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Electricity Generation: Local Suppliers

Volume 682: debated on Wednesday 14 October 2020

Motion made, and Question proposed, That this House do now adjourn.—(Maria Caulfield.)

I am grateful for the opportunity to open this Adjournment debate on an issue that I know is of great importance to not only communities in Ceredigion, but, as is evidenced by the attendance of hon. Members in the Chamber this evening, communities across these islands.

We face many pressing challenges as a society: the health and economic consequences of the covid-19 pandemic have been debated today, but just as pressing are the devastating impacts of climate change. If we are to meet these challenges and, ultimately, emerge stronger, more secure and more prosperous, it is vital that we transition rapidly to a society powered by energy generated from renewable sources. The Committee on Climate Change has been clear that the UK is off track to achieve our commitment to net-zero greenhouse gas emissions and meet our obligations under the Paris climate agreement. At present, renewable electricity generation accounts for only 11% of all UK energy use, and our transport and heating networks need to be electrified to decarbonise our economy. If we were successful in doing this, new policies and regulations would be needed to ensure that the resulting rise in electricity demand was met by renewable generation.

There is good news: villages, towns and cities across the land possess incredible potential for community renewable energy projects, such as solar arrays in fields, wind turbines, and hydro units in rivers. Such schemes support local skilled jobs and offer local economic opportunities.

Does my hon. Friend agree that to fully realise our local energy-generating potential we must invest in grid-integrated, locally situated batteries? They will smooth out the problems that hamper the grid supply in so many of our rural communities.

I am grateful to my right hon. Friend for making that point. She anticipates a few of the arguments I wish to make this evening, but she is right to emphasise the role that batteries and improving storage will play in the future. If we are to balance local generation and local demand, being able to store a lot of this renewable energy will be key. These local, community-owned renewable energy projects support local skilled jobs and offer local economic opportunities, which will be very welcome in the face of the covid-19 pandemic’s impact on so many of our communities.

Bath and North East Somerset Council is working closely with Bath and West Community Energy, and such partnerships are incredibly important for getting local buy-in. Does the hon. Gentleman agree that in order to get that local buy-in, this really has to work financially as well for the people?

I am grateful to the hon. Lady for making that point. She rightly says that this has to be viable for these community schemes and partnerships if they are to fully realise the potential that so many of these schemes possess. I have put on record details of one local energy partnership in Cardigan in my constituency that I know is trying to grapple with some of these challenges.

I congratulate the hon. Gentleman on securing this debate. I agree with his comments about community groups and the opportunity here. Does he agree that the monopolies of service provision by greater companies must be brought to an end, as we see many local people who are attempting to expand business being precluded from doing so by legislation that seems to be put in place only to frustrate, rather than to allow for competitive provision?

The hon. Gentleman has got to the nub of the issue and has anticipated the main thrust of my argument. At present, the regulations and the way in which legislation has been structured may be outdated and disadvantage some of the smaller generation schemes. His point will be key if we are truly to capitalise on the potential that the smaller projects possess.

What are the hon. Gentleman’s thoughts on partnering with local authorities, at whatever tier? He mentions community projects at village level, but what about town councils? I am thinking specifically of Newport Pagnell Town Council, which is very keen to get involved in such initiatives.

The hon. Gentleman makes a very valid point. We must not think that community-owned projects are necessarily just at parish council level; towns and municipalities can also play a part. If we make any changes, we will do well to ensure that we better empower such projects, because I believe that they will be key in moving to a decarbonised economy.

I concur with the point made by the hon. Member for Milton Keynes North (Ben Everitt); Warwick District Council is similarly interested. Does the hon. Member for Ceredigion (Ben Lake) agree that we have to ensure that local authorities can develop projects through the planning system, work with grid operators and start generating at scale in the immediate area?

The hon. Gentleman makes a very good point. As is often the case, if we are to transition as rapidly as is necessary, we will need to bring together so many aspects of regulation and different Departments.

A lot of the points made by hon. Members touch on the fact that since the 1990s we have seen a transition in how energy and electricity have been generated and transmitted across the country. It will need to change even further, of course; we are moving from an electricity system that consists of a small number of quite large power plants, serving a passive operation, to one with potentially thousands, if not millions, of smaller generators with storage and active demand, complementing huge numbers of large-scale renewables.

Does the hon. Gentleman agree that Cornwall has a vital role to play in battery storage technology, with our recent discovery of lithium in our Cornish tin mines? We will be able to use that Cornish lithium to build the battery technology that he describes.

I am grateful for that point, because one of the heartening news developments of recent weeks has been about the lithium in Cornwall. It is clear that those deposits will be crucial if we are to make this transition.

The question that arises from the shift that I described is whether a system with potentially millions of moving parts could be managed in a centralised way even if we wanted it to be. I believe that local generation to meet local demand offers a possible answer.

I congratulate the hon. Gentleman on securing this debate, which is of the utmost importance. Does he agree that fantastic community projects such as Sheffield Renewables should be better supported by the Government to provide local renewable energy, and that that support should be enhanced as we try to tackle the climate emergency?

The hon. Lady’s point is an important one: we need to make sure that community schemes are supported. It also anticipates where I want to take my speech next, so I am doubly grateful.

The potential capacity of local community-owned energy is quite astounding. A 2014 UK Government report stated that community energy projects could contribute as much as 3,000 MW of electricity generation capacity by 2020. Unfortunately, we have not quite met that target, but the potential is striking nevertheless.

That potential is frustrated by the antiquated rules that govern our energy markets, which were designed primarily in the 1990s and were suited to a different system of large power stations and a handful of utility companies. Unfortunately, those rules still rule the roost, and they create insurmountable cost barriers to any community energy initiative that wishes to sell the electricity it generates directly to local households and businesses.

A report by the Institute for Public Policy Research shows that the technical and operational challenges involved in becoming licensed to supply energy to customers lead to initial costs exceeding £1 million. There have been attempts to address that. A few years ago, Ofgem launched Licence Lite, which was aimed at creating a less onerous set of supply licence conditions for specific types of new, innovative supply business models. Unfortunately, that has proved complex and has not been well used to date. To its credit, Ofgem has also launched an expanded Sandbox service to allow innovative companies to apply for derogations from the traditional licensing regime and stipulations, and it has extended its ability to grant those derogations to certain local generators.

However, the most effective solution would be to introduce greater proportionality to the licensing system, to ensure that the costs and complexities of being a licensed electricity generator are proportionate to the scale of its supply. If the costs are proportionate, it becomes financially viable for smaller-scale renewable generators to supply electricity, and, in turn, new community-owned schemes would become viable.

The hon. Member may be aware that I co-chair the all-party parliamentary group for left-behind neighbourhoods, and there are many opportunities for this in those communities. In my constituency, for example, there is heat from mine workings. Does he agree that these sorts of innovation can come through this channel much better than others?

I am grateful for the hon. Member’s intervention. He makes a key point: the transition to a decarbonised economy also has a lot of benefits in terms of economic development in areas such as his and mine, which have been left behind. This offers so many opportunities, and we would do well to make more of them.

I thank the hon. Gentleman for giving way; he is being very generous with his time. As we hear from the interventions, there are local groups and bodies around the country that are desperate to have these opportunities. Partick Community Council in my constituency, which is a very concentrated urban area, is keen to find out how it can innovate and use the abilities being proposed.

I am grateful to the hon. Gentleman for making that point. He is right: there is so much potential across these islands. We just need to sort out some of the obstacles that are currently faced.

I thank the hon. Member for securing the debate. He refers to the obstacles. Does he agree that one way to overcome those obstacles is for the ten-minute rule Bill that I presented in the summer, which is due to have its Second Reading on 29 January next year, to be passed into statute, whether through the private Member’s Bill route or the Government adopting it?

I thank the hon. Member, who has done incredible work in bringing forward that ten-minute rule Bill, which has the support of a great number of Members on both sides of the House. I very much want to put my support for that Bill on record, and I hope that if it does not progress as a private Member’s Bill, the Government will look to adopt its provisions.

Members have talked about left-behind communities and the real desire for many communities to get involved. I want to mention those who are left out and how important it is that the community energy sector is inclusive. Right now, 4% of practitioners in the sector are black, Asian and minority ethnic. Will the hon. Member join me in paying tribute to the organisation Power for People, which is working to ensure that it represents those groups that are currently under-represented in the sector?

I am grateful to the hon. Member for that intervention, and it gives me the opportunity to place on record my gratitude to Power for People. This debate probably would not be taking place tonight if it was not for the support and leadership that Power for People has shown in recent weeks, so I am pleased to put that gratitude on record.

The ten-minute rule Bill proposed by the hon. Member for Waveney (Peter Aldous) would allow electricity generators to become local electricity suppliers by applying for a new form of supplier licence designated for local supply. In advance of the debate, I have been contacted by Members from all political parties who are supportive of such measures but who unfortunately were not able to attend. They include the hon. Members for Tewkesbury (Mr Robertson) and for Thirsk and Malton (Kevin Hollinrake), my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards), and the hon. Members for Na h-Eileanan an Iar (Angus Brendan MacNeil), for Blaydon (Liz Twist) and for Glasgow East (David Linden), to name but a few. There are, as I say, 210 in total.

A right to local supply would help support local energy businesses to create jobs by selling energy to local customers and retain significant additional value.

I do not want to anticipate where the hon. Gentleman is going with this list, but one of the key opportunities that a right to local supply would present to our communities right across these islands is to allow for more entrepreneurial councils to generate electricity locally for communities, as the chief executive of Angus Council has suggested. Does he agree with that ambition?

I do agree. The opportunities are many, and if we were able to address some of the regulatory barriers, it would be a win-win for all involved.

To draw my remarks to a conclusion—Mr Deputy Speaker, you have been very patient, and I am grateful for it—if we were to introduce a right to local supply, it would help local energy businesses and municipalities, as was mentioned, it would retain a significant amount of additional value in local communities and it would inject much-needed resilience.

On that particular point about additional value to local communities, in my constituency the Corwen hydroelectric project is part of a wider series of community efforts. The benefit of what the hon. Gentleman is proposing is that it would not only help the hydroelectric project, but would incentivise wider activities within the community as well.

I fully agree with the hon. Gentleman, because there would be a range of benefits. We would have greater public support for the transition to sustainable energy forms, we would improve equality, and we would have nature friendly renewable energy generation. Obviously just as important is that we would have a secure energy supply less dependent on imports, let alone a more effective energy system that would perhaps see consumers’ energy bills decrease as well.

I hope the Government consider establishing a right to local supply and specifically the workable mechanism for it laid out in the ten-minute rule Bill of the hon. Member for Waveney, which as I said earlier is supported by more than 200 Members of this House. I am sure that together we can enshrine this right to local supply in law and make the most of the many opportunities that it offers.

Thank you, Mr Deputy Speaker; I was going to make very much the same point. I congratulate the hon. Member for Ceredigion (Ben Lake) on securing today’s debate, and I will make the same point: I have never seen an Adjournment debate with so many interventions. They were all extremely gracefully and graciously accommodated in his speech, so many congratulations to him.

The hon. Member has spoken eloquently about the need for local communities to be able to supply electricity, and I think there are strong arguments in its favour. I know that similar views have been expressed to me and the Department by many Members. I am fully aware that my hon. Friend the Member for Waveney (Peter Aldous) has also done his bit to try to drive the issue of local supply up the agenda.

I know that the hon. Member for Ceredigion supports a campaign for electricity generators to sell directly to local consumers, for all the benefits he suggested in terms of local employment. I think he or one of the many intervenors used the phrase “local buy-in”, and those arguments are fully appreciated.

In my remarks today, I will address the matter in quite a technical way and give the specific reasons why we as a Government feel that this particular provision is not something that we would adopt, but I suggest to him that local community participation has to be on the agenda. It is certainly something that I as the Energy Minister will be willing to engage with and have a discussion about.

With regard to the licensing—we will talk a little bit about that—changing the licensing framework to suit the business models identified by his campaign appears attractive, but the danger—and we always have to be mindful of dangers in government—is that it would create wider distortions elsewhere in the energy system. I will talk to those directly. Instead of the hon. Gentleman’s proposal, I would urge stakeholders and hon. and right hon. Members across the House to engage with the ongoing work that the Government are undertaking with Ofgem to support flexibility and innovation more generally. Then perhaps we can come to a view about how the local element can play its part in the solution.

Is the Minister not aware that the main problem is the lack of a level playing field? Basically, the smaller providers cannot compete with the bigger providers, and therefore we need this change.

I am fully aware of that, and I will come on to it. I have only 10 minutes, so I ask the hon. Lady to bear with me; I will address that point later in my remarks.

Electricity and gas supply licences, as I am sure everybody in the Chamber knows, are usually granted on a Great Britain-wide basis. However, Ofgem has powers to award supply licences for specified areas and specified types of premises, and that can allow licensees, once they have the licence, to specialise and offer more targeted and potentially innovative products and services. The holder of such a licence could supply customers only in the specified geographical area and specified types of premises, with the full terms and conditions of the licence applying otherwise. That means that there is already provision through this licence to have local provision. Electricity suppliers can apply to Ofgem for a derogation from a particular provision of the supply licence, and if it is granted, provisions of the supply licence will not apply to them. There is already some degree of flexibility.

No, I am afraid I am very hard pressed for time. I may have time later to take an intervention, but I need to press on with my remarks.

Ofgem, as I have suggested, has been consulting widely on how to use such facilities more effectively to bring innovation to the specified locality, as it were, in this retail market. I understand that the consultation closed on Monday 12 October, and I hope that small-scale generators who wish to supply local communities have responded fully to the consultation.

The hon. Member for Ceredigion mentioned, very ably and relevantly, the Licence Lite provision, which allows aspiring suppliers or local generators to apply for a supply licence and receive relief from compliance with industry codes. On existing mechanisms, the Electricity Act 1989 already allows the Secretary of State to exempt, by scale, electricity suppliers from having an electricity supply licence if they meet certain conditions. There have been examples, certainly in my tenure as Energy Minister, of people successfully applying for exemptions.

Being an electricity supplier, as I am sure the hon. Gentleman knows, confers the right of the licensee to supply electricity to customers, but it also bestows certain obligations, and that is very important to remember. Those obligations include payment of a proportion of network costs. Clearly, if one is operating in a situation where one is not a licensee, then one can avoid paying the costs on which the whole system depends. That is a critical issue. In some instances, the Licence Lite regime can remove this burden, but clearly we would not want to go down a route where large numbers of suppliers are simply exempting themselves from those obligations.

Network charges, as people will understand, are levied on all users of the network, and they send signals that reflect the costs that users impose on the network. There are a range of signals to encourage generators to locate close to sources of demand, and placing a source of generation close to areas of high demand will mean that the generator gets paid credits for helping to avoid further investment in the high-voltage transmission network. Essentially, that means suppliers are incentivised to be in areas of high demand. There will be a commensurate problem in areas of low demand, because how would they attract the relevant suppliers? Ofgem is working to reform these signals through improvements to network charges, and it is also working to develop local markets for flexibility, which goes to the core of what I think the hon. Gentleman is talking about.

I do not believe—and I think the Government, thankfully, are of the same opinion—that artificially reducing network costs for local electricity suppliers is going to be highly efficient, because it could distort the market. One is essentially incentivising a behaviour that may not be economical in the first instance, and that would mean higher costs falling on other consumers, which would increase as more local suppliers were subsidised. Creating a special category of local supplier brings its own complexities, and there may well be unintended consequences as a result.

Having said that, I commend the hon. Gentleman for thinking very deeply and creatively about this issue. This is part of an ongoing conversation. He was quite right to say at the beginning of his remarks that a lot of the structures that we have today reflect the conditions and circumstances before we legislated for net zero, and in many cases reflect conditions that operated 30 or 40 years ago. There is an ongoing discussion to be had about how best to adapt our institutions to modern circumstances.

My right hon. Friend has highlighted some of the challenges that the Government face. As we have heard from Members around the Chamber, we have shown enormous potential for local community energy supply to play a full role in decarbonisation and the covid recovery. Will the Government be setting out in the forthcoming energy White Paper how we fully realise this potential and meet these challenges? When can we expect to see that White Paper?

My hon. Friend is straying into ground that is not necessarily covered in this debate. I am very hopeful that the energy White Paper will be published soon. I think the Secretary of State said in front of the Business, Energy and Industrial Strategy Committee that it would be published in the autumn, and we are still in the autumn, so I am hopeful that it will come imminently.

Should legislative changes be required—I think there is support across the House for that, as has been demonstrated this evening—how best can we work with the Minister to carry through any opportunities that are identified as necessary?

Well, a very good start is a debate such as this. It has been a real eye-opener for me. I am delighted to see so much interest. I would suggest that people engage with the Department and engage with me. I am very happy to discuss these issues, which are absolutely fundamental to the energy transition that the hon. Gentleman mentioned. As I said, this is part of an ongoing conversation. I am hopeful that the energy White Paper will come hastily enough for my hon. Friend the Member for Waveney.

We have to focus on the flexibility of the whole system in terms of the current regulatory regime. If we get that right, then we can bring the innovation and perhaps some of the centralisation that the hon. Gentleman, and other hon. and right hon. Members, want to see. The prospects are considerable. We could see innovation and growth. We could see cost reductions and, most fundamentally, carbon reductions. I think that with a co-operative spirit, we can get very far. The hon. Gentleman’s actual proposal perhaps creates more problems than it solves, but I am very willing to debate and discuss that with him on a subsequent occasion.

I thank the hon. Member for Ceredigion for raising this issue and thank all Members who participated in this short but interesting debate.

Question put and agreed to.

House adjourned.