Energy Bills Discount Scheme (Amendment) Regulations 2024

Lord Vaux of Harrowden Excerpts

Tuesday 12th March 2024 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, these regulations were laid before the House on 7 February 2024. As we are all aware, Russia’s illegal invasion of Ukraine led to an exceptional rise in energy prices. At the time, the Government responded decisively to these unprecedented circumstances by delivering critical support to households and non-domestic energy consumers facing significant increases in their bills.

Through the energy price guarantee and energy bill support scheme, the Government have spent more than £35 billion supporting households. Non-domestic customers will receive about £8 billion through the energy bill relief scheme and the energy bills discount scheme, which I will refer to as the EBDS. The swift action to introduce this legislation protected consumers from these inflated prices, mitigating what would have been more severe effects of this economic pressure had the Government not intervened.

The EBDS provides a discount on energy bills for the 2023-24 financial year for energy customers on non-domestic tariffs. The EBDS provides a further, higher level of support where those on non-domestic tariffs have domestic end-consumers. This is to support customers on heat networks who were not supported by the energy price guarantee that was available to other domestic customers.

Heat network customers were not protected as heat networks normally purchase their energy through commercial contracts, which they then sell on to domestic customers. All eligible heat suppliers with domestic customers were required by the EBDS regulations to apply for this additional level of support and to pass this benefit on to their customers. They were required to do this within 90 days of the scheme being launched or within 90 days of becoming eligible. The support given by this scheme ensured that householders who might have otherwise been exposed to the full wholesale market price were instead protected. This support is estimated to be worth about £180 million in total or an average of £1,200 per customer supported.

I turn to the specific amendment to the EBDS regulations that we are discussing. Under current regulations, if a heat supplier has failed to apply to the scheme within the deadline set by the rules, it can still apply for support. Indeed, we have required heat suppliers still to apply for support in order to ensure that as many households as possible can benefit. However, the current regulations allow suppliers to apply for support even after the scheme ends at the end of this month. This means that a customer would not get their support in a timely manner, and it also means that the Government would be legally required to process and pay for the administration of applications potentially indefinitely, at a large administrative cost to the taxpayer.

Therefore, this amendment instead provides for an end date, after which no further applications can be made. The final date will be specified in rules that will be made and published if this instrument is approved by the House. The deadline we intend to set is 31 March 2024, which aligns with the end of the period of cover of the EBDS. We have publicised this 31 March end date widely across the relevant sector. There would be one exception to this 31 March deadline for heat suppliers that become eligible so close to the deadline that it would be unreasonable to expect them to apply. Those heat suppliers would have until 14 April to apply.

I come to the most important aspect of this scheme: the impact it has on households facing high bills. It is right to introduce this deadline for those customers too, so that they benefit from this scheme when they need it most, not at an undetermined point in the future. It is essential that as many people as possible benefit from this support, and my department has been conducting extensive engagement to encourage applications from all eligible heat suppliers.

We are also mindful of the number of vulnerable domestic customers who live on heat networks. We have taken action to try to ensure that these customers receive the support they need, for example, by working with applicants in the social housing sector to ensure that all those applications are approved.

To be clear, this deadline does not stop customers being able to seek redress where their network has failed to apply. The Energy Ombudsman in Great Britain and the Consumer Council for Northern Ireland can provide support with dispute resolution and require payments to be made to customers. If necessary, customers can also choose to pursue claims through the civil courts.

To conclude, this instrument amends the EBDS regulations so that the duty for heat suppliers to apply for support is a duty to apply in a timely way, ahead of a deadline. This is a responsible step to ensure that we support customers while limiting the administrative burden on the taxpayer as pressures from energy bills, thankfully, ease. I commend these regulations to the Committee, and I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I remind the Committee of my interests as a generator of small-scale hydroelectricity and as a recipient of feed-in tariff payments.

I do not have any specific comments on the SI, which simply fixes a wrinkle in the various energy support schemes, but I point out the concern raised by the Secondary Legislation Scrutiny Committee that up to 60,000 domestic customers may be missing out on the support available. The Minister has given some examples of what the Government are doing, but it seems that more could be done to ensure that domestic customers do not miss out on this money. How many heat networks are there and have we made attempts to contact all of them to push them into making applications?

I take this opportunity to ask the Minister more generally about progress in dealing with the underlying distortions that made the schemes necessary in the first place. As he said, the support schemes arose because of the substantial increases in energy prices following the Russian invasion of Ukraine. It was entirely understandable and right to support people and businesses under those circumstances, but those schemes did nothing to fix the underlying distortions in the electricity markets that are, in part, the cause of the high pricing.

The key feature is the fact that the price is driven by the marginal pricing of electricity and therefore by the price of gas. That means that the price of electricity from all sources, including renewables, where the generation cost fell during the same period, was driven by the increased gas cost. It meant that people on apparently 100% renewable tariffs saw their electricity prices more than double, even though the cost of renewables had fallen. Quite apart from raising the question of how legitimate those renewable-only tariffs are, this led to some generators earning supernormal profits at the expense of consumers. The support schemes meant that we saw the strange situation of some generators having their excess profits subsidised by the Government. The same was even more true of the gas producers.

I realise that it is more complex than that, as I am sure the Minister will say, especially with the expansion of contracts for difference, but it is generally recognised that electricity prices need to be decoupled from the marginal rate, and especially from gas prices, to remove the distortions and fluctuations that the current situation generates. I asked the Minister about this in an Oral Question on 6 September 2022. He referred then to

“the review of market arrangements, which is looking urgently at that exact situation”.—[Official Report, 6/9/22; col. 91.]

Yet I see that the Government have today launched yet another consultation covering, among other things, exactly the same issue. Launching another consultation does not feel like the urgency that he promised 18 months ago. Can he provide an update on progress and when we might finally see electricity pricing decoupled from the marginal cost of gas generation and the market distortions reduced?