey.

Labour has never believed that the returns on fracking are likely to be so compelling as to allow the overriding of legitimate concerns about the process on safety, environmental and community grounds. This debate has underlined that fracking should only proceed on the basis of clear and rigorous environmental safeguards. Furthermore, there should be an outright ban on fracking in and under areas of environmental sensitivity such as national parks, areas of outstanding natural beauty, sites of special scientific interest and water protection zones. These areas need better protection even than the added requirement that fracking be limited to depths below 1,200 metres.

The Government’s environmental conditions do not measure up to Labour’s standards, achieved during the passage of the Infrastructure Act, which were subsequently reduced by the coalition Government in 2015. Environmental tests should include an understanding of the number of well-heads being set up and the cumulative effects to which the numbers might give rise, over and above those of fracking taking place at all.

I certainly enjoyed the contribution from the noble Lord, Lord Mair, who gave us the perspective of his society’s 2012 report. He emphasised the importance of the integrity of regulatory enforcement. However, having a world-class regulatory regime is not enough. Regulatory bodies need to engage with local communities that are concerned about the potential impact in their area, as they have heard has happened elsewhere. Their legitimate concerns should not be overridden. Local communities need to be convinced that community benefits and the sharing of future revenues are not to be interpreted as a way to buy off objections for particular ulterior motives.

The position now is that most of the conditions that Labour laid down, and particularly those concerning the cumulative impact of multiple fracking pads on an area, have either been disregarded or weakened to such an extent that they no longer constitute credible environmental safeguards. The development of fracking exploration and production cannot be endorsed under these circumstances. It is not safe or reasonable to proceed without these key safeguards. Labour is now calling for the introduction of a moratorium on fracking in the UK until such time as we can be sure that full environmental safeguards can be observed.

Finally, there are concerns that shale gas is also a fossil fuel and that fracking is incompatible with our climate targets. The chief scientist at the then Department of Energy and Climate Change, Professor David MacKay, and Dr Timothy Stone concluded in a report that shale gas production would give rise to greenhouse gas emissions. They argued, however, that with the “right safeguards”, these would be “relatively small”—“comparable” to liquefied natural gas and well below the emissions of coal.

The noble Lord, Lord Smith, gave a thorough assessment of the relativities of the various fuel sources in the UK, but this interpretation is not supported by the Committee on Climate Change, the independent statutory body set up to provide advice and analysis to government and to report to Parliament. It concluded that the implications of shale gas for greenhouse gas emissions are indeed uncertain. By the time any shale gas exploitation would have developed on a significant scale, the UK carbon budget would have reached more advanced and critical levels. Shale gas is only likely to become permissible once tests relating to emissions, gas consumption and carbon reductions elsewhere in the economy have been satisfied. The UK should not be developing shale gas any further at this time.

Energy: Storage

Lord Grantchester Excerpts

Wednesday 1st February 2017 Lords Chamber

[Lord Grantchester (Lab)]

My Lords, this is indeed a very complex area. To allow greater deployment, a new definition for storage should be developed to reflect its role in generation, demand and providing network balance. Does the Minister agree that the licensing of storage under the Electricity Act should be a special flexible case to allow these roles to develop?

[Lord Prior of Brampton]

My Lords, battery technology could offer huge benefits to the way that we both generate and store electricity and could provide better capacity to our electricity system in the UK. It could also enable us better to deal with the more intermittent nature of some renewable energy. The work done by Imperial College indicates that the savings per annum for producing electricity in this country could run at between £1 billion and £2 billion a year, so it is very important that we get the regulatory system right.

Electricity Supply: International Interconnectors

Lord Grantchester Excerpts

Thursday 26th January 2017 Lords Chamber

[Lord Prior of Brampton]

I think that the right reverend Prelate also raised that question and I do not know what the contractual arrangements are. I will have to write to my noble friend if this is not correct, but my understanding is that the flow of electricity to or away from us depends upon market conditions in the two countries—that is, the price differential between them. If there are contractual arrangements, I will write to my noble friend accordingly.

[Lord Grantchester (Lab)]

My Lords, I welcome the Minister to his new responsibilities, and will follow up on some of the earlier questions. The EU norm for interconnection is currently about 10% of capacity and at present the UK has only 4% covered by interconnectors. Can the Minister confirm how many might come on stream between 2018 and 2023, and to what increased capacity? Notwithstanding his earlier answer, what guarantees can the Government give to ensure their status upon Brexit and access to the single energy market in the EU?

[Lord Prior of Brampton]

My Lords, the current percentage of our market supplied by interconnectors is, as the noble Lord says, around 4%. It is due to grow considerably between now and 2021. An additional 7.7 gigawatts of capacity are due to come on stream. As said, under Budget 2016 it may increase to 9 million gigawatts, but that will be post-2021.

Contracts for Difference (Allocation) (Excluded Sites) Amendment Regulations 2016

Lord Grantchester Excerpts

Tuesday 22nd November 2016 Lords Chamber

In addition to extending the exclusion period, we propose some further, minor changes. First, these changes will clarify the description of the site to which the exclusion will apply, to make it clear that the site which will be excluded is limited to that of the main generating structures of the CfD unit that failed to deliver its project. For example, if a developer won a CfD for an offshore wind farm extension and failed to deliver it, the exclusion would apply only to the extension, not to the entire offshore wind farm. Secondly, the changes will amend the non-delivery rules to bring the point at which a site becomes excluded by reason of non-delivery into line with the point at which it becomes excluded for failure to sign the CfD contract. Thirdly, following alterations to the termination events in the CfD terms and conditions, these amendments will extend exemption protection to projects terminated due to a sustainability change in law. This gives developers an important protection and was supported in the consultation. I commend these important draft regulations to the House.

[Lord Grantchester (Lab)]

My Lords, I thank the Minister for her introduction of these regulations, which are limited in scope and technical in nature. As she says, they will deter non-delivery of contract projects by excluding participants from taking part in future periodic allocation rounds should they not fulfil certain aspects of their projects. I am happy to agree to the regulations today as they would deter applicants to the CfD scheme from making speculative bids for projects that are unlikely to be delivered, thereby tying up parts of the budget for the scheme so that it cannot be delivered. As allocation rounds are being run less frequently than originally anticipated, this would ensure greater delivery of the wider objectives of investment in power-sector decarbonisation.

The Minister has already spoken of some of the effects in the first round but perhaps she could clarify a little further why these measures are being introduced. Can she explain the overall difficulties seen in the evidence from the non-delivery of projects in the first round of contracts for difference allocation? Has there been a certain amount of “hogging” or poor fulfilment of the projects by some participants in the first round? The Explanatory Memorandum was relatively quiet on the consultation outcome and reported generally supportive responses.

I am grateful to the Minister for confirmation that the sum coming forward to support renewable investments in the second round will be the one that has been widely reported. Is she satisfied that there is an adequate appeals process should the applicant consider that he or she has been unfairly treated? Are there adequate provisions for genuine non-compliance should circumstances out of the applicant’s control result in poor fulfilment? Is she satisfied from the experience of the first allocation round that interpretations of what it means not to have delivered are adequately defined?

I would like to follow up on one further aspect of these regulations. What happens to projects that make slow progress or are even abandoned? Can that part of the budget be reallocated to a later round, or are there some residual rights of the applicant to fulfil the project? It is not clear from the memorandum whether the CfD is terminated as a consequence such that it could not be recycled in an orderly manner. The impact assessment considers the overall CfD scheme, objectives and process without considering these regulations specifically. Is there a risk that exclusions to future bidding rounds could give rise to a series of legal actions that could undermine the allocation process more generally?

I would be grateful if the Minister could clarify those aspects of how the regulations might work in practice so that the operation of CfDs will continue to bring forward schemes at least cost to the electricity consumer over the longer term.

[Baroness Neville-Rolfe]

I thank the noble Lord for his helpful remarks and his welcome for these regulations. As I said earlier, the contracts for difference scheme is designed to incentivise the significant investment we require in our electricity infrastructure to keep our energy supply secure, to keep costs affordable for consumers and to help meet our climate change targets. The instrument being debated today enables us to maximise the effectiveness of future CfD allocation rounds by increasing disincentives for non-delivery and preventing those who have failed to deliver a project in the past from gaming the system.

In my opening remarks I ran through the reasons for the failure of the two small solar projects and the other two projects that failed to meet the milestone requirements of the LCCC. I am satisfied in general that the contractual details and exemptions before us are fit for purpose, especially as amended by these regulations.

The noble Lord asked about using up proceeds of frozen CfDs. We always keep under review the total budget allocated to CfD projects. If any projects that are successful in the next auction fail to sign their contracts or have their contracts terminated we will consider—I think this is probably what the noble Lord wants to hear—the possibility of recycling budget to future auctions. This decision will, however, depend on factors including the pipeline and what will ensure the best value for bill payers. We do not expect this to be significant. In the first auction, as I have said, there were the two small solar projects that failed to sign their contracts and the two projects that had their contracts terminated out of a total of 25. I think I explained last time that there was an overspend against the levy control framework for that period so there was no scope for recycling on that occasion.

On legal action—which is always something I am rather cautious about commenting on—complaints can be made to the LCCC. Ultimately, judicial review would be the legal remedy and there is normally an appropriate and narrow window for this.

As I think we are agreed, this is another step—a small but important technical milestone—towards getting the next CfD auction going. I look forward to the work on the supply chain in the new year and to the auction commencing in April. In the meantime, I commend these regulations to the House.

Solar Panels: Business Rate Exemption

Lord Grantchester Excerpts

Thursday 27th October 2016 Lords Chamber

[Baroness Neville-Rolfe]

I think the noble Baroness should take comfort from the signing of the agreement in Paris, the statements we have made and the comments I have made about the carbon budgets that will be put forward in due course. This Government and the last one have made enormous investments in renewables, but nobody could fault us now for looking properly at affordability and at where things can be affordable. Innovation—for instance, on solar—is making things less expensive, and then the subsidy regimes should change. However, of course we understand the need for investor confidence.

[Lord Grantchester (Lab)]

My Lords, solar PV has taken the brunt of corrective measures taken by the Government, as in their analysis it is the key reason for the overspend on renewables. In fact, the National Audit Office report shows that solar accounted for only 6% of this overspend. The technology is so popular and affordable. What steps will the Minister and her department take to review this overcorrection, encourage further solar deployment and restore confidence to the sector?

[Baroness Neville-Rolfe]

The noble Lord is right that solar has been a success. We have over 11 gigawatts now installed, with 49% of EU investment in solar, so we have strength. We have had to bring down the subsidies for that, although feed-in tariffs and so on continue. My own view is that solar is an important part of the mix, particularly internationally, because there is more sun and less intermittency, which helps us with our climate change targets. However, the noble Lord can be reassured that we are looking carefully at solar, and a lot of our innovation budget is going toward solar and storage to see whether, going forward, we can take those two together and make the technology even more cost effective.

Fuel Poverty

Lord Grantchester Excerpts

Tuesday 25th October 2016 Lords Chamber

[Baroness Neville-Rolfe]

The right reverend Prelate is entirely right to say that there are special problems in rural areas. There has been a succession of schemes promoting renewables, some of which are particularly important in rural areas. I would like to talk to him further about the issues that he has encountered in this area so that we can make sure that, going forward, we focus on those as well.

[Lord Grantchester (Lab)]

My Lords, the UK energy system needs to digitise, just like TV and mobile phones. The building blocks for this revolution are smart meters, which create better opportunities for demand-side response measures to have a significant impact on fuel poverty. Will the Minister update the House on the introduction of the better markets Bill that could provide an effective start, such as a protective tariff for pre-payment customers? Are these measures a priority for the Government?

Contracts for Difference (Allocation) (Amendment) Regulations 2016

Lord Grantchester Excerpts

Tuesday 25th October 2016 Lords Chamber

[Lord Grantchester (Lab)]

I thank the Minister for her explanation of the regulations before the House this evening. On behalf of these Benches, I welcome the regulations, which are short and, as the Minister stated, somewhat uncontroversial. They simply extend the period for the allocation of contracts for difference from the current end date of 31 March 2020 to 31 March 2026. Yet, importantly, in doing that, they begin to answer the questions regarding future support for renewable technologies and investment in low-carbon electricity generation post-2020. All 24 responses to the consultation were in favour and several respondents provided valuable additional views, especially concerning the lead-in times for less established technologies.

However, I have a few questions for clarification around the framework for the mechanism and funding. First, can the Minister close the potential gap that might have opened up? Paragraph 7.2 of the Explanatory Memorandum states that the annual support for projects announced in Budget 2016 will be for the period 2021 to 2026, but the previous funding end date was 31 March 2020. I presume that there is not a gap of a year in that funding. However, the implications for spending are considerable and certainly reflect more concern than is implied in the three short paragraphs 10.1, 10.2 and 10.3 on the impact of the regulations. Paragraph 10.2 is particularly curious when it states:

“This amendment does not change the costs to the Government, the LCCC or the Delivery Body”.

It goes on to add:

“Any costs to the consumer of holding CFD rounds are subject to limits on the overall volume of costs in a given year … as a consequence of Government decarbonisation policies”.

The memorandum concludes in paragraph 10.3 that the impact of this particular instrument is negligible. There is no mention of the levy control framework that since 2012 has capped the cost of three schemes to support investment in low-carbon technologies: the renewable obligation, feed-in tariffs and contracts for difference. This framework has hit caps in costs for each year to 2021, which is where my confusion in the memorandum might come from. At this point the Minister needs to clarify whether at paragraph 7.2 the Budget 2016 announcement of up to £730 million of annual support for the period 2021 to 2026 is outwith the levy control framework.

Hinkley Point C

Lord Grantchester Excerpts

Thursday 15th September 2016 Lords Chamber

[Lord Grantchester (Lab)]

I thank the Minister for repeating the Statement in your Lordships’ House today. I also thank her for contacting me this morning to let me know that she would be making this Statement.

I say at the outset that Labour supports the development of new nuclear power as part of the UK’s energy mix, to ensure the country’s energy security, to deliver thousands of high-skilled jobs across the country and to deliver clean energy in compliance with our legal obligations on meeting climate change targets. Labour has always been critical of the strike price being set at £92.50 per megawatt hour; we have called for a price in the mid-£80 per megawatt hour range.

Critically, this investment must be delivered on time and on budget—two features that all Governments seem to be unable to improve on. Being on time is critical, as old energy plant is phased out, leaving a vulnerable period in the nation’s security of supply in the 2020s. The Government’s Statement today makes no mention of amendments on this following the review. This side of the House has argued that any future delays, which have already added five years to the project at a cost of £6 billion, should result in a penalty clause with a taper being applied to the price. While we may all be second-guessing whether the deal will be a good one in relation to future energy pricing, the country’s need for a new low-carbon energy supply coming on stream is well documented. Any cost overruns should be recognised and welcomed as a cost to EDF, and any underruns are to be shared.

Although the price at £92.50 per megawatt hour may well reduce to £89.50 if Sizewell C is built, nevertheless this is above the price agreed in France for Flamanville. It can be stated with a certain amount of confidence that the technical issues around the developments in light water reactors will find innovative solutions. We do not have a particular issue with this.

The Government were right to subject Hinkley Point to review, but the review should have taken place far earlier than at the 11th hour, when the room for renegotiation and manoeuvre is severely limited. This deal will set a precedent and benchmark for the future. Key review dates should also be set along the way to ensure that this project delivers to plan. The quality mark of having received approval from the globally recognised gold standard of the ONR will be much prized.

I am also wondering why the Government are rushing the Statement out today, the last day of this September sitting, with three weeks’ interval before Parliament returns in October.

I learned that, last night, as energy supplies through solar came to an end around sunset, a price hike occurred with an interconnector to the continent also being unavailable pushing pricing up well over £120 per megawatt. Will the Minister ask Ofgem to monitor and investigate price volatility through the winter months to guard against any possibility of manipulation for whatever reason?

On the Statement, I have a few questions that I would be grateful if the Minister could clarify. The review has concluded with a few alterations around the issue of control. The Government will now be able to prevent the sale of EDF’s controlling stake prior to completion. This is being done via an exchange of letters. Will the Minister clarify what is the legal form or basis under which this agreement by exchange of letters is enforceable? What would the implications of non-compliance be? Will the letters be made public? I would be most grateful to understand better the legal context to this agreement.

After completion the Statement refers to the new legal framework under which the Government will be able to intervene in any sale of EDF’s stake. Can the Minister give any further indication what form this intervention may take and how? Will this intervention be limited to ownership issues only?

The Statement continues with reforms to future foreign investment in British critical infrastructure and highlights three elements: namely, a golden share; reports to the Office for Nuclear Regulation regarding changes in ownership; and new processes within government to scrutinise foreign ownership for national security reasons. In the context of comments made by Mrs May on her appointment as the new Prime Minister, the position of foreign control in takeovers of important British companies was identified as a key issue for the new Government. Given her position within the wider business department that now includes energy and climate change, can the Minister clarify what the next steps and milestones will be and whether this scrutiny will be limited to investment in critical infrastructure only? What will be the parliamentary oversight of these new powers?

Regarding future investments, can the Minister clarify whether the contract includes assurances and guarantees that Bradwell and other plants are committed to the same investors? Does this also include commitments that key personnel and skills will be available to British companies throughout the British economy? Can the Minister give precise terms and details of any link between this and any future investments?

On the wider issues regarding the Statement, why have the Government refused in this review to demand a better deal for bill payers, who will be funding this for decades—at a cost of up to £30 billion according to the National Audit Office?

This investment will result in 25,000 high-skilled jobs with possibly 550 apprenticeships, which should be widely welcomed. It is vital that this contract fulfils in delivering high-skilled jobs and key positions within the organisation for British companies. Will the Minister give the House assurances regarding the timetable and transparency over the contract to ensure job security as well as the security of energy supplies that this country so desperately needs?

I am grateful to the Minister for the Statement and look forward to receiving this vital further information.

[Lord Teverson (LD)]

My Lords, I, too, thank the Minister, but I have a different take on the pricing side. Some time ago, we had the resignation of the finance director of EDF. I have looked at the share price since the announcement was made, and it is going down. Does the Minister expect EDF to be solvent by the time this project is due to be delivered? That is a real risk, given the other problems at Flamanville and—I am not brave enough to pronounce the town in Finland—the Finnish nuclear station. Will EDF survive this? What are the contingency plans?

This decision was originally made some three years ago, and we have had this soap opera ever since, but time and technology have moved on. Given the assessments on smart grids, energy storage and the Government’s brave and correct interconnector plan, is this nuclear power station—and fleet of nuclear power stations—necessary? I for one am not against nuclear technology as such, but is this the right technology to go forward? The previous Minister in the House of Commons, the Secretary of State for DECC, Amber Rudd, was very keen on small nuclear reactors. I would be interested to know whether the Minister is still pursuing that area.

I accept and welcome the various measures put in place to protect taxpayers and the public sector against the future costs of decommissioning, but I am concerned about the nuclear waste issue. I cannot see that there has been any movement by the Government in terms of their nuclear waste strategy or where we are going to put even old nuclear waste, let alone new nuclear waste. How can we be sure that the funding that will be put in place for decommissioning will reflect such an undefined nuclear waste strategy for the future?

Now that we have got through this period of constipation on energy decision-making, when can we expect a decision on the Swansea tidal lagoon?

I want to take up another major element in the Statement that is really interesting and that I have debated with the Minister on previous occasions. The Government are saying that they will take a golden share in future nuclear and other critical energy projects. The Minister will not be surprised if I ask her whether the Government have consulted with the Office for National Statistics about this strategy. She is quite right to be sensitive about the issue and wanting to make sure that, in having even slight government control over a company or a project, it does not become part of the public sector and go on to the public sector balance sheet. However, this seems quite incautious in comparison with previous government policy, and it is quite likely that at some point this project, which is worth £18 billion, will be put on to the public balance sheet. If that is the case, surely we should have put our own public money into it, at a more or less zero long-term interest rate, rather than bother with Chinese and French investment because it is going to be on the public sector balance sheet anyway.

I shall leave my questions at that. Again, I thank the Minister for repeating the Statement.