Energy Bill

Debate between Michael Fallon and Mike Weir

Wednesday 4th December 2013 Commons Chamber

[Michael Fallon]

Coal has been an important part of the mix, and I hope the hon. Gentleman will be with us this afternoon in preventing further coal from being driven off the system.

Coal is being removed from the system due to a number of factors, including the old age of some of the plants, the impacts of environmental legislation, the increasing penalty on high-carbon generation applied under the carbon price floor, and increasing levels of low-carbon generation as we introduce more renewables.

[Mr Mike Weir (Angus) (SNP)]

If a plant fits carbon capture and storage equipment, as a demonstration plant, could it be caught by this amendment and forced to close or not generate so much energy?

[Michael Fallon]

There is an exemption under the Bill for a plant that fits CCS equipment. I have made that clear to the Carbon Capture & Storage Association and to those working on the various projects.

The coal fleet is old, having mainly been built in the 1960s and ’70s, with only one plant, Drax, under 40 years old. Most of these ageing power stations are now expected to retire completely between now and the mid-2020s. As I have explained, if a station is not to face restrictions and/or closure under the directive, it will need to invest in clean-up equipment. That would require a multi-year programme of investment in the order of several hundred million pounds. Over time, with the carbon price floor and a strengthening emissions trading scheme, the economics of coal generation will deteriorate further compared with gas. Furthermore, as more low-carbon generation comes on to the system through new nuclear and renewables, it will result in higher-carbon coal generation being increasingly displaced. The combined effect is that the economic outlook for coal generation is poor.

Our analysis is consistent with that outlook and shows that unabated coal generation will make up just 7% of total generation by 2020 and 3% by 2025, and probably 0% by 2030. There is no evidence at the moment of a large number of operators planning to upgrade their coal plants, but we should not rule out the possibility that one or two might do so.

We have heard the argument that the amendment would merely make available a tool for future Governments to use, if necessary, to limit the emissions from existing coal stations, but we believe the very existence of such a power would create an additional regulatory risk that could deter the small number of our most efficient stations which might otherwise choose to upgrade. As I have set out, under the directive, stations that do not upgrade will be subject to limited hours and/or forced to close. If the amendment were accepted, therefore, we would risk more coal stations closing earlier than might otherwise be the case.

I have also considered the argument that the amendment would provide greater certainty to investors looking to build the new gas plant that we all agree will be needed. However, the amendment would do so in a way which could create risks for our security of supply and increase costs to consumers. We already face a significant investment challenge with an estimated 16 GW of new gas plant, and about 45 GW in total of all forms of generating capacity, needed over the decade from 2015 to 2024. We are acting to facilitate that new investment through other measures in the Bill, notably with regard to the capacity market. However, we cannot be 100% certain about exactly when all that investment will be delivered. We need a managed transition to a lower-carbon future, in which our existing assets are managed prudently to avoid unnecessary costs to consumers.

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[Michael Fallon]

With the leave of the House, let me reply briefly to the points made in the debate. The hon. Member for Brighton, Pavilion (Caroline Lucas) and I disagree about the amount of information that should be put in Bills. She wants corporation tax and more about the fuel mix. Let us see what Ofgem comes up with in its search for greater transparency and then perhaps we can debate the matter again.

The hon. Member for Angus (Mr Weir), who is still in his place, suggested that we were trying to do something against the Scottish Government by the back door. I do not think that taking primary legislation can be characterised as doing something by the back door in whichever House it is introduced; it is right there through the front door.

Let me answer the points that the hon. Gentleman made. First, he seemed to suggest that the Government and the House had no right to close the renewables obligation for Scotland. Yes, we do have that right. The need to close it to new capacity has arisen due to the electricity market reform programme, which is a fundamental change to our policy for supporting renewables electricity generation, and electricity is a reserved matter under the Scotland Act 1998.

The hon. Gentleman asked me specifically about the grace period. We consulted on the grace periods to be offered at the point of RO closure. That consultation closed on 28 November, and our response will be published early next year and we will set out the detailed arrangements.

[Mr Weir]

I understand what the Minister is saying, but will he not accept that under the renewables obligation, the Scottish Government had discretions over how to operate it in Scotland? Until this amendment was tabled, there was nothing to say that the Minister intended to change the law on this particular point.

[Michael Fallon]

We have made our intention absolutely clear that the renewables obligation was going to be closed by March 2017. That has been made clear to the Scottish Government by officials and Ministers in correspondence over many months now. It is only right that the renewables obligation should be closed evenly for England, Wales and Scotland. I do not accept the hon. Gentleman’s point.

The hon. Member for Derby North (Chris Williamson) suggested that some of those involved in the fuel poverty area were not supportive of our change. He quoted Derek Lickorish, the chairman of the fuel poverty advisory group, but let me now quote him. David Lickorish said:

“I very much welcome the announcement in Parliament today by the Secretary of State that will place an enduring requirement for this, and successive governments, to tackle fuel poverty beyond the current legislation.”

The hon. Gentleman also quoted the Association for the Conservation of Energy. Let me tell him what Mr Warren said:

“It has been our long-held view that fuel poverty-proofing our inefficient housing stock is the only permanent solution to the scourge of fuel poverty. We therefore welcome as a step in the right direction the Government’s stated intention to adopt a new target to improve the energy efficiency of the homes of the fuel poor.”

I just want to make it clear that those voluntary organisations that are the most concerned in this area welcome the change that we are making.

Oral Answers to Questions

Debate between Michael Fallon and Mike Weir

Thursday 28th November 2013 Commons Chamber

[Michael Fallon]

My hon. Friend is right to say that customers who have dynamic teleswitched meters inevitably have a narrower choice of supplier. It is therefore all the more important that Ofgem ensures that the tariffs they are on are kept reasonable. I would like to discuss further with him how we might help those particular customers to switch more easily.

[Mr Mike Weir (Angus) (SNP)]

Following on from what the Minister just said, one reason why people want to switch from this tariff is that they are finding that although the headline increase announced by the company is high enough, they are being quoted sometimes twice that increase in their electricity prices. Is there anything he can do to press Ofgem on why there is such a huge increase in this tariff?

[Michael Fallon]

I shall certainly do that. When Ofgem last looked at this tariff, it thought that the price was reasonable compared with some other time-of-use tariffs offered by other suppliers, such as Economy 7. However, I am very happy to take the matter up again with Ofgem.

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[Mr Mike Weir (Angus) (SNP)]

T7. This morning it has been reported that in looking at the costs of energy, the Government are considering changing the cost of transmission. Will they take the opportunity finally to get rid of the discriminatory locational system for transmission and distribution costs that raises prices in the north of Scotland?

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

National Grid has been looking at the balance in cost between north and south, but a lot of energy is generated in Scotland, not least in renewables, and Scotland has an interest in ensuring that that energy is transmitted to England.

Royal Mail

Debate between Michael Fallon and Mike Weir

Thursday 12th September 2013 Commons Chamber

[Michael Fallon]

Those arrangements will continue. That is an arrangement between the Ministry of Defence and Royal Mail, and both parties have every interest in ensuring it continues. There will be no change for members of the armed forces.

[Mr Mike Weir (Angus) (SNP)]

The Minister makes much of the protection for consumers, but Ofcom has already shown its true colours by abandoning all price caps other than that for second-class mail. Does the Minister realise that experience of previous privatisations means that no one outside his Government believes that the regulator will give consumers protection on either services or prices?

[Michael Fallon]

The regulator is independent of the Government, Ministers and this House, and it is not possible for it to change legislation that we have passed. The cap remains in place.

Oral Answers to Questions

Debate between Michael Fallon and Mike Weir

Thursday 18th July 2013 Commons Chamber

[Michael Fallon]

The best protection that I can offer my hon. Friend is to ensure that Royal Mail’s finances are put on a sustainable, long-term footing, and that it has access to the capital that it needs in order to innovate, compete and respond to changing technologies. Its parcels business is already growing rapidly, but it is in a competitive marketplace, and we need to free it so that it can operate like any other commercial company.

[Mr Mike Weir (Angus) (SNP)]

As the Minister will appreciate, a universal service depends not only on deliveries but on uplift points, and there are serious concerns about the post office network and in particular whether post office locals will all be able to provide the parcel service. If that comes to pass, what powers do Ofcom or the Minister have to intervene to make sure that service is available?

[Michael Fallon]

I am proud to be part of a Government who have put an end to the post office closure programme we saw in the last few years. That has been brought to an end, and the post office network is being put on to a better footing, but the regulator Ofcom has all the powers it needs to ensure that the universal, six-days-a-week, everywhere-in-the-UK service is fully protected in the future, irrespective of any change in ownership.

Energy Bill

Debate between Michael Fallon and Mike Weir

Monday 3rd June 2013 Commons Chamber

[Michael Fallon]

I rise to speak to Government new clauses 8, 9 and 10, and Government amendments 52 to 66, 68, 71 to 90, 101 to 107, and 119 to 135. I should also like to respond to the amendments tabled by hon. Members. I ask the indulgence of the House if my speech is necessarily fuller than it might be so that I can do justice to each of the six main areas in the group, namely the transparency of investment contracts; the counterparty arrangements; the capacity market; nuclear power; other issues including biomass, emissions performance standards and the costs of electricity market reform; and consumer tariffs.

I thank Opposition Members and other hon. Members for their contributions in Committee. The Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), said at the time that the Bill needed clear accountability and that Parliament must have the information it needs to scrutinise the delivery of electricity market reform properly.

New clause 5 and new schedule 1 seek to establish an expert panel to scrutinise electricity market reform. Let me assure hon. Members that development of the contracts for difference and investment contracts will be informed by close consultation with relevant experts. We have already taken a number of steps in that regard, which is why I suggest that new clause 5 and new schedule 1 are unnecessary.

Our decisions on strike prices for CFDs will be informed by analysis from the National Grid. The robustness of that analysis will be scrutinised by an independent panel of technical experts who will report to the Government. Their report will be published. Any divergence of opinion between the panel, the Government and National Grid will be reported and explained. Given the existing role of the panel of technical experts, I do not see a wider remit for another expert panel to look at CFDs.

I agree that investment contracts should be subject to rigorous scrutiny and the best available advice, which they will be. For investment contracts relating to renewables projects, I am minded to use the draft CFD strike prices informed by the robust process just outlined. For other low-carbon technologies, which are bilaterally negotiated, specialist advice will be sought as appropriate and there will be rigorous scrutiny. For example, for Hinkley Point C we have appointed technical and financial specialists to advise on whether any proposal represents value for money. We will publish details of that contract when and if it is negotiated.

[Mr Mike Weir (Angus) (SNP)]

I am listening closely to the Minister. Does he share the worries of many hon. Members? The Bill will presumably finish its progress in the House tonight, but we still do not know what the strike prices are. We have been promised the publication of a document setting out details including strike prices for months, but it keeps being put back. I am told that it will not appear before July. Does the Minister understand the concern about the transparency of the process because we will not know what the strike prices are before the Bill completes its passage?

[Michael Fallon]

The Bill is before the House today and tomorrow, and has some way to go before it completes its passage through Parliament. Let me assure the hon. Gentleman that he will have an indication of the draft strike prices before the Bill completes its passage. If he will allow me, I want to say more in a moment about how we can improve transparency.

Amendments 8 and 9, tabled by the right hon. Member for Don Valley (Caroline Flint) and the hon. Members for Rutherglen and Hamilton West (Tom Greatrex) and for Liverpool, Wavertree (Luciana Berger), focus on the important issue of transparency of investment contracts. The Bill requires all investment contracts to be laid before Parliament alongside a statement of their importance to Government objectives. For Hinkley Point C, we have also committed to publishing summaries of reports from our external advisers. There is a difficult balance to be struck between publishing as much as possible about a contract, while also allowing some commercially sensitive information to be withheld from publication. It is crucial that developers provide the information we need to show that a contract represents value for money, but it would be inappropriate to publish information that damages a developer’s commercial interests.

This point is relevant to amendments 163, 165, 166, 171 and 172, which were tabled by my hon. Friend the Member for Daventry (Chris Heaton-Harris) and relate to information acquired or produced under the Bill. It would not be appropriate to release commercially confidential information provided under the provisions, but let me reassure the House and the hon. Member for Angus (Mr Weir) that we will publish details on the CFDs and capacity agreements signed each year through annual updates to the EMR delivery plan, and details of how much of the budget has been expended. Secondary legislation, such as that under the capacity market provisions, will set out details of the information flows, transparency and handling of sensitive information. That includes information acquired under clause 27. Ofgem will continue to publish information gathered from generators about the biomass they have used.

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[Michael Fallon]

I am not able at the moment to give my hon. Friend a precise timetable. Last year, we had a competition, as he will recall, for CCS. We selected the two principal bids and we are continuing to negotiate, but as soon as I have more news on that, I will ensure that he is one of the first to hear.

I must thank the hon. Member for Brent North for amendment 149. He will see that the small error has already been corrected in the version of the Bill that was introduced to the House on 9 May.

My hon. Friends the Members for Daventry and for Waveney (Peter Aldous) have tabled a number of amendments to clause 41 covering the certificate purchase scheme, which is designed to replace the renewables obligation for the last 10 years of its existence. First, let me reassure my hon. Friend the Member for Waveney that the provisions he seeks to remove through amendments 153, 154 and 157 to 159 simply replicate legislation that exists under the renewables obligation. Caps have been set before, such as for bioliquids; exemptions already exist for very small suppliers; and costs of administering the scheme are already recovered from the RO buy-out funds. The powers he wants to remove through amendment 159 would, for example, be needed to revoke any incorrectly issued certificates. These provisions therefore ensure the continued effective operation of the scheme.

On amendments 155 and 156, requiring the immediate recovery of shortfalls in the levy from suppliers would be unnecessarily prescriptive. That may not be necessary if, for instance, the shortfall is very small and can be made up in the next round of regular levy payments.

Amendments 160, 161, 167 and 168 would either remove our ability to change future support levels for the scheme, or add further validation requirements on the underpinning evidence for a change. Although the Government do not intend to make banding changes under the certificate purchase scheme, I would not want to remove our ability to do so. As we have seen, where there is compelling new evidence to change support levels, such as to protect consumers, it is important that the Government can act, and these provisions are important as they set out the controls on any such change.

On the underpinning evidence, we already take a rigorous approach to the assessment of costs and income in banding reviews under the renewables obligation. I can assure the House that we would do so again in any review of support levels under the certificate purchase scheme.

Let me reassure my hon. Friend the Member for Daventry that, in relation to amendment 169, consumer costs will always be an important consideration in banding reviews. New section 32V(4)(e) in clause 41 makes specific provision for that.

That brings me to the last but most important issue in this group: the costs and benefits of electricity market reform to consumers. A number of amendments have been tabled by my hon. Friends the Members for Daventry, for Waveney, for Gainsborough (Mr Leigh) and for Christchurch (Mr Chope), and we must thank the last two of them for providing such excellent chairmanship of the Bill Committee.

First and foremost, let me be clear that electricity market reform—EMR—is good for the consumer. Gas prices are rising and are projected to carry on rising. We need to move to a more diverse energy mix, which breaks our dependency on both gas and fossil fuel generation. The contract for difference provides protection for consumers by ensuring that generators pay back when the market price goes over the strike price, and the price certainty it brings will reduce the cost of financing new power stations, and thus reduce costs to the consumer. EMR also serves the public interest by reducing carbon emissions and ensuring everyone can benefit from reliable electricity supplies. These are important matters, which is why I would not want to accept amendment 162 and make them subordinate matters when the Secretary of State is exercising functions under part 2 of the Bill.

On amendment 151, I would not expect use of the liquidity powers in clause 38 to increase costs for consumers over the lifetime of any intervention. The purpose of these powers is to protect consumers by driving competition and reducing prices. A positive outcome for consumers must be proven before action is taken, and that would be shown through an impact assessment, which would be published when consulting on any proposed use of these powers. On amendment 152, contracts for difference can only be for the purpose of encouraging low-carbon generation, so that change is not necessary.

Both today and tomorrow, we need to work in the best interests of consumers and ensure that energy is cheaper as well as greener. I hope that all Members on both sides of the House can see that EMR represents the cheapest way of securing a diverse, low-carbon and reliable energy mix.

I want finally to turn to the amendments involving tariffs and to speak to the relatively minor Government amendments in that group before addressing the amendments tabled by the hon. Member for Angus. In line with the Prime Minister’s crucial commitment to ensure that people are on the cheapest tariff for their preferences, Government amendments 119 to 133 will align the powers in clause 121 more closely with Ofgem’s retail market review proposals. Government amendments 119, 120, 122 and 123 further clarify that those powers cannot be used for the purpose of imposing price controls by limiting the powers of the Secretary of State to make provisions under clause 121 only to the list set out in subsection (3).

In line with Ofgem’s retail market review proposals, Government amendments 125, 127, 128 and 131 will restrict the power to move customers from one tariff to another only to those customers on tariffs closed to new joiners. Government amendment 126 ensures that suppliers will have at least one core tariff slot that is not prescribed. Government amendment 130 clarifies that the power to prescribe that a supplier offers fixed or variable rate tariffs does not equate to setting the price or term for the tariff. Finally, Government amendments 121, 124, 129, 132 and 133 reword a number of the definitions to ensure that the powers can be exercised in the context of existing requirements placed on suppliers as a condition of their supply licence.

Amendments 21 and 22 were tabled by the hon. Member for Angus and address concerns he raised in Committee. Amendment 21 relates to the proposed Secretary of State power set out in clause 121 to move consumers off poor-value dead tariffs. His amendment would leave the only basis on which people can be moved off poor-value dead tariffs as an opt-out for consumers. Moving customers off such tariffs is a key part of meeting the Prime Minister’s commitment on energy bills. I would like to reassure hon. Members that in the event that Ofgem’s reforms are unduly delayed, we fully intend to make use of the opt-out approach rather than an opt-in. As a result of Ofgem’s review, however, it could become clear that there are certain circumstances in which some consumers could be actively disadvantaged by an opt-out approach, so we consider it prudent to retain the option to pursue an opt-in approach if necessary. Consumers could be disadvantaged should it, for example, transpire that as a result of market changes they would actually be better off staying on specific closed tariffs or that taking an opt-out option means they face contractual difficulties, such as a breach of contract.

[Mr Weir]

I understand what the Minister is saying, but as it stands clause 121 says that there can be a switch to a different supplier or different terms, “unless the customer objects”. The customer can always come back and say, “No, I don’t want to do that”; even though the company is saying, “This is a better tariff for you”, the customer still has the ability to do that. The difficulty with including subsection 3(e)(ii) is that, as the regulatory impact assessment said, very many customers never get round to switching and do not react when they are given offers or told a better deal is available. Leaving that provision in would allow companies simply to offer customers these things but not push them forward.

[Michael Fallon]

There may well be consumers who are not aware that they are being left on these tariffs, so we need to be careful about that, too. Ofgem could, however, deal with such matters, and I want to make it absolutely clear that the decision on whether to take an opt-out approach or an opt-in one will be made by the Secretary of State, or by Ofgem acting on his behalf, and not by energy suppliers.

Amendment 22 would add a new power for the Secretary of State in relation to customers with pre-payment meters, and there is a difficulty with it, too. The amendment is in two parts: paragraph (f)(i) specifies that these customers should receive the lowest tariff offered by the supplier, regardless of meter type; and sub-paragraph (ii) specifies that no more than 20% of each of their payments should go toward repaying existing debts.

Clearly, the aim of the amendment is to help out the most vulnerable customers, and I wholeheartedly support that. The Government are keen to see that consumers who use pre-payment meters are not disadvantaged, particularly the 20% of the fuel poor who currently pay for their gas or electricity in this way. Since 2010, there has been a major step forward in the treatment of consumers with pre-payment meters, with all the large energy suppliers choosing to equalise their pre-payment tariffs with standard credit prices.

The second part of the amendment relates to changing the way debt is repaid by customers on pre-payment meters. Customers in this situation currently repay a fixed amount at fixed intervals, for example, each week. The amount repaid is calculated for each consumer on the basis of their personal circumstances and ability to pay. The amendment proposes a limit of no more than 20% of the top-up amount, which in practice would turn most or all repayments from a fixed rate to a proportional one.

There are at least three reasons why we should not legislate in that way, the first of which is the cost to consumers of changing meters to accommodate such a provision. Secondly, let us consider the following: if a family paid a total of £10 a week, with 20% going towards repaying the debt, it would take the family seven years to clear the debt. This plan would also require the family to continue to pay £10 a week or £20 a week during the summer months, when most pre-payment meter customers use very little gas. If they reduce the total weekly payment in that period, the overall repayment period of the debt will, of course, increase again. Thirdly, there are existing obligations on suppliers under their licence to take into account a customer’s ability to repay when setting a repayment schedule. Suppliers are currently obliged to develop individualised repayment plans that take account of ability to pay, but existing pre-payment meters are not designed to allow for debt levels to be deducted on a proportional basis.

[Mr Weir]

I understand what the Minister is saying and I understand his objection, but if he looks at the excellent report on the issue from Citizens Advice he will see that it gives an example of someone who had £7 of every £10 put into the meter taken towards debt. We are trying to introduce a limit—although perhaps 20% is the wrong figure—so that that sort of thing does not happen.

Off-gas Grid Households

Debate between Michael Fallon and Mike Weir

Tuesday 16th April 2013 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

I join colleagues in welcoming you to the Chair, Mr Crausby, and I thank you for presiding over our proceedings. I, too, congratulate my hon. Friend the Member for Truro and Falmouth (Sarah Newton) on introducing this debate on off-gas grid households.

Let me tell the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) straight away that although we may not agree on everything over the next few months, we can agree on one thing: we both welcome the report recently published by the all-party group, and I am looking carefully at all its recommendations. Such work is a model of how an all-party group can contribute to policy making, and I congratulate those who participated in it.

Let me say very clearly that the coalition Government believe strongly in the importance of domestic consumers having secure and affordable fuel supplies to heat their homes. Like many here today, I remember all too well the issues in past severe winters, including in 2010, which resulted in increased demand for heating oil and weather conditions impacting on the supplies reaching consumers. That is why, under this Government, one of my predecessors, my hon. Friend the Member for Wealden (Charles Hendry), asked the Office of Fair Trading to bring forward its study on the off-grid energy market. One of the first actions I took last week was to work with colleagues at the Department for Transport to relax drivers’ hours for LPG deliveries, to ensure that households continue, in this ongoing winter, to receive fuel for heat.

Since winter 2010, my Department has worked with consumer bodies and industry to encourage households to co-ordinate “buy oil early” campaign messages. The Department for Business, Innovation and Skills has worked with the Department for Environment, Food and Rural Affairs to provide and promote guidance on setting up or joining consumer buying groups. As has been pointed out today, such groups can be of real benefit in reducing costs for all consumers and can provide environmental benefit through reduced deliveries.

By working with other Departments, we try to ensure that we reach the most vulnerable and provide the assistance that they need. Measures such as the winter fuel payment, the warm home discount and cold weather payments provide real assurance to older and vulnerable people that they can keep warm during the colder winter months, because they know they will receive significant help with their bills. In particular, the Department for Work and Pensions provides winter fuel payments of £200 for households with someone who has reached women’s state pension age and is under 80, and £300 for households with someone aged 80 or over. In addition, we have permanently increased the cold weather payment from £8.50 a week to £25 a week. We also want to provide immediate assistance with energy bills to those in need, and help energy companies find these vulnerable people so they can be offered longer-term support. The warm home discount scheme provides that help.

[Mr Weir]

Will the Minister give way?

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[Michael Fallon]

This four-year scheme was launched in April 2011. It requires energy companies to provide help with their energy bills to about 2 million low-income households a year. It is worth £1.1 billion over four years.

[Mr Weir]

Will the Minister give way?

[Michael Fallon]

Energy suppliers are required to provide the majority of that support to pensioners on the lowest incomes—a group we know are particularly vulnerable to the ill effects of a cold home over winter.

Such elderly people often struggle to understand and complete complicated forms, so most now receive the discount automatically, without having to claim. That is done through an innovative system of limited data matching between Department for Work and Pensions customer records for those on pension credit and the energy companies. One reason we selected electricity bills to receive the discount was so as not to disadvantage those living off the gas grid. This winter alone, more than 1 million pensioners received an automatic £130 discount by 31 December 2012, providing them with the certainty they needed that they could afford to heat their home over the coldest months.

We are also taking action to ensure we have in place the right framework for measuring fuel poverty so that we can continue to target our resources on those who need the most help. Under the current definition, a household is said to be in fuel poverty if it needs to spend more than 10% of its full income after tax on fuel to maintain a satisfactory heating regime. Last year, Professor John Hills of the London School of Economics published the first report of his review into fuel poverty in England, which the Government commissioned to take a fresh look at the issue. He highlighted serious flaws in the way in which fuel poverty is measured, with the current 10% definition painting a misleading picture of trends. Unless we can properly understand the problem, we cannot design effective solutions to address it.

As a result, we made a commitment to develop a revised definition of fuel poverty, and we have consulted on proposals that will allow for a more accurate measurement of the problem. Under the revised definition, a household will be considered to be in fuel poverty if its income is below the poverty line and its energy costs are higher than typical for that household type. Based on our new understanding of the problem, we promised we would look again at all our policies to ensure they effectively support the fuel poor. That will include setting out how we aim to use the low-income, high-energy-cost definition to identify priority sets of households for support through cost-effective measures.

The green deal has been mentioned. It was launched on 28 January, and it is our main energy efficiency initiative. It aims to play a huge role in upgrading buildings. It is therefore an opportunity to help millions of consumers reduce their energy bills. Opening up the energy efficiency market will unlock new choice for consumers and empower small and medium-sized businesses to enter, grow and innovate, creating new opportunities while reducing carbon emissions and energy bills.

The green deal is important, but it is not the end of our ambition on energy efficiency. Our overall mission must be to connect people with the resources to improve efficiency, reduce waste and save money. We want more businesses to see the financial and economic benefits that come with the development of the green economy. We have already seen clear signs of a promising new market gathering momentum. In little more than a month after launch, there were 9,200 green deal assessments. There are 1,000 more in the pipeline, showing genuine interest from consumers. Some householders in older properties, those on benefits or low incomes, and those in properties off the gas grid, about whom I was asked, may also qualify for extra financial assistance from the new energy company obligation. That scheme has started well, with millions of pounds’ worth of contracts already traded on ECO brokerage alone.

The energy company obligation runs alongside the green deal and has the twin objectives of reducing carbon emissions and tackling fuel poverty. It is targeted at those who live in hard-to-treat homes and those who live in low-income and vulnerable households. It is made up of three separate obligations, which together are worth about £1.3 billion per year. We expect ECO to make progress in tackling fuel poverty. Together, the affordable warmth and carbon saving communities obligations should generate investment worth about £500 million a year across England, Scotland and Wales. We estimate that if suppliers deliver the most cost-effective packages of measures, more than 200,000 low-income households could be supported each year through the obligation. I am pleased to confirm that there has already been some ECO delivery on the ground since January. About 7,000 referrals have been made to suppliers to receive a minimum package of assistance in England and Wales. On top of that, almost £100 million of notional bill savings have been traded under the affordable warmth obligation through ECO brokerage, and more than 75,000 tonnes of carbon have been traded under the carbon saving communities obligation.

I want now to discuss the potential for extending the gas grid. As to options for off-gas grid consumers who want to be connected to the grid, Ofgem is responsible for regulating the extension of the grid, and that is a matter for the local gas distribution network. However, for vulnerable consumers, Ofgem operates the fuel-poor network extension scheme, whereby the large gas distribution networks are incentivised through price control arrangements to extend the grid to vulnerable households, recognising that that will reduce their costs. During the next price control period, which will run from April 2013 to 2021, network owners are committed to connecting an additional 80,000 homes in fuel poverty to the gas distribution network. That is in addition to normal customer requests for gas connections, which are expected to exceed 440,000 over the same period. Therefore, overall, there are projected to be more than 500,000 new customers on the gas distribution network. The promotion and operation of those schemes is a matter for the regulator and the network owners, but I shall watch closely how the network owners meet the target of 80,000 new homes.

DECC is promoting alternative low-carbon options for off-grid consumers through renewable heat premium payments, which can help to reduce costs for consumers not connected to the gas grid. Those technologies have the ability to bring down fuel bills for those using heating oil and LPG, though they will not be suitable for all off-grid homes. The renewable heat incentive is a financial support mechanism to encourage the installation of renewable heating technologies to meet our renewable targets. The non-domestic element was launched in 2011 and provides financial support to commercial, industrial, public and not-for-profit and community generators of renewable heat for a 20-year period.

In September, my Department consulted on the extension of the scheme to the domestic sector. For domestic properties, the lead proposal was for a national scheme to be available to homes both on and off the gas grid, but targeted specifically at the off-gas grid sector through the setting of tariff levels. Tariffs would be set to compensate households for the difference in lifetime costs, including up-front, running, barrier and financing costs, between the renewable technology and currently used conventional heating technology, for the median cost off-gas grid installation. On 26 March, we announced an extension to the renewable heat premium payment scheme. That will provide grant support for installations of renewable heat technologies such as heat pumps, biomass boilers and solar thermal, ahead of the launch of the domestic renewable heat incentive next year.

We intend to announce the final details of the domestic scheme and of expansions to the non-domestic incentive this summer, and to open the schemes for payment from spring next year. In the interim period, we have provided the renewable heat premium payment scheme, which provides grants towards the cost of installing renewable heat technologies in domestic properties off the gas grid, and for solar installations on or off the grid. The first phase of that scheme ran from August 2011 to March 2012. More than 5,000 installations were delivered to off-gas grid households. A second phase ran from April 2012 to March 2013; it consisted of another household scheme and a social landlords competition, plus a community scheme for community groups to test the benefits of community level action, such as securing bulk buying discounts through facilitating the installation of renewable heating systems in their areas. We estimate that RHPP2 will deliver about 11,000 installations, of which approximately 9,000 are currently off the gas grid. In total, about 14,000 off-gas grid installations will be delivered under the renewable heat premium payment. We do not intend to stop there. Last month, we announced a further extension to the scheme, which will continue in 2013-14.

Finally, I want to deal with further regulation of the off-gas grid market. I have heard arguments in favour of more regulation. We must decide whether more regulation is necessary in this area; if it were decided that Ofgem should become the regulator, primary legislation would be required, with a transfer of knowledge of the market from the OFT. Ofgem already has powers to apply the Competition Act 1998 concurrently with the OFT, and to investigate and enforce decisions to deal with anti-competitive practices in its designated sector. Its remit is to regulate the monopoly companies that run the electricity and gas networks. There is no natural or structural monopoly for supply and distribution in heating oil or LPG, so regulation by Ofgem seems less appropriate in this sector than it is in others. The supply of heating oil or LPG is not covered by the natural gas and electricity regulatory regime, because the relevant gas and electricity legislation principally addressed the issues of setting up a regulatory regime to ensure that the natural monopolies of the gas pipe network and the electricity transmission and distribution systems were not exploited. Ofgem ensures appropriate regulation of gas and electricity supply, which are licensed activities for reasons that include the need to balance the systems and the relationship with the natural monopoly networks. Those are not issues in heating oil or LPG supply.

The Federation of Petroleum Suppliers is working with the OFT to improve self-regulation of the heating oil sector. It will publish a code of practice for its members this year. It has already worked with consumer groups to encourage the early ordering of heating oil for winter, and it is working with the OFT and consumer bodies to prepare a new code of practice to mandate its members to engage with consumers on a fair and consistent basis all year round. The federation intends that the code should encourage the implementation of best practice and raise standards in the industry, and I understand that it will shortly be published. We will continue to work with the federation, the OFT and consumer bodies to ensure that the code meets its goal.

There is still much more to be done, which is why my predecessor, the former Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for South Holland and The Deepings (Mr Hayes), agreed to convene a cross-party discussion on vulnerable consumers in the off-gas grid market. I confirm that I will fulfil that commitment. I look forward to exploring local solutions for heating oil and LPG supplies with members of the House, industry, consumer organisations and local communities. I intend to use the meeting next month to explore in detail further key issues raised in today’s debate, such as what further we can do to identify and support vulnerable off-grid consumers; the merits of regulation or self-regulation of the off-grid markets for heating oil and LPG; and the role that parish councils and local authorities can play in supporting and working with community oil buying groups. The debate has helped to move that work forward and to shape and refine our policy for an important group of consumers. I thank all those who contributed, and repeat my thanks to my hon. Friend the Member for Truro and Falmouth for introducing a debate on this important topic.

Oral Answers to Questions

Debate between Michael Fallon and Mike Weir

Thursday 6th September 2012 Commons Chamber

[Michael Fallon]

I know that my right hon. Friend the Secretary of State has already met my hon. Friend’s constituents to discuss the issue, and I believe that he has already met the founder of the Bank of Dave as well. One of the recommendations of the Independent Commission on Banking was that the Financial Services Authority should look again at the requirements for a banking licence, to see whether they are too onerous and disproportionate for the providers of very small credit. We expect the FSA to publish its recommendations shortly and I would be very happy to discuss them with my hon. Friend.

[Mr Mike Weir (Angus) (SNP)]

Many small businesses in my constituency run a post office as part of their business, and they are very worried about the chipping away of business and, particularly, the threat of losing the DVLA contract. What is the Minister’s Department doing to encourage the DVLA to stick with the Post Office?

[Michael Fallon]

I cannot comment on any specific contract that may be up for renewal. Of course, the Post Office has to live in a competitive world, but I will certainly look at what the hon. Gentleman has said.