Energy Price Cap: Residential Buildings with Communal Heating Systems

Debate between Matthew Pennycook and Greg Hands

Wednesday 20th April 2022 Westminster Hall

[Greg Hands]

Yes, the hon. Lady is absolutely right. Her constituency, and mine probably even more so, will have people in exactly that category. That is why the Government also provided £144 million in funds to local authorities to help those vulnerable customers who do not live in band A to D properties—either they live in a larger property or they do not pay council tax at all. That £144 million fund is available for local authorities to help those who do not fall into the £150 council tax rebate.

We provided a total of £1 billion funding through the household support fund, enabling local authorities to support—on top of that—the neediest households with the cost of living, and all that support will help people in the short term. Clearly, in the long term, we need to see a more sustainable regulatory system for heat networks. That is why the Government have committed to introducing legislation within this Parliament, which will see Ofgem regulate the heat network industry. With Ofgem having regulatory powers over the heat network industry, legislation will secure fair pricing for all heat network customers, as well as ensuring that heat network operators secure the best possible purchasing deals for their customers. Ofgem will also have powers to investigate and intervene when networks appear to be charging customers disproportionate prices.

Heat networks are part of the pathway to decarbonising heat. By operating at scale and, in some cases, by making use of waste heat sources, heat networks can supply heating more cheaply than individual gas boilers. The study commissioned by my Department in 2017 found that heat networks supply heating at a discount of £100 per annum on average compared with individual gas boilers—it is literally a case of economy of scale.

[Matthew Pennycook]

The Minister will be aware of the serious problem of standing and capital replacement charges on many privately owned networks, and that problem continues while consumers on those networks are seeing increases in their unit energy price. I hope that he agrees that that must be tackled, because although tariffs can be well out of kilter and not provide the fair deal he is talking about, which I concede is the case in many schemes, standing and capital charges rise significantly year on year, placing an additional burden on consumers.

[Greg Hands]

I thank the hon. Gentleman for his intervention, and I am very happy to look into that. I will speak with my ministerial colleague Lord Callanan, and perhaps he or I will write to the hon. Gentleman about what has been going on with standing charges on heat networks. It is a fair question and I will get back to him on it.

To conclude, I reiterate the Government’s commitment, first, to providing short-term support to those struggling with energy prices and, secondly, to making the necessary long-term changes to improve the heat networks market and make the UK energy-independent at the same time. The heat networks market is a key sector for our green ambitions, but it must also deliver for consumers daily, so we will continue to ensure that prices are as fair as possible.

Nuclear Energy (Financing) Bill (Fifth sitting)

Debate between Matthew Pennycook and Greg Hands

Committee stage
Tuesday 23rd November 2021 Public Bill Committees

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

The Minister has just mentioned the obligation on the Secretary of State that is in the Bill. My hon. Friend the Member for Southampton, Test made the point that this levy may be £10 a year on average, or it may be more. Have the Government made any assessment of the number of customers that that increase will potentially tip into a qualifying benefit, therefore making them eligible for the warm home discount? Have they assessed what a nuclear RAB might do to the number of people who are eligible for that discount? The argument we are trying to make is that there is potentially a saving for Government here by socialising the risk among non-warm home discount consumers when it comes to funding these types of projects.

[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.

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[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.

[Matthew Pennycook]

That raises an interesting, and quite concerning, point: what in the legislation prevents a supplier from overcharging its customers on the basis that it is levying the RAB? Is there a limit to which a supplier can levy the customer? On the basis of what the right hon. Gentleman has just said, the supplier could overcharge the customer, make the payment owed to the counterparty and find itself with additional funds raised from those customers.

[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

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[Matthew Pennycook]

I rise to speak briefly to amendment 17, because it relates to an important matter that builds on our earlier discussions. I listened to the Minister and heard what he said about the revenue collection contracts arrangement seeking to replicate the tried and tested CfD arrangement, as he put it. The thing that makes what we are talking about different is that there has never been a CfD arrangement of the size of the RAB nuclear model. The scale of the capital commitment involved in a nuclear project dwarfs anything that we have seen before. The changes in total nominal amounts that are likely to happen from year to year in the scale of that capital value could mean that we have large fluctuations in the amounts being collected by the counterparty.

The Minister has said that regulations will address that and are forthcoming via the affirmative procedure. He expects that the reconciliation process of attempting to ensure that the revenue stream matches the allowed expenditure will happen twice a year, but there is the possibility that very large sums will sit within the counterparty, even if just for months. The amendment tries to address the possibility of those funds, or a proportion of them, finding their way into the Consolidated Fund.

It surely has to be the case, and I assume that it is the Minister’s intention via regulations, that the reconciliation process should be as frequent as possible so that the revenue stream matches the allowed expenditure at any point in the construction. I foresee circumstances in the production phase, however—perhaps not in the construction phase, because it is unlikely that a future nuclear project will come in under budget given their history—in which a company’s revenue from power sales might exceed the allowed revenue. There is a chance that we could see large mismatches and, therefore, lots of funds being stored up in the counterparty.

The central thrust of what the Opposition are trying to do with the Bill is to protect consumers and ensure that they pay the lowest possible amount to get a project such as the one that we are talking about onstream. It is therefore really important that we ensure that the Treasury cannot in any circumstances, unless it has exhausted all other options, take part of the funds that may sit with the counterparty for relatively brief periods. The Treasury could decide to take sizeable amounts, and it is important that they flow back to suppliers and, ultimately, to customers. That is the thrust of the amendment.

[Greg Hands]

As the hon. Members for Southampton, Test and for Greenwich and Woolwich laid out, amendment 17 addresses the situation in which funds held by the counterparty may be paid into the Consolidated Fund, which of course is the Government’s general bank account at the Bank of England. Currently, the legislation allows the revenue regulations to provide for sums to be paid into the Consolidated Fund. The intention of the amendment is to narrow the scope of that so that the regulations can provide for sums to be paid into the Consolidated Fund only where there is no alternative.

I thank the hon. Members for the amendment, which they explained well. It certainly echoes my sentiment that consumer funds should not generally go into Government accounts. I reassure Members that we envisage the power to have limited but important uses. For example, it could be used to ensure that the counter- party repays a loan given by the Government—by the taxpayer—to respond to an emergency. That is not a hypothetical situation. We saw the importance of it quite recently in the course of covid, when the Government did indeed have to provide a loan to the counterparty for the contract for difference regime: to the Low Carbon Contracts Company.

The taxpayer should be able to be repaid that loan, but the amendment provides that sums cannot be paid into the Consolidated Fund where there is an alternative. I could see a number of people making an argument that different things that could be done with that money would provide alternatives to what is being envisaged: in this case, repaying the taxpayer. If passed, the amendment would unnecessarily narrow the scope of the power in a way that would limit its use. I hope that my explanation has shown Members the importance of the power, which is in my view unlikely to be used. However, I have given a real example from the last couple of years of where exactly such a situation arose.

Nuclear Energy (Financing) Bill (Third sitting)

Debate between Matthew Pennycook and Greg Hands

Committee stage
Thursday 18th November 2021 Public Bill Committees

[Greg Hands]

I would say two things in response. First, Sizewell C may not feel it is appropriate to comment on the deployment of taxpayers’ money. Secondly, I know from long experience of Government that often the best way of securing taxpayers’ money in a negotiation is not to reveal too much about what approach the Government might be taking. We have laid out in the Budget document, which was quoted by the hon. Member for Southampton, Test, what we think is going to be in scope—what the £1.7 billion might be spent on.

The hon. Member for Greenwich and Woolwich asked a more general question about China. He asked whether this was about sending a message to China, or words to that effect. The answer is no. The UK welcomes foreign investment in our infrastructure, but as we have always said, that should not come at the expense of our national security. It is already the case in UK law that all investment involving critical nuclear infrastructure is subject to thorough scrutiny and needs to satisfy our robust national security and other legal and regulatory requirements. The National Security and Investment Act 2021 also strengthens our powers to act should we need to.

[Matthew Pennycook]

I take the point about the National Security and Investment Act. The Minister will know that that was given Royal Assent only in 2021. The strategic investment agreement that applies to Sizewell C was signed off—agreed—in October 2016. I think that I am right in saying that the National Security and Investment Act does not apply retrospectively, so how does it cover the specific arrangements in place as a result of that deal? Can he expand on what regulation is in force to give us assurance about safeguards in relation to foreign states and investment in civil nuclear?

[Greg Hands]

I thank the hon. Gentleman for that intervention. Of course, the final investment decision has not yet been taken on Sizewell C. All the relevant parts of the NSI Act will be in place—he is right to say that it got Royal Assent this year—but that final decision has yet to be taken.

The hon. Gentleman asked about Chinese involvement at Hinkley. May I be absolutely clear? The Bill is not reopening that decision. Hinkley Point C is vital to reducing our reliance on fossil fuels and exposure to volatile global gas prices. CGN is a partner in financing and building that important project. There is no involvement by any Chinese company in any major contract at Hinkley, including the instrument and control system.

As for Sizewell, to be clear, this Bill does not determine the ownership structure of Sizewell C or any other future nuclear project. That is another really important point to understand about the Bill. The Bill increases our options for financing nuclear projects, ending our reliance on overseas developers for finance—we are not excluding overseas developers—which has led to the cancellation of other nuclear projects in the UK. It will ensure that our own new nuclear power plants can be financed by, for example, British pension funds and institutional investors—often from our closest partners. That is the purpose of it.

[Matthew Pennycook]

I would like to pick up and press the Minister on the thrust of amendments 2 and 1, which is a consequential amendment. I take what he is saying about the purpose of the Bill being to attract, potentially, more UK investment—we do not know how much, but potentially—and about not wishing to exclude foreign investment. I take the point that he made earlier about the language used in our amendments and how he sees it as meaning a blanket ban. I would argue that it does not have that intent. There are complexities here, but does he not differentiate in his own mind between state-sponsored companies and state-controlled companies—controlled by foreign powers—that his own Government say pose a systemic challenge, and if he does, why does he not think that it is worth putting this in the Bill? Surely there is a need to differentiate and ensure that those types of companies—the latter—are not able to access RAB funding.

[Greg Hands]

I thank the hon. Gentleman for that intervention. Looking at the amendments, amendment 2 states that

“the nuclear company is not wholly or in part owned by a foreign power”

and amendment 1 states that owned by a foreign power means

“owned by a company controlled by a foreign state and operating for investment purposes.”

To be frank, I have a different interpretation, or at least I am not fully seeing his interpretation as being what he has in the amendment. The amendment strikes me as being worded in such a way that it could, for example, include nuclear operators from some of our closest partners. I look at what I see in front of me, rather than necessarily what Her Majesty’s loyal Opposition say that something might mean.

[Matthew Pennycook]

If the Minister is unhappy with our language, will he undertake to introduce Government language on Report that satisfies that differentiation?

[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.

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[Matthew Pennycook]

I thank the Minister for his response. I also very much welcome his opining on the sanctity of the UK-EU trade and co-operation agreement—a refreshing change.

I agree with the Minister entirely that we are aligned on the importance of national security in our critical national infrastructure, but I am afraid he has not done enough to reassure me. From the argument he made, as long as the two criteria that he spoke to are met, it seems that we could still end up, having passed the Bill, with financing from companies such as China General Nuclear in future UK nuclear projects. Also—this is critical—because of the sequencing agreement that has been spoken about at length and has been agreed already, that would allow China in theory to own, plan, finance and operate a site at Bradwell. We might have not only CGN financing involved, but CGN operation.

I remain unconvinced by what the Minister said about the national security regulation that is in place. In essence, he said, “Trust the Secretary of State when the point of decision comes”, but we do not think that that is enough. We think this should be in the Bill. If he is unhappy with the wording of the amendment, I invite him to propose wording more appropriate to his mind, but that does the job. We will therefore press amendment 2 to a Division—not amendment 1, which is definitional in nature and consequential. I beg to ask leave to withdraw that amendment.

Amendment, by leave, withdrawn.

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

[Greg Hands]

I think we have already had the debate, but I will say briefly that the clause defines the key terms referred to in part 1 of the Bill. Subsection (2) defines a “nuclear company” as one that holds an electricity generation licence granted by the authority for a nuclear energy generation project. The authority is the Gas and Electricity Markets Authority, the governing body of Ofgem.

The clause goes on to make a distinction between an ordinary licensed company and one that has been designated by the Secretary of State to benefit from a RAB through having its licence modified by the Secretary of State. Subsection (4) defines a “relevant licensee nuclear company”. To become one such, it is necessary for the company to have had its licence modified by the Secretary of State to insert RAB special conditions and to amend the licence terms. It is also necessary for the company to have entered into a revenue collection contract with a revenue collection counterparty, so that RAB funding may flow to the company’s project.