Strategy and Policy Statement for Energy Policy in Great Britain

Lord Lennie Excerpts

Monday 25th March 2024 Lords Chamber

[Lord Lennie (Lab)]

My Lords, I thank noble Lords who have contributed thus far to the debate for making my job somewhat easier than it would otherwise have been and for raising important questions. The noble Baroness, Lady McIntosh, raised the affordability of standing charges from the NEA. The noble Lord, Lord Naseby, raised a lot of concerns about lack of progress in a number of areas, which, no doubt, the Minister will address. The noble Earl, Lord Russell, had a range of concerns, particularly about a lack of potential progress on the auctioning of offshore wind contracts for difference, which is about to take place—I think next week.

For my own part, there are three points I want to raise this evening. First, this is the first statement since the Government’s Energy Act 2013 facilitated such statements. Secondly, while we agree with much of the statement, there are some clear differences between the Conservatives and Labour: in particular, on setting 2030 as the date by when Great Britain will be a clean power generator. Thirdly, there is a lack of detail and therefore a need for revision at the earliest opportunity.

I will take these points in order. The Energy Act 2013 assumed that a strategy and policy statement would be essential to align government policy with the actions of government agencies and bodies such as Ofgem and ensure they were marching in lockstep. There has not been a statement since 2013. As the noble Earl, Lord Russell, said, given the five-year gaps between statements, we should now be reviewing our second statement.

However, this policy statement is important in seeking to align government and Ofgem, with Ofgem having recently been designated with a net-zero mandate under the Government’s energy policy of 2023. The Government cannot direct Ofgem, so Ofgem cannot operate unless there is such a policy statement. While this policy statement has been delayed—let us say, since 2013—it is certainly now welcome.

These policy statements are supposed to last five years. We should have had a strategy and policy statement immediately after the 2013 Act, and we should now be revising the second one. It is also clear that the strategy and policy statement will not last more than a year or so from now, because there will be a general election. The outcome of that election is not yet known but, should Labour win, it will certainly be reviewed. Can the Government say why no policy statement has been submitted before now?

While much of the statement is welcome, there are some clear differences between the Government and Labour. The original 2030 date by when we were to have clean power is no longer accepted by the Government. They have recently put back from 2030 until 2035 the date for ending the sales of internal combustion engines, in effect, meaning there will be at least a five-year delay. Their former net zero tsar, Chris Skidmore, and their widely respected former chair of COP, Alok Sharma, have both been highly critical of the Government’s policy. This will surely do nothing to reassure either of them.

There are also areas as yet undefined and unclear, such as the relationship between ISOP—now to be called the national energy system operator—and Ofgem. NESO is a commitment in the Energy Act 2023 but, as we have heard, is yet to be established. When it is, there will be much work to be done to define its relationship with Ofgem as well as questions to be addressed about the regional energy system planners. Once NESO is set up, will there be a statement about these matters, including its relationship to Ofgem and, therefore, to government?

There are other areas that require updating. As the noble Earl, Lord Russell, said, these include a plan for developing long-duration energy storage, as well as the 2030 fuel poverty target, which National Energy Action says will be missed by 90%, and the rollout of smart meters, which is well behind the time set originally by the Government. These and other areas in the statement are either unexplained or undefined. Will any update on these matters be forthcoming?

Finally, a strategic policy statement must take account of the real state of the policy landscape or risk irrelevance; but a statement is better than none at all, which is why we welcome this statement despite its shortcomings

[Lord Callanan (Con)]

My Lords, I thank all noble Lords who have taken part in this debate. First, I am confident that the strategic priorities and policy outcomes in the SPS clearly establish what the Government are trying to achieve in the sector. I think it got fairly widespread support and it established why this is important, demonstrating how these smaller policy outcomes contribute to the broader strategic priorities so that stakeholders can be reassured of how their role fits into the bigger picture.

I hope that the SPS gives industry a sufficiently high-level understanding of the roles, responsibilities and remit of government and the regulators in helping to deliver these objectives. Particularly in the case of NESO, we have provided enough information on the body’s remit to give confidence on the role that it will play when it is established, while also recognising that its responsibilities will evolve over time. As well as reaffirming our ambitions, this SPS will give encouragement to Ofgem to utilise the full range of its existing powers to ensure that those ambitions are realised and that stability and confidence are restored across the sector.

I move on to the points that were raised in the debate, starting with my noble friend Lady McIntosh. The SPS makes clear the importance of tackling fuel poverty, as was also raised by the noble Lord, Lord Lennie. Ofgem has conducted a call for evidence on the standing charges issue. I know it is a very topical issue; there is a lot of concern. Ofgem received over 40,000 responses to that consultation. It is reviewing those responses. The Government are liaising closely with Ofgem to understand the options going forward. It is an independent regulator, and it would not be right to interfere in the decisions that it will make, but we do understand the concern that has been raised.

The NESO will be funded and regulated by Ofgem through licences and the price control process, as is the case with the electricity and gas system operators today. That is a well-known model, understood widely across the sector. The approach will provide accountability, scrutiny and, of course, value for money, while ensuring that the NESO is able to deliver fully on its objectives.

As part of agreeing future price controls, Ofgem will ensure that NESO is fully resourced to fulfil its objectives and the obligations set out in its licence, including the funding of its statutory duties such as those towards innovation and keeping developments in the energy sector under review. As with other regulated bodies in the sector, the NESO will have the operational freedom it needs to manage and organise itself to effectively deliver its roles and objectives.

I move on to the points raised by my noble friend Lord Naseby. He quoted extensively from the National Audit Office report on home heating. That is of course different from what we are debating today, but he raised some very good points, particularly on the rollout of heat pumps et cetera, on which I agree. My noble friend will be aware that we took a decision not to proceed with the hydrogen village trial last year. That was due chiefly to the lack of available hydrogen, but it also took into account the real concerns that were raised by many members of the public in that area. It is undoubtedly the case that electrification will provide the vast majority of the decarbonisation options in home heating; hydrogen will play a very limited role, if any, in the decarbonisation of heating.

In response to the questions raised by the noble Earl, Lord Russell, and the noble Lord, Lord Lennie, our aim continues to be for the NESO to be operational in 2024, depending on a number of factors including agreeing timelines with various key parties.

On the review of the SPS, I confirm that the Secretary of State can review the strategy and policy statement at any time—for example, following a general election or a significant change in energy policy.

On the questions raised by the noble Earl, Lord Russell, about the rules and responsibilities of NESO, I confirm that we have set out the roles and responsibilities of government, Ofgem and NESO at a high level in the SPS. The Government set the policy direction, while Ofgem is the independent regulator and makes decisions on business and investment plans. NESO will be the whole system planner, the operator of the electricity system, and the expert adviser to the Government and Ofgem as key decision-makers.

We are currently developing a framework agreement, which will set out the relationship between the Government as the shareholder and NESO. We plan to publish this shortly after designation. The specific roles and obligations of NESO will be set out in its licences, on which Ofgem undertook an initial consultation last year. We are due to undertake a statutory consultation this spring. However, as mentioned previously, we expect that NESO’s role and remit will continue to evolve over time as energy policy develops.

On NESO not being able to raise concerns over the achievability of SPS outcomes until it is established, I reassure the noble Lord that Ofgem will also have a responsibility to raise concerns over achievability. We are already in frequent dialogue with the current electricity system operator, on which NESO will be based, where the Government’s ambitions for energy are regularly discussed.

Finally, I move on to the point made by the noble Lord, Lord Lennie, on why now is the right time for the SPS. The Energy Act 2023 introduced new measures and established the independent system operator and planner in the first place as NESO. We thought that now was a good time—to reply to the point about major policy changes—to develop strategic guidance to explain exactly how we believe that Ofgem, government and NESO would work together to meet the Government’s energy priorities going forward.

I hope I have been able to deal with all the points raised by noble Lords.