Committee (2nd Day)
Relevant document: 4th Report from the Constitution Committee
Clause 57: Revenue support contracts
39: Clause 57, page 51, line 39, at end insert—
“(d) a carbon capture use revenue support contract.”Member's explanatory statement
See the explanatory statement for the amendment at page 3, line 11.
My Lords, my amendment in this group is a re-run of part of the Committee’s discussion on Monday, and it refers to Clauses 57 and 63. It is all about the “U” in “CCUS”. More precisely, it is about the exclusion of carbon usage from the listed regulated activities in the Bill. Clauses 57 and 63 are concerned with revenue support contracts and the designation of carbon capture counterparties. Under Clause 57, regulations would explicitly set out
“a transport and storage revenue support contract … a hydrogen production revenue support contract … or … a carbon capture revenue support contract”.
There is nothing about a carbon usage revenue support contract. Similarly, in Clause 63, this Government restrict themselves to “carbon capture”, and there is nothing covering carbon usage. So I would welcome an explanation of these apparent omissions from the Minister when he responds.
I turn briefly to the amendment in the name of my noble friend Lady Liddell. She is right to seek to have direct air-sourced carbon covered by the Bill. Direct air capture is not in itself new, but what is new is the likelihood of a massive expansion in the years ahead, as we move towards achieving net zero. The International Energy Agency website is hugely informative on this, and I recommend it to all noble Lords who are interested.
Direct air capture removes CO2 from the atmosphere, thereby offering a solution for legacy emissions. The first large-scale direct air-capture plant is set to begin operating in the United States by the middle of this decade, and Europe and Canada are set to follow. Direct air capture provides part of the solution to a strategy that sees a balancing of emissions being released with emissions being removed. It is not restricted simply to the removal of carbon from the atmosphere; its application ranges from beverages, with which we are all familiar, to future aviation fuels, helping to reduce emissions from travelling across and between continents. DAC is not the same as traditional carbon capture and storage, with which we are familiar. It is genuinely innovative and requires the attention of this Energy Bill, as my noble friend Lady Liddell will explain.
My Lords, I support Amendment 49 and the introduction given by my noble friend. First, I apologise for not being around on Monday; being here was outwith my control. But I watched the debate, and my noble friend Lord Foulkes did a wonderful job. I first did a double act with him in the September of 1974, when we educated the Scottish public about devolution. Since that point, I have been lost in awe of him, not just for his knowledge but for his energy. I was recently at a significant birthday party, and the amount that that man can do is quite amazing. However, I am here today to address the carbon capture and storage issues.
I should declare an interest: I am the honorary president of the Carbon Capture and Storage Association, and I have been involved in the interest in carbon capture and storage since it was called “clean coal technology”—which gives my age away now as well.
As my noble friend Lord Foulkes pointed out, the Carbon Capture and Storage Association has been very helpful to us in drafting some of these amendments. One of the reasons why it is important to take it into account is that although an awful lot of us have been around carbon capture and storage for a long time, I do not think that most people realise the extent to which the Carbon Capture and Storage Association has changed. In the past year, there has been an exponential growth in membership, and it is coming from a lot of companies that are at the cutting edge of technology.
Our concern addressed in Amendment 49 is that Clause 63 is restrictive. We have been helped very much by the Minister’s department in looking at where we can go from this stage onwards, and it is unfortunate that the way this clause has been drafted means that the shortlisted projects that can be available during phase 2 are limited to industrial power generation and hydrogen. However, there are UK companies now developing engineered greenhouse gas removal technologies —GGRs—which are keen to connect to the CO2 transport and storage network. At lot of these are small companies that are moving, and there is uncertainty. Many noble Lords in the Chamber today have been around carbon capture for quite some time but do not realise the extent to which new people are coming into the field. The carbon emissions committee made the point that carbon capture and storage is now a necessity, not an option.
We are waiting for the business model for these new companies to be developed; they want to join in the process in due course. It is that ability to see them join the process that is behind this amendment. It is not nit-picking; it is seeking to find a route that allows them to move forward. These technologies currently include bioenergy with carbon capture and storage, and direct air capture, which would be excluded from the process if we did not have an amendment such as this.
This will prepare the Bill for the future. It ensures that we are future-proofing and that we have the ability to move rapidly in a way that would allow the inclusive use of all technologies that can remove CO2 from the atmosphere, not just those which capture from a commercial or industrial source. I commend Amendment 49, and make no apology for saying that we will come back at fairly regular intervals with amendments—probably small in size—which seek to take into account the new companies that are looking to enter into carbon capture and storage.
My Lords, I am very pleased that the mover and seconder of this amendment have mentioned direct air capture, because sometimes there is confusion between carbon capture and storage and the actual absorption of carbon out of the atmosphere on an enormous scale. Frankly, this is where the big impact will be made in future.
I know that we have made efforts with carbon capture and storage on and off over the years. There is a theoretical idea that finding a way to cheaply cap every chimney of the 9,000 coal-fired stations across Asia and Africa and pipe away the carbon might solve some problems and make a small impact on the overall rising greenhouse gases. However, the most sizeable absorption of carbon that is already in the atmosphere is through direct air capture and climate recovery.
Schemes are already being developed with the input and encouragement of Imperial College and other sources—and in other countries—for developing direct air capture on an absolutely enormous scale. Of course, we cannot do this alone; this is part of an international rescue, if you like, in a way that really begins to give some hope that emissions can be offset so that we can start getting some leverage and control on the overall carbon in the atmosphere. Without this, we will undoubtedly miss all the Paris targets and everyone throughout the world will face very dramatic and increased climate violence, very cold winters and very hot summers.
So I hope that the Minister will indicate that this area is in the Government’s mind and that the development of huge carbon sinks can commence—for instance, in deserts across the world that have already been designated as uninhabited areas. Carbon can be sunk into gigantic lakes the size of Wales or Dubai, or four times the size of London. These vast new developments would offset the overacidity of the ocean. These things can be done. Carbon can be captured and used. CO2 is a fantastic promoter and fertiliser of food on a colossal scale, and if we are moving into an era of world food shortage, covered areas fed by carbon from huge carbon sinks will really begin to make some impact on the scene.
The other development for carbon sinks is that we could just plant a lot of trees, but that is not very good. Trees are moderate absorbers of carbon although, of course, if they go up in flames they put all the carbon back into the atmosphere straightaway. The real development comes from mangrove groves, which are 16 times more absorbent of CO2 than other trees. They can be promoted along with saltwater and freshwater lakes in areas where there is a lot of sun and where electricity is therefore virtually costless. Of course, this is at or near the equator. These are the schemes that will save us all and which our Government should be leading in developing by thinking about and backing the necessary legislation. Please, can we have a little more thought on this excellent amendment and the ideas behind it?
I wish to express my support for Amendments 39 and 49. I have been looking for a place to make my interjection, which ought to have been encapsulated in an amendment, but perhaps I should propose an amendment at Report. However, now is as good a time as any to air my suggestions.
Aviation contributes significantly to emissions of carbon dioxide. These emissions do not approach the level attributable to road transport but, nevertheless, they must be eliminated. It may be possible to replace short-haul aircraft with aircraft that depend on battery power, but long-haul aviation cannot be electrified. It will continue to depend on liquid fuels. It has been suggested that the fuel could be liquefied hydrogen, but this seems be impractical. Conventional hydrocarbon fuels have an energy density that greatly exceeds that of hydrogen, which is difficult to store in a liquid state and demands considerable storage space. Jet engines that burn hydrogen have not yet been developed.
It seems that hydrocarbon fuels must continue to be used in long-haul aviation. Eventually, this will be acceptable only if the carbon element of these fuels can be sequestered from the atmosphere and the hydrogen element of the fuels becomes green hydrogen. When such fuels are burned, their carbon element will be returned to the atmosphere. Moreover, the use of green hydrogen, as opposed to the so-called blue hydrogen derived from the steam reformation of methane, will mean that no emissions of carbon dioxide will come from this source. To manufacture aviation fuels derived from the direct air capture of carbon and from hydrogen generated by electrolysis will require a huge input of energy. Sufficient energy would be available only if we were able to depend on nuclear reactors to provide it. Such synthetic fuels will be costly to produce; unless they are subsidised, they will be unable to compete with petroleum-based fuels or fuels derived from biological feedstocks. However, biofuels have a high opportunity cost, since the production of their feedstock is liable to pre-empt the use of valuable agricultural land. They are therefore best avoided.
We need to support the development of carbon-neutral synthetic aviation fuels. I propose therefore that, in the first instance, they should be allowed to incorporate blue hydrogen as well as carbon not derived from direct air capture but captured from fossil-fuel emissions. In time, both these allowances would be abolished.
I have always been very sceptical about carbon capture and storage and direct capture of carbon dioxide from the air, because they are basically unproven technologies. I could say that I am even quite sneery about them, because people constantly use them as justification for not adopting the tried-and-tested solutions of energy reduction, energy efficiency and renewable energy. We are often distracted by shiny technofixes, which give an excuse not to make the tested and sustained reductions in carbon emissions that have to take place. As far as I am concerned, the best carbon capture and storage is coal—we should just leave it in the ground.
That said, I am quite swayed by the argument of the noble Baroness, Lady Liddell, about future-proofing. That is very valid and I am very pragmatic in saying that we need to pursue all solutions to the climate emergency. If carbon capture works and can compete on cost with other carbon reduction measures without creating additional harm or risks, it should absolutely be eligible to compete for revenue support contracts. Of course, it could also help my clean air Bill, which tries to emphasise not polluting the air in the first place. Failing that, if we want clean air—which is incredibly important for all of us and a human right, according to the UN—we have to take every opportunity we can to clean it up.
My Lords, I am slightly sympathetic to the Government on certain of these amendments in certain ways; I expect the Minister will not immediately accept them. First, I re-emphasise my interests in energy storage, as declared in the register. I welcome the noble Baroness, Lady Liddell, back into the conversation. She and the noble Lord, Lord Foulkes, are quite a powerful duo and I am just thankful that they are not both here together—it might be just a little too much, but we might get some movement from the Government if they were.
On carbon use, I have no disagreement with the amendment; it would be positive to include it. In a way, I follow the Minister’s hesitation from Monday in saying that if we have carbon use, we have to make very sure that that use is long-term rather than short-term. I am not sure we have got to that point yet in the amendment. I will say that one obvious area where we should be doing this is in building and construction, where we use wood rather than concrete and steel. Many other economies and housing markets across Europe and other parts of the world use those technologies: they are there, they are strong and they capture the carbon in wood for probably a century or more—however long these buildings last. I would be interested in the Minister’s—maybe positive—response about how we can make sure that that carbon use sequesters the carbon for a long period.
As for the idea of air capture, I very much agree with the spirit of the noble Lord, Lord Howell. What concerns me, though, is exactly the point that the noble Baroness, Lady Jones of Moulsecoomb, made. Not in this Chamber, clearly, and not among the Members present, but problem with air capture of carbon is that it gives a free ticket out for climate sceptics who say, “Don’t worry about any of this stuff because technology is going to solve it. We don’t have to worry about energy efficiency and renewables because technology will find a way forward”. I very much hope that it will, and there are good signs of that, but the other thing about it—which is why it is not the priority on the scale, if you like—is that it will take out 0.4% of the atmosphere that you have to process. Whereas, if you, as a power station, are using carbon capture, that concentration is hugely greater, so it is a much more efficient process to deal with in the first place. Again, my heart is there in terms of future-proofing, but to me it sends out dangerous signals to the market.
The much bigger issue, which seems to have been forgotten since COP 26, is methane. That is the gas that we need to get out of the atmosphere quickly and effectively. Ever since COP 26, where the Government were very supportive of initiatives to take methane out, science has shown that methane emissions globally are much higher than we expected and very little action has taken place on that since. I see that as a priority, but I will be very interested in the Minister’s response.
My Lords, I too welcome the noble Baroness, Lady Liddell, back to these Benches. I look forward to any parties hosted by her and the noble Lord, Lord Foulkes, in future—they sound great fun.
I first turn to Amendment 39 in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, which seeks explicitly to include the use of carbon dioxide, given that the Bill refers to carbon capture, usage and storage, or CCUS. The carbon capture revenue support contracts are intended to support the deployment of carbon capture technologies in industrial and commercial activities where there is no viable alternative to achieve deep decarbonisation.
The Bill allows for carbon capture revenue support contracts to be entered into with eligible carbon capture entities. Broadly, a carbon capture entity is a person who carries on activities of capturing carbon dioxide that has been produced by commercial or industrial activities with a view to the storage of carbon dioxide—that is, storage with a view to the permanent containment of carbon dioxide. It is important to emphasise that the provisions in the Bill may therefore allow for support of a broad range of carbon capture applications, including those carbon capture entities that utilise the carbon dioxide resulting in the storage of carbon dioxide with a view to its permanent containment. Decisions as to which carbon capture entities are eligible for support are to be made on a case-by-case basis. Prioritising support for carbon storage is considered essential to help deliver our decarbonisation targets.
I turn now to Amendment 49 in the names of the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes, which seeks to ensure that techniques such as direct air carbon capture and storage are included in scope of carbon capture revenue support contracts. I thank my noble friend Lord Howell of Guildford for his remarks in this regard. As part of the Net Zero Strategy published last year, the Government set out an ambition to deploy at least 5 megatonnes of carbon dioxide emissions per year of engineered greenhouse gas removal methods, such as direct air capture, by 2030.
We recognise that greenhouse gas removal technologies, commonly referred to as GGRs, such as direct air carbon capture and storage, are considered important for making progress towards net zero. That is why in July we published a GGR business model consultation that sets out the Government’s initial views on the design of a business model to attract private investment and enable engineered GGR projects to deploy at scale from the mid-to-late 2020s. The consultation is due to close on 27 September. How direct air carbon capture and storage might be supported by any such business model is still subject to ongoing policy development and consideration. Once we have further developed the policy thinking on this, we can then consider what the appropriate mechanics might be and whether there are any available. We are exploring how early GGR projects could be connected also to the transport and storage network in CCUS clusters and will publish further information in due course.
The questions of the noble Viscount, Lord Hanworth, on carbon-neutral air fuels are not directly covered by my speaking notes, so I shall write to him with more details in due course. It overlaps with another department, so I will write to him and copy it to all Members of the Committee.
I hope that on the basis of my reassurances noble Lords will not press their amendments.
I thank the Minister for her response. First, on what my noble friend Lady Liddell had to say, it is what she did not say about what happened at the party that we want to know. If she gets the opportunity, perhaps she could enlighten us more.
In response to the noble Lord, Lord Teverson, I say that we certainly do not intend direct air capture to be a way of screening climate change sceptics; rather, it is an acceleration of addressing our climate needs. However, I understand that there will be sceptics who would hide behind it.
The Minister’s response to my amendment seemed to be that the Government would take things on a case-by-case basis as and when they arise and make a judgment on the inclusion or not of carbon usage. She said that DAC was under consideration for the future. Well, the point of the amendment is to try to future-proof this piece of legislation for the mid to long term and I would have thought that including it would be quite within the Bill’s remit. With those comments, I beg leave to withdraw my amendment.
Amendment 39 withdrawn.
40: Clause 57, page 52, line 11, leave out “function on any” and insert “relevant function on any relevant”
Member’s explanatory statement
This amendment is to ensure powers are appropriately delegated.
Thank you very much. This is another one on future-proofing. The amendment says,
“leave out ‘function on any’ and insert ‘relevant function on any relevant’”
person. The reason is that these delegation powers could be interpreted as being broad and non-specific, and it would be some comfort to insert this language to ensure it is clear that the Bill is referring only to the powers relating to revenue support regulations, and that these will be appropriately delegated to a person with the right capabilities. It seems to open a door that makes us feel a little bit uncomfortable and I think it would be a very sound way to go forward to accept the terms of this Amendment 40. I beg to move.
I add my welcome to my noble friend Lady Liddell and I am certain that my noble friend Lord Foulkes will be thinking of organising a party to celebrate her return to Westminster.
I cannot add to the comments she made on her amendment. I completely support what she said. I feel that there is a bit of déjà vu here and that we are going over ground we covered in our first session on Monday, but I think it is really important that we emphasise again, through the amendments that my noble friend Lord Lennie and I have put down, how important it is that we have clarity in all aspects of the Bill. I want to emphasise again the need to ensure that all aspects are future-proofed, thereby giving all parties the confidence that matters of probity, security and appropriate appointments are always taken into account in key positions. It is unfortunate that we need to emphasise this aspect, but I think experience will tell us that it is a very necessary part of all the processes that we bring in place.
To recap briefly, in Amendment 42 we would like to insert the phrase “fit and proper”. As we have said before, this is not the first time this has been used—it was used in the National Security and Investment Bill. Through this amendment we make sure that it is the responsibility of the Secretary of State personally to deem the individual as fit and proper.
Amendment 44 specifically refers to the need for the hydrogen counterparty to be
“a fit and proper person”.
The aim is to make sure that responsibility is very clearly accounted to the Secretary of State.
The explanatory statement for Amendment 64 says:
“If the Secretary of State needs to find a new counterparty, this amendment requires that they must ensure they are a fit and proper person, as with previous amendments in our names”.
I do not think that at this point in the state of affairs we can emphasise enough just how important it is to have accountability, clarity and the ability to have straight- forward lines of communication.
I did not like to address the amendments tabled by the noble Baroness before she had addressed them herself. I welcome the amendment tabled by the noble Baroness, Lady Liddell; I think it adds clarity. I absolutely agree with the amendment that the noble Baroness, Lady Blake, has just gone through. I think “fit and proper” is used many times throughout certainly financial services secondary legislation, and when it comes to hydrogen production it seems to me that this is something that is really key. I look forward to the Minister arguing that people in this position should not be fit and proper people, and I pass over to him.
I thank the noble Lord, Lord Teverson, for his kind invitation to address noble Lords on this subject, and I thank others who have contributed to the debate.
Let me start with Amendment 40, tabled by the formidable Scottish duo of the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes. He is sadly not with us today, which is a shame: he always adds to the jollity of the proceedings, but I am sure he will be back with us soon. This amendment seeks to ensure that the conferral of functions on persons by revenue support regulations is appropriately delegated.
Clause 57 sets out the Secretary of State’s power to make provision in regulations about revenue support contracts, including the funding of liabilities and costs in relation to such contracts. These are referred to as, as has been said, as the revenue support regulations. Clause 57(7) states that
“revenue support regulations may confer any function on any person.”
This is intended to enable persons other than a revenue support counterparty, allocation body or a hydrogen levy administrator to take on a role in the delivery of revenue support contracts and related funding. As with revenue support regulations, such functions would be limited to those about revenue support contracts, including the funding of liabilities and costs in relation to such contracts.
Let me make it clear to the House that Clause 57(7) absolutely does not provide the Secretary of State with a general power to confer any function on any person, outside of the scope of revenue support regulations. It is also worth noting that the selection by the Government of any person to undertake such functions would be subject to principles of public decision-making. The Government are, of course, duty bound to take only relevant considerations into account when making a decision.
I move on to Amendments 42, 44 and 64, from the noble Lord, Lord Lennie, and the noble Baroness, Baroness Blake, and spoken to by the noble Lord, Lord Teverson. These amendments seek to ensure propriety when conducting the designation exercise and when transferring any relevant property, rights and liabilities. Of course, it goes without saying that I too support ensuring the upmost standards for those wishing to fulfil the role of hydrogen production counter- party.
The Government anticipate that the Low Carbon Contracts Company Ltd, or LCCC, which is the existing counterparty for contracts for difference and the planned counterparty for the dispatchable power agreement, will in fact be the counterparty for the low-carbon hydrogen agreement, subject of course to successful completion of administrative and legislative arrangements. That is also the case for the industrial carbon capture contracts. In taking the decision to proceed with the LCCC as the counterparty to the low-carbon hydrogen agreement, the Secretary of State considered, among other things, its ability to deliver the required functions and experience and track record in contract management. These considerations would of course be made on any future decisions, which would also be subject, as I have said, to the normal principles of public decision-making.
It is worth pointing out—I suppose that this is the Government declaring an interest—that the LCCC is wholly owned by the Secretary of State for BEIS and is governed by its articles of association and a framework document setting out the relationship with the Secretary of State and its guiding principle.
The justification of the noble Lord and the noble Baroness for the inclusion of “fit and proper” was its apparent precedent in what was the National Security and Investment Bill, yet this phrasing does not in fact appear in the Act as made. Therefore, with the reassurances and information that I have been able to provide to noble Lords, I hope that the noble Baroness will feel able to withdraw her amendment.
Amendment 40 withdrawn.
We come to Amendment 41. Lord Callanan?
41: Clause 57, page 52, line 21, at end insert “or (Enforcement).”
Member's explanatory statement
This amendment provides for regulations under new clause (Enforcement) to be subject to the affirmative procedure.
I will speak to government Amendments 41 and 63 standing in my name. Amendment 63 will enable the Gas and Electricity Markets Authority and the Northern Ireland Authority for Utility Regulation to enforce hydrogen levy requirements imposed on relevant Great Britain and Northern Ireland market participants respectively.
The existing enforcement provisions in the Bill enable regulations to make provision for the levy administrator to, for example, issue notices and charge interest on late payments in respect of market participants who default on levy payments. Amendment 63 complements the existing enforcement provisions. Crucially, it ensures that regulations can make provisions for more robust forms of enforcement and enables enforcement under the terms of the licences held by market participants obliged to pay the levy, such as the possibility of licence revocation. It is critical that the levy is supported by a suite of enforcement measures. This will help reduce the risk of defaults on levy payments and help ensure that the levy administrator can collect the money required to fund the hydrogen business model and cover related costs.
Amendment 41 ensures that regulations made under this new clause will be subject to the affirmative resolution procedure, to ensure sufficient parliamentary scrutiny of these more robust enforcement arrangements. Therefore, I hope they will be acceptable to the House. I beg to move.
My Lords, these government amendments are evidence of the rather chaotic state of the Bill as it has come to us. It is long—300-plus pages, 13 parts, et cetera—and missing this from the original drafting is an oversight by the Government that needs some explanation. Having said that, the amendments allow for an enforcement provision under the new regulations and for these to be subject to the affirmative procedure. We welcome that scrutiny and the ability to enforce regulations that are made. These amendments will also allow revenue support regulators to make provision for the relevant requirements found in the pre-existing enforcement regimes win the Gas Act 1986 and the Electricity Act 1989, as well as, as the Minister said, regulations regarding Northern Ireland. I would be interested to know when the existence of these pre-existing requirements was discovered. I look forward to his response.
The noble Lord is correct that a lot of drafting work went in. There is always limited OPC drafting time in government. It is regrettable that these clauses have had to be added, but I hope that I have provided sufficient explanation for them. The detailed levy design is pending, of course, but they include the enforcement arrangements for the levy. It is crucial that we allow for regulations to make provision for a range of enforcement measures. This provision simply allows regulations to enable the Gas and Electricity Markets Authority and the utility regulator to use their existing enforcement powers to ensure that relevant market participants comply with the obligation to pay the levy. Participants in the energy market are already very familiar with these arrangements.
Amendment 41 agreed.
Clause 57, as amended, agreed.
Clauses 58 to 60 agreed.
Clause 61: Designation of hydrogen production counterparty
Amendment 42 not moved.
43: Clause 61, page 55, line 5, leave out from “of” to end and insert ““low carbon hydrogen production”, including (without limitation) compliance with the Low Carbon Hydrogen Standard”
Member’s explanatory statement
Regulations must have regard to the Low Carbon Hydrogen Standard in setting objective criteria against which to assess the eligibility of low carbon hydrogen production.
I will speak to Amendments 43, 45, 48 and 58. Again, they are trying to cope with some of the wide definitions that are contained within the Bill. I am most impressed with the fact that the Government have defined a UK Low Carbon Hydrogen Standard, which was updated in July of this year. It includes guidance and a calculator tool for hydrogen producers to use for greenhouse gas emissions reporting and sustainability criteria. That standard has been designed to demonstrate that low-carbon hydrogen production methods can meet a greenhouse gas emissions test and threshold, and these amendments require the regulations to have regard to that standard when assessing the eligibility of low-carbon hydrogen production. It goes back to what I said beforehand. We are not necessarily nitpicking here; we are seeking to get an amendment into place that allows us to have due regard to low-carbon hydrogen standards in setting objective criteria against which to assess the eligibility of low-carbon hydrogen production. I beg to move.
My Lords, I will speak to Amendment 46 in my name. As the noble Baroness, Lady Liddell of Coatdyke, clearly set out, this group of amendments is trying to implement something that the Government themselves have established: the UK Low Carbon Hydrogen Standard: Guidance on Greenhouse Gas Emissions Reporting and Sustainability Criteria, which I believe dates originally to April and was updated in July. I find myself in the unusual position of saying that I want to enforce something that the Government have established. Experts in this area tell me that the conditions set out in these standards are: the greenhouse gas emissions intensity of hydrogen for it to be considered low carbon; the emissions being considered up to the point of production; and, very importantly, the risk mitigation plan for fugitive hydrogen emissions. There is perhaps not much public awareness of the risk of that, but we need to share and understand it. The criteria are set out there.
I am not particularly attached to the way this is done in my amendment; I was simply trying to put Amendment 46 down to say that, for the subsidies to be available, it must meet the Government’s own standard. That seems the simplest way, but I am very happy to be convinced that there are various other ways; other amendments are going in the same direction. I am happy should we still need to get to this on Report to talk to people about what the best way of doing it is, but surely the Government want to enforce their own standards.
My Lords, I will speak to Amendment 47 in my name. I find myself in the unusual position of being more environmentally ambitious than the noble Baroness, Lady Bennett of Manor Castle, in that the standard that my amendment would introduce on hydrogen would be more stringent and would ensure that we are investing in this form of clean energy only if it is truly clean.
It is a not well understood fact that hydrogen actually has a global warming potential which is not insignificant. When released into the atmosphere, it has the effect of inhibiting the breakdown of methane, which we all know is a powerful greenhouse gas. The latest papers to come out that the Government have produced themselves indicate that, over a 100-year timescale, hydrogen has a global warming potential of 11 times that of CO2. That is over 100 years, but we are probably concerned about the next 20 years, in which case that rises to it having 33 times as powerful a greenhouse gas effect as CO2.
When it comes to hydrogen, I know it is often touted as the great white hope and the great solution—in fact, we have had adverts plastered all over Westminster telling us that hydrogen is the answer. However, it has to be considered carefully in context. It is very difficult to produce and to transport, and it is very dangerous to have around the house. In fact, studies have shown that it is potentially between three to four times more likely that someone will be injured from a hydrogen explosion in the home compared to natural gas. Already, natural gas has an unhappily high number of accidents and injuries from its use in the home.
So we should be under no illusion but that hydrogen in home heating is a last resort. The most obvious thing to do is to use electricity. It is the cleanest and most flexible vector. Heat pumps are by far and away more efficient. I think it has already been mentioned in this debate that it can take up to six times as much electricity to produce the same usable heat from hydrogen as a simple heat pump. This is fundamental to ensuring that we send the right signals in our energy policy. We must seek the most cost-effective and secure system. Let us not get distracted by the lobbyists and vested interests, who will tell us that their particular solution is the right one when it is so clearly not the case. Nineteen independent studies have shown us that electricity is far better for use for heating in the home than using hydrogen.
Turning to my amendment, if we are to use this highly questionable route forward for heating, let us ensure that we introduce very stringent standards. I have been speaking to the Green Hydrogen Organisation, which is a new trade association in Europe concerned with representing green hydrogen companies. It says that the best standard is 1 kilogram of CO2 equivalent for 1 kilogram of hydrogen, and that is what we should be adopting. We should seek to be as ambitious as possible, driving investment into only the cleanest forms and not being distracted by what would be a very expensive and inefficient, very costly and potentially dangerous solution which is just not needed at this time.
My Lords, I declare my interest as a member of the UK Hydrogen Policy Commission. I do not disagree with any of the amendments, and having a stringent green hydrogen standard is important. However, it is also important to stress that hydrogen is for use not only in home heating—I share some of the noble Baroness’s scepticism about that—and there are very significant uses of hydrogen at present in the chemical industry and as a feedstock in fertilisers. They must clearly be the priority, and we certainly need green hydrogen for that, which is a lot of green hydrogen. Although I absolutely share the ambition on tight standards for green hydrogen, we will definitely need it there, and in some of those hard-to-decarbonise areas such as steel production and the building industry. We should absolutely use it for purposes where electricity is not an easy solution, but let us not talk it down or talk about it as if it is a solution only to home heating, where I agree it probably is not practical.
Just to add to that list of uses, I am interested in the development of the hydrogen village, as outlined in the Bill, which is a really interesting example. There are also other uses in transport, for example, which are very well advanced, and we very much look forward to the outcome of those debates.
I do not want to prolong the debate, but the obvious question to me is that a standard has been established and had extensive public consultation and multiple engagement sessions with experts by stakeholder groups, as I understand it. I just wonder why we would want to undermine all that work and complicate the situation by suggesting that the Secretary of State could override the standard. Perhaps the Minister could, in his summing up, give us a very clear explanation of how any changes to the standard and protection might be achieved, to ensure that stakeholders and the public are kept informed, as this is, as we have heard, an area of both enthusiastic response and concern.
I thank the noble Baroness, Lady Liddell, and the noble Lord, Lord Foulkes, for their amendments in this group.
Amendments 43, 45 and 48 seek to ensure that the question of who is an eligible low-carbon hydrogen producer is determined solely by regulations that set objective criteria against which to assess eligibility, and in doing so must reference the low-carbon hydrogen standard.
Amendment 58 seeks to clarify that a low-carbon hydrogen producer must be eligible to receive support, which the other amendments would ensure means that they are compliant with the low-carbon hydrogen standard. Amendment 46 has a similar purpose; I thank the noble Baroness, Lady Bennett, for it and for her encouraging comments about the policy.
Amendment 47 seeks to introduce an emissions standard for low-carbon hydrogen production and would require the Government to target support at areas that cannot benefit from other cleaner, more efficient or cost-effective decarbonisation processes. I thank the noble Baroness, Lady Worthington, for this amendment.
A low-carbon hydrogen producer is defined in Clause 61(8) as
“a person who carries on (or is to carry on) activities of producing hydrogen which in the opinion of the Secretary of State will contribute to a reduction in emissions of greenhouse gases”.
The intention of this definition is to ensure that support under hydrogen production revenue support contracts may be provided only in respect of low-carbon hydrogen production that contributes to our decarbonisation ambitions.
Clause 61(3) places a duty on the Secretary of State to make provision in regulations for determining the meaning of “eligible” in relation to a low-carbon hydrogen producer. This approach to defining eligibility in regulations is similar to that taken for low-carbon contracts for difference in the Energy Act 2013. The regulations that define the term “eligible generator” for low-carbon contracts for difference have themselves been updated since they were introduced in 2014 as the industry and technologies have evolved; this has proved a flexible and enduring approach since 2014.
This duty is required as the Secretary of State is only able to direct a hydrogen production counterparty to offer to contract with an eligible low-carbon hydrogen producer. An allocation body will also be able only to give a notification to a hydrogen production counterparty specifying an eligible low-carbon hydrogen producer to offer to contract with. It is not practical to define an eligible low-carbon hydrogen producer in the Bill because eligibility may change over time as the industry and technologies evolve. The Government plan to consult on these regulations by early 2023.
The Government consulted on a UK low-carbon hydrogen standard last year, and a government response was published in April this year. This world-leading standard sets out a greenhouse gas emissions threshold as well as other criteria for hydrogen production to be considered low carbon, and sets out in detail the methodology for calculating the emissions associated with hydrogen production. This includes the steps that producers are expected to take to prove that the hydrogen they produce is compliant.
The standard was developed following a public consultation and multiple engagement sessions with industry and academic experts, including the Hydrogen Advisory Council and its low-carbon hydrogen standard working group. As set out in the response to the consultation on a low-carbon hydrogen business model, published in April this year, we are proceeding with our proposal to require volumes of hydrogen produced to meet the UK low-carbon hydrogen standard in order to qualify for and receive funding under the business model. The low-carbon hydrogen standard is set out in guidance and we expect it to be updated over time to ensure that it remains fit for purpose and reflects our growing understanding of how new technologies work in practice, including how hydrogen production interacts with the broader energy system. I hope that gives some comfort to the noble Lord, Lord Oates, and the noble Baroness, Lady Blake, that the standard may well change over time as our understanding of the practice grows.
With a focus on investor confidence, our current approach gives a significant degree of certainty about eligibility, which will provide prospective investors and developers with the clarity and transparency that they need to bring projects forward. While the low-carbon hydrogen standard is an integral part of the low-carbon hydrogen regime, direct reference to an emissions standard in this legislation would undermine both the need for the standard to be capable of evolving over time and the need for the legislation to be certain. The approach currently set out in the clause makes best use of regulations for setting eligibility and guidance that can be more responsive to the evolving nature of the low- carbon hydrogen standard.
Amendment 58 seeks to insert “eligible” in Clause 70(1)(b). We do not consider this necessary, as the reference to
“that low carbon hydrogen producer”
in subsection (1)(b) is referring back to the
“eligible low carbon hydrogen producer”
in subsection (1)(a).
The noble Baroness, Lady Worthington, mentioned the production of methane and it being an unhealthy by-product of hydrogen, and that a green hydrogen lobby group which I was not aware had been consulted. I will certainly take that back to the department. We have numbers on the rate of hydrogen per kilogram of greenhouse gas emissions compared with the low-carbon hydrogen standard, but I will be delighted to write to her, rather than befuddle everybody with the science here.
I therefore ask that the noble Baronesses and noble Lords withdraw and not press Amendments 43, 45, 46, 47, 48 and 58, but thank them for helping to test the robustness of the Government’s decarbonisation ambitions.
I am not a lawyer, and nor is the Minister, so I will understand if she wants to write to me. However, my understanding is that, if the Bill says that it complies with the UK low-carbon hydrogen standard, and then that standard was updated, the legal binding would be updated. Maybe we need wording to say that it complies with the UK low-carbon hydrogen standard as presently exists and is updated in the future. I am not sure what the wording should be, but surely if you have a standard that is being updated, saying in the Bill that you will meet that standard does not mean that the 2022 figures are fixed in stone.
I thank the Minister very much for that very full response. The noble Baroness, Lady Worthington, raised some interesting points that I was not aware of. It would be useful to explore those further as we get towards Report. However, I am content to beg leave to withdraw my amendment.
Amendment 43 withdrawn.
Amendments 44 to 47 not moved.
Clause 61 agreed.
Clause 62: Direction to offer to contract
Amendment 48 not moved.
Clause 62 agreed.
Clause 63: Designation of carbon capture counterparty
Amendment 49 not moved.
Clause 63 agreed.
Clause 64 agreed.
50: After Clause 64, insert the following new Clause—
“Designation of a long duration energy storage counterparty(1) The Secretary of State may by notice given to a person designate the person to be a counterparty for long duration energy storage revenue support contracts.(2) A “long duration energy storage revenue support contract” is a contract in relation to which both the following paragraphs apply—(a) the contract is between a long duration energy storage counterparty and the holder of a licence under section 7;(b) the contract was entered into by a long duration energy storage counterparty in pursuance of a direction given to it under section 60(1).(3) A person designated under subsection (1) is referred to in this Chapter as a “long duration energy storage counterparty”.(4) A designation may be made only with the consent of the person designated (except where that person is the Secretary of State).(5) The Secretary of State may exercise the power to designate so that more than one designation has effect under subsection (1), but only if the Secretary of State considers it necessary for the purposes of ensuring that—(a) liabilities under a long duration energy storage revenue support contract are met,(b) arrangements entered into for purposes connected to a long duration energy storage revenue support contract continue to operate, or(c) directions given to a long duration energy storage counterparty continue to have effect.(6) As soon as reasonably practicable after a designation ceases to have effect, the Secretary of State must make one or more transfer schemes under section 79 to ensure the transfer of all rights and liabilities under any transport and storage revenue support contract to which the person who has ceased to be a transport and storage counterparty was a party.”
My Lords, I will speak to Amendments 50 and 51. These are probing amendments to press the Government on their position on revenue support models for long-duration energy storage and the degree to which they recognise the urgency of determining this.
In Committee on Monday, the noble Lords, Lord Moylan and Lord Howell of Guildford, raised this issue of energy storage. Indeed, the noble Lord, Lord Howell, spoke of the Dinorwig pumped-storage plant in Wales, which I believe he opened—or at least he opened its increased capacity—when he was the relevant Minister. He made the point, quite rightly, that it not only provides support when the system needs it—rapidly bringing power on—but even when it is not operating it is saving money because it reduces the margin that is required to be kept on hand to be on call.
It is clear that long-duration energy storage will be critical to decarbonising the power sector by 2035. I think that is recognised by all who have been involved in this. We currently have long-duration storage capacity of about 26 gigawatt hours, which is principally in the existing four pumped storage plants that we have—two in Wales and two in Scotland—and about two gigawatt hours from long-duration battery storage. We need to increase that capacity significantly.
The Economic Affairs Committee report on energy published this summer quoted the estimates that that capacity needed to rise eightfold to meet those demands. It also called on the Government to
“develop a market model for long-duration energy storage”
as rapidly as possible. The need for speed is underlined by the long lead times for projects such as this. Dinorwig took over 10 years from being given the go-ahead to coming into operation, and Ffestiniog pumped storage station began its planning in the early 1950s and did not come into operation until 1963.
As many noble Lords are aware, we currently have a pumped storage project ready to go at Coire Glas in Scotland. It received planning consent in 2020. That would be capable of providing 30 gigawatt hours of capacity; that is enough to power 3 million homes for 24 hours and would double our current long-duration storage capacity. At present, however, it cannot go ahead because the revenue support models have not been agreed. These projects have big upfront capital costs, although they have very long lifetimes, as we see from the continuing operation of projects from the 1960s and later.
There seems to be a lot of delay from the Government in coming to conclusions. Their own consultation on long-duration energy storage closed in September 2021. They promised a response to that in the first quarter of 2022. They finally responded in July and effectively said that, although the responses to the consultation had been pretty clear—indeed, the responses to the inquiry of the Economic Affairs Committee of this House pointed to the same cap and floor model—they wanted to think about it further. I suppose that we should recognise that this a very thoughtful Government, because they intend to think about it for the rest of this year, through the whole of 2023 and into 2024. That is completely inadequate for the urgency of this task, because there is no way of achieving our target to decarbonise the power sector by 2035 without bringing on a lot of long-duration storage.
I recognise that some potential long-duration storage solutions are innovative technologies, but pumped hydro storage is not: it is old and proven, in terms of both effectiveness and value over the long term. These amendments will not solve things, but we may come back more specifically on Report. What I want to get from the Government is some understanding of whether they feel they can come forward with at least a pathfinder solution, possibly for something like Coire Glas, because that will take a long time to build out. It needs to get going and the people developing it cannot just keep these things mothballed all the time; they need to know the revenue support model. I hope the Government will respond specifically on that issue. I also hope they will think about how to separate their support models for innovative technologies, which may need to be more flexible or different, from those for proven technology that we can get on with now. I beg to move.
My Lords, I have some sympathy with what the noble Lord, Lord Oates, has just said. My concern is perhaps even a little more profound than his because I do not understand what role the Government see for pumped storage in addressing the problem of intermittency of renewables. The noble Lord focused on the funding mechanism, but what role is it going to have? How large a part do the Government intend that it should play?
However, that is not my purpose in rising. My purpose is to speak to Amendment 225, which relates rather to gas, which is also there to be used to some extent to address the problem of intermittency. I am grateful for the support of the noble Lord, Lord West of Spithead, and my noble friends Lady McIntosh of Pickering and Lord Frost. The House had a Question on gas storage earlier today and the Minister made some helpful and informative comments in response, but it was largely a backwards-looking Question. It looked at decisions taken in the past, whereas this amendment is intended to look a little more forward. It would require the Government to provide gas storage onshore or under our waters equivalent to 25% of forecast annual demand. However, in a sense, the real purpose is to give the Government an opportunity and to elicit from them some sense of their plans for addressing this question. In the past few months, we have all seen on the television news and in the newspapers, and been gripped by it, that while Germany has been busily filling up its capacious gas storage facilities, we have none whatever, so I think the Committee and the public will be interested to know what the Government intend, if the Minister is capable of giving us an indication today.
I shall make just two points about the amendment. To those who say that we are phasing gas out, I say that the amendment is worded to require 25% of forecast demand, so if the demand comes down, the amendment still works and the amount stored can be adjusted. I think I am a correct in saying—this emerged at Second Reading—that nobody in the House believes that demand for gas is going to fall to zero, even if it is to fall to quite low or even miniscule levels, so the amendment still works and, planning over the long term and looking forward a number of years, it should be possible to make this workable.
Secondly, I put in 25% as a placeholder as much as anything else. I am very open to the Government making a case for why that number should be higher or lower and why government policy should not be 25% but more or less. I am even open to an argument that the number should be 0%. Indeed, reviewing what the Minister said today, he made the valid point that, unlike Germany, we already have a store, so to speak, of gas in our control; it just happens to be under the sea. I understand that there is a point there.
I think back to the United States in the 1970s, when the oil shock arrived. The United States decided that what it needed was a large oil reserve, so it started pumping oil into specially prepared caverns in the earth. Then I think it struck the US that it was pumping oil out of one bit of the earth and then pumping it into another, and that perhaps this was not as sensible as it might have been, so the policy was gradually abandoned.
The Minister may want to make a similar and parallel point in respect of our own gas reserves. He may say that zero is a perfectly reasonable amount for us to store. If the answer from the Government were zero, it would at least be a decision and a policy. We would be able to scrutinise it and understand the arguments for it. As I say, setting the number at 25 is very much a placeholder. I am not being in any sense dogmatic about what the number should be, but I do feel that the Government should have a number in mind, should be able to justify it—even if it is zero—and should be able, I hope, to tell us what it is.
My Lords, I fully support the amendments in the name of my noble friend Lord Oates and that in the name of the noble Lord, Lord Moylan, and others. They seek, in effect, to get more information from the Government about their plans in relation to energy storage.
My Amendment 240 is also about storage but, in this case, the storage of solar energy, the use of which is growing at an incredibly rapid pace. There are already something like a million domestic solar systems installed around the UK, and residential solar deployment is at a record subsidy-free level according to Solar Energy UK, which represents many of the UK’s solar firms. This is perhaps unsurprising given the benefits of generating your own electricity at home. This is also good news for the Government since, if we are to meet our net-zero target by 2050, we need as many of the 29 million homes in UK as possible to decarbonise. Solar is of course part of that solution.
At this point I should draw attention to my interests. I recently installed solar panels on the roof of my home, together with one battery; it is the battery element that is relevant to my amendment. It was great news when, in the Spring Statement delivered on 23 March, the then Chancellor, Rishi Sunak, made the very welcome announcement that certain energy-saving materials would be eligible for zero-rate VAT on both labour and parts. This change was effected through the Value Added Tax (Installation of Energy-Saving Materials) Order 2022, which added a list of energy-saving products eligible for the zero rate to Schedule 8 to the Value Added Tax Act 1994, which is relevant, as noble Lords will see in a second.
Solar panels are the only solar-related items specifically included in this list. Batteries that store the energy from solar panels when it is not needed, and which can be used at a time when it is needed or to supply energy back to the grid, are not listed. However, the energy-saving materials and heating equipment VAT notice 708/6, which relates to the earlier Act, states:
“The installation of certain specified energy-saving materials with ancillary supplies is zero-rated in Great Britain.”
I can find no reference to “ancillary supplies” in the Value Added Tax Act 1994, which the Chancellor’s Spring Statement amended. However, HMRC has said that, in certain circumstances, batteries are in fact included. It has said that, when batteries are sold as part of the installation of a solar array, they are to be treated as an ancillary supply and so also qualify for zero-rate VAT. However—this is the crucial point—they would not qualify if installed separately at a later date.
A neighbour of mine, Mr Geoff Makepeace, installed a solar array with batteries a while ago; it was before the Spring Statement, so he did not benefit from the zero rate of VAT announced in it. However, keen to get increased benefit from his solar system, he sought advice: should he increase the number of solar panels or the number of batteries? The advice was to install another battery. He followed that advice but was subsequently surprised that his bill included £567 for VAT at 20%.
When he queried this with the supplier, he was told that Solar Energy UK had done some research, discussed this with HMRC and been informed that the Government were clear that retrofit or stand-alone batteries will still be subject to VAT at 20%. This does not really make sense. There should not be a fiscal incentive to install a battery at one time but not at another. The law at present penalises those who do not have the money to install solar technologies and a battery at the same time, which is detrimental to what should be the policy objective of maximising our energy self-sufficiency.
The reason for this is that installing a battery improves the self-consumption ratio of a solar system. This refers to the energy generated which is used on site. For a typical home, installing a battery will at least double the amount of electricity generated by a solar system installed on a roof. This maximises the benefit to the home owner as it means they pay less for their energy bills, and maximises the benefit to the country by allowing electricity generated in the day to be used at night—incidentally, easing the pressure on the national grid in the early evening, which is a peak time.
We should not penalise home owners and occupiers looking to protect themselves from the energy price crisis by adding batteries to their existing home solar systems as a stand-alone item to improve the benefits. Nor should we penalise those who could not afford to do both at the same time. My amendment, which removes VAT from stand-alone batteries, will help people cope with the energy crisis, help generate more energy and help us achieve our zero-carbon goal. I beg to move.
I must counsel the noble Lord, Lord Foster, that he cannot move his amendment at this stage but only when the Committee comes to it sequentially.
My Lords, I support the amendment in the name of the noble Lord, Lord Moylan, which relates to resilience. We are very bad at spending money on resilience. The Treasury hates to spend money on resilience, as I know from my time as a Minister.
Well, yes, it hates to spend money full stop, but especially on resilience. Whether it is the loss of our GPS system and how we would counter that or PNT, there is a whole raft of areas where it is really unwilling to move and spend money even though these things are crucial. In this case, it is extremely important that we have the ability to store gas as we move into the future. I agree totally with the noble Lord, Lord Moylan, that the amount we have to store may vary quite dramatically.
Earlier, the Minister spoke about how we have infrastructure built to bring LNG into this country. We certainly do—I was heavily involved in ensuring that we got the right ships from the North Dome in Qatar to Milford Haven and setting up the infrastructure there. It was meant to provide 15% to 30% of our LNG. That was fine when people were not outbidding us for that LNG. That is the problem now; we cannot guarantee that that LNG will come to us, so we need some form of resilience. I believe that resilience should be our having some gas storage capability.
I have to get a naval thing in. It is interesting that, between the two wars, we forced the Treasury to ensure that our then 850-ship Navy—it is a bit smaller now—had sufficient fuel stored in this country to fight at war rates for six months. Someone in government had calculated it. We have to have a calculation; 25% might be wrong, but there is a requirement for some storage. We need to think very hard and the Government need to come up with a view from their experts on how much that should be. It may dwindle in time, but we certainly need it in the near term as quickly as possible. I very strongly support Amendment 225.
I join the noble Lord in his support for my noble friend Lord Moylan’s Amendment 225. I have been minded to table something similar, so I was delighted when my noble friend was able to fill the gap. I believe that the amendment seeks to address not just resilience but security of supply, and I am delighted that it is in the form of a probing amendment and that we leave open the amount of storage that we seek.
My concern, which we touched on in Oral Questions, is the woeful shortage of gas storage at this time. I understand the reasons why Centrica closed its gas storage, which I understand was in Yorkshire, in 2017. But, as my noble friend Lord Callanan said in response to the Question today, the circumstances then were very different from today. I understand that, currently, the facility could possibly store between 10 and 12 days at full capacity. I understand that talks are ongoing in this regard; what status are they at? If they are successful and Centrica, or indeed another operator, was minded to open or reopen these facilities, what is the optimum number of days of storage? I prefer to talk about this in days of storage rather domestic consumption, but I will leave that to those more expert than me. What is the current capacity for gas storage? Back in March, I understood that Germany had something like 120 days’ storage and we had only a possible maximum of 30, which may even have been an overestimate of the capacity.
What percentage of gas is currently being supplied to this country by interconnectors from Norway and perhaps other suppliers? Also, what is the percentage being delivered by tankers? For the reasons of resilience and security of supply, and given that there are European countries that are more dependent on Russian sources of gas than we are, can we be absolutely sure about the threat that the current supplies to this country through interconnectors and tankers might be diverted to other European countries if the situation in Russia were to deteriorate further? I understand that this is a source of some concern. Germany is one of the countries most dependent on Russia for current gas supply. I understand that it reached its target for days of gas storage ahead of schedule. It has also stored underground just over a fifth of the gas used in the whole of last year, 2021.
Finally, the flip side of gas storage and the potential cap on spending, which we might learn of tomorrow, is trying to encourage all of us to use less of the finite resource of electricity and energy. Could my noble friend shed some light on that? Will we hear more tomorrow?
My Lords, I support Amendment 225 in the names of my noble friend Lord Moylan and others. The noble Lord, Lord Oates, raised some good questions in this area. Gas storage is not only important; it can also be a thing of beauty, as I know from my days watching cricket at the Oval, with its famous gas-holder backdrop. Perhaps it can be revived—I say rather fancifully.
This year’s crisis has shown how vulnerable we are with gas. When I was Energy Minister, I often emphasised the importance of energy security, which was very unfashionable then, as energy was plentiful and prices were low. I used to say that, if I or anyone else in that role became the Minister of Blackouts, it would be terminal in career terms. I would like to understand how much of a risk there is with gas now, and indeed how quickly top-ups could be accessed from the North Sea, if that is another possibility. In any event, I urge my noble friend Lord Callanan to make our gas supply less volatile, increase physical storage if possible and/or encourage allies like the Norwegians to do so as well.
My Lords, I strongly support Amendment 225, which seeks to introduce a requirement to construct gas storage facilities to hold 25% of forecast consumption by 2025. I understand that past Governments have not believed that the country has any particular need for gas storage facilities, given that we have extracted large amounts of gas from the North Sea. I am sceptical that we will find it possible, or indeed necessary, to reduce our reliance on gas as quickly as the Government’s net-zero policy currently requires.
However, the extreme volatility in the price of natural gas on the international markets means that British consumers are much more exposed to massive and rapid price increases than consumers in countries that maintain much more significant gas storage facilities, such as Germany. Even if the Government accelerate the development and commercial deployment of more new nuclear reactors than they have planned so far, we will still need large amounts of reliable energy that is not subject to intermittency. Increasing gas storage facilities as an urgent priority will mitigate the risks we face today, and I hope that the Minister will support this.
My noble friend Lord Moylan explained why he selected 25% as the proportion of forecast demand each year beyond 2025. My noble friend Lady McIntosh suggested that this should be defined in days—I think it would be 91 days at 25%, as an average, but surely we use much more gas in winter than summer. I doubt that our consumption of gas will steadily decline in the years beyond 2025 but, so far as it does, I am not saying that it is not a good thing. If the Government are correct and reduced demand in 2028 or 2030 is realised, storage facilities holding 25% of forecast demand may hold 30% or 35%. I look forward to hearing the Minister’s thoughts on this very useful amendment.
My Lords, I will briefly speak to this group of amendments. It is clear that the resilience of our energy system is absolutely crucial. As recent events have shown, a non-resilient system poses great threats, in both rising costs and vulnerable people suffering.
I will ask about the best approach to delivering the enhancement of gas storage that I think we all agree on. It seems clear to me that, in Clause 10, the Government are considering making an intervention into energy markets to guarantee a certain volume of fuel supply, because of the perceived worry that investment into these sectors is slowing—quite rightly in my view, because they have a limited lifespan. The fossil fuel industry will have to quickly adapt to a rapidly electrifying energy system in which its product will be less needed. So, in time, we will see a diminishing market, in part because of government policy—and that is completely correct, as we move away from polluting forms of energy. But this opens up the risk that there will be a gap between private sector investment and our needs, as we will still rely on these fuels during the transition. It seems to me that the Government have convinced themselves that an intervention on core fuels for transport is necessary for this reason—the fear that a gap will open.
Has a similar analysis been done on the gas market in light of recent events? Would it not therefore make sense to consider some kind of holistic intervention into the market for energy security purposes, rather than a piecemeal, fuel-by-fuel approach? Does that complement, or supplement, the approach of the noble Lord, Lord Moylan, providing some way through this that we can perhaps discuss during Committee and then come back to on Report?
I support Amendment 240, but would the VAT exemption apply to larger systems, like schools and other buildings, or is it just for personal home use? It seems to be sensible to try to level this up so that people can make use of it.
In which case, I am even more supportive, because it is absolutely clear that installing solar panels is a fast way to reduce demand for fossil fuels and to increase resilience. If it can then be stored, even more resilience will be added to the system. So this would seem to be a very sensible amendment, and I thank the noble Lord for his meticulous detail in spotting this.
My Lords, I rise with my European Affairs Committee hat on. I see these as enabling amendments for the storage of energy. The first Parliamentary Partnership Assembly, which took place in May, had a specific session on energy security. The mood was clear: the 70 politicians—35 from Westminster and 35 from the European Parliament—felt that, in a difficult security environment, energy was a European-level matter and that we should think about it as such. Interestingly, I was at a European security conference on Monday and the exact same theme came through. Yesterday, we were settling the agenda for the second Parliamentary Partnership Assembly, and this theme will be on the agenda again.
Many of the speeches and thinking this evening have been from the United Kingdom view of the world. However, we should be enabling ourselves to consider this from a European perspective. As we might be storing gas for others, such as the Germans, anything in these amendments which would allow a future Secretary of State the flexibility to do that would be a good thing from a European context. Therefore, they would be good from a European affairs point of view.
My Lords, in the interests of time, I will comment only on Amendment 240, in the name of the noble Lord, Lord Foster of Bath, and offer strong support for it—alongside some potential improvements or broadening-out suggestions at this stage.
It is interesting that, in 2015, Steve Holliday, the then CEO of National Grid, said that the idea of baseload relying on coal-fired or nuclear power stations was “outdated”:
“From a consumer’s point of view, the solar on the rooftop is going to be the baseload.”
This would obviously need to rely on batteries for it to work 24/7. Mostly since that time, 3.3% of British homes have installed solar panels, but many of them were installed before batteries were a viable option. Those home owners should not pay the high levels of VAT to enhance the system for the benefit of both themselves and the whole of society.
I have later amendments talking about community energy schemes. I can think of numerous ones that I have visited over the years where solar panels were put on cricket pavilions, community halls et cetera. We have been talking mostly about domestic settings, but there are also many community settings in which the addition of batteries may now be a practical option.
We will be talking a lot in later groups about the issue of energy efficiency and improving energy security by reducing our demand. My understanding of the information from the Consumer Protection Association —and I stand to be corrected if I am wrong—is that double, triple and secondary glazing are not currently covered by the VAT concession. It seems to me that this could possibly be included in this amendment; perhaps it is something we can work on.
My Lords, I begin by making it quite clear that my energy storage interests are not around long-term storage or retail storage.
I absolutely support the amendments put forward by my noble friends, but I will not talk about them. Instead, I will follow up on the amendment tabled by the noble Lord, Lord Moylan, and relate it to some of the discussion that took place earlier today in the House around storage, because gas storage is really important at this present time, and it will continue to be in future. I like the way—through a percentage or whatever we use—that we can see a relevant ratchet downwards, as we would expect. However, what alarmed me earlier today was that, in terms of current storage, we appear to be in the hands of independent directors of independent companies that have responsibility to their shareholders under the law, but not to the energy security of the country. That was very clearly stated by the Minister in terms of the decision to turn off the Rough facility in 2017. As I said at the time, if that was the case then, I see no reason why that is not also the case in future; there seemed to be no proposal by the Government to change that situation. I am interested to hear the Minister’s response to that part of my original question.
I will also go back to what the noble Baroness, Lady McIntosh of Pickering, said, because part of the Minster’s earlier answer was that our storage is the gas we have in the North Sea. But we all know that that store is going down, and I certainly would not, from these Benches, resist trying to increase that in the short term during the energy crisis to ensure that our energy is there—the situation would be different in the medium and long terms. That flow is going down and our imports are going up. I do not know if these two years were particularly representative, but the last figures from the Minister’s department said that, in 2020, we imported £5 billion-worth of gas. A year later, that went up to £20 billion-worth of imports of gas—a quadrupling. That was not all because of a price increase at that time, most of which has happened in 2022.
Another statistic reveals that, while we think we have multiple sources, 75% of imports came from one country, which is Norway. Norway is a dependable friend of the United Kingdom; we would not argue otherwise. But we must be clear that Norway’s bigger customer is Germany. Germany and the other European countries which import gas from Norway are probably more desperate—this is likely not the right phrase to use—for that resource than we are. As I said, I very much support the outline of the amendment tabled by the noble Lord, Lord Moylan, and ask the Minister what security we actually have, and for how long, over our supplies—that is, the 75% of imports that we have from Norway. What is our legal entitlement to that flow into the future?
My Lords, the amendments from the noble Lord, Lord Oates, are very welcome and they plug a gap in the Energy Bill. Amendment 50 facilitates the changes proposed by allowing the Secretary of State to
“designate the person to be a counterparty for long duration energy storage revenue support contracts.”
Amendment 51 introduces a new clause which allows the Secretary of State to
“direct a long duration energy storage counterparty to offer to contract with an eligible person”.
Clauses 59, 61 and 63 already allow designation of counterparties for transport and storage, hydrogen production and carbon capture revenue support contracts, and Amendment 50 simply replicates this for long duration energy storage. Similarly, Clauses 60, 62 and 64 already allow the Secretary of State to direct counterparties to offer to contract, and Amendment 51 replicates this for long duration energy storage.
The amendments define long-duration energy storage revenue support contracts as being
“between a long duration energy storage counterparty and the holder of a licence under section 7”
and, as ones
“entered into by a long duration energy storage counterparty in pursuance of a direction given to it under section 60(1).”
This fills a big gap for long-duration energy storage. According to the Government, longer-duration storage—access across days, weeks and months—could help to reduce the cost of meeting net zero by storing excess low-carbon generation for longer periods of time, thereby helping to manage variation in generation, such as extended periods of low wind. This in turn could reduce the amount of fossil-fuel and low-carbon generation that would otherwise be needed to optimise the energy output from renewables.
Long-duration energy storage includes pumped storage as well as a range of innovative new technologies that can store electricity for four hours to supply firm, flexible and fast energy that is valuable for managing high-renewables systems. Introducing long-duration energy storage in large quantities in Britain by 2035 can reduce carbon emissions by 10 megatonnes of CO2 per annum, reduce systems costs by £1.13 billion per annum and reduce reliance on gas by 50 TWh per annum. That seems to me worth consideration in this Bill.
Amendment 225 in the name of the noble Lord, Lord Moylan, which has general support around the House, requires the Government to produce a strategy for the storage of gas for domestic consumption. This would see the construction and operation of gas storage facilities capable of holding 25%, although it could be more—it could be 100%—of forecast domestic consumption each year beyond 2025. While agreeing that UK gas storage is currently small, which may have left us exposed to higher prices and shortages thus far, is it the solution to the long-term energy supply problems that we may face? It may well be that we need an immediate expansion of gas, but whether it is the long-term solution to our energy supply is open to some question. The UK currently stores enough gas to meet demand over four or five winter days, which is clearly not enough. But the new Chancellor said, when he was the Business Secretary, that the answer to mitigating a quadrupling of the gas price in four months was to get more diverse sources of supply, and more diverse sources of electricity, through non-carbon sources. So there is some doubt about the long-term viability of increasing gas storage.
Amendment 240 from the noble Lord, Lord Foster, would establish a new clause to store energy generated by solar panels in the list of energy-saving materials that are subject to zero-rate VAT. He had the example of his friend in the south-west. Modelling from Cornwall Insight’s view of the GB power market out to 2030 has shown that between 2025 and 2030 the Government must spend almost one-fifth of their total energy technologies investment, which includes solar, wind, nuclear and carbon capture and storage, on energy storage batteries, if we are to meet renewable targets and stabilise the energy market. Latest data estimates that almost 10% of grid capacity will be provided by battery storage by 2030, at an estimated cost of £20 billion. So, considering both the need and the cost of this, the amendment seems a sensible proposal to encourage the market to take up some of the burden.
I thank all noble Lords for participating in what has been a fascinating debate on an important subject, very much building on the discussion that we had earlier this afternoon. I shall come on to the issue of gas storage—a popular topic of the day—a bit later.
I start with Amendments 50 and 51, tabled by the noble Lord, Lord Oates. Long-duration energy storage covers a wide range of technologies, and the Government are looking at the need for revenue support for these separately, as they all face different challenges and solve different problems. While I commend the noble Lord’s intentions, I put it to him that these amendments are premature at this stage.
In the case of electricity storage, I reassure the noble Lord that we are committed to developing policy enabling investment for large-scale, long-duration electricity storage by 2024, as we have set out in our response to the call for evidence. As noted by the noble Lord, Lord Oates, we recognise that these technologies face significant barriers to deployment under the current market framework, due to their long build times, the high upfront costs, and the lack of forecastable revenue streams. Similarly, in the case of hydrogen storage, the 2021 UK hydrogen strategy set out our ambitions in this area.
More recently, and in recognition of the important role that hydrogen storage is expected to play in the hydrogen economy, we committed in the 2022 British energy security strategy to design hydrogen transport and storage business models by 2025. Indeed, we published a consultation on these matters in August. It is my contention that adding these clauses to the Bill now would prejudge the outcomes of the policy development which, as I hope noble Lords recognise, is already well under way.
I move on to Amendment 225 from my noble friend Lord Moylan. The intention of this amendment is to expand on the discussion that we had at Oral Questions earlier and to increase gas storage capacity in addition to the 1.5 billion cubic metres of current gas storage capacity that we have in Great Britain, as I informed the House. To this end, my noble friend proposes that the Secretary of State for BEIS produces a strategy within six months of the day the Act is passed.
As my noble friend recognised, it is thanks to our indigenous supply source from the UK continental shelf, currently supplying about 45% of our gas demand, and a number of diverse international supply sources, that the UK is, thankfully, not reliant on gas storage as a source of supply. If I may put it like this, it would be a mistake to conflate greater storage capacity and greater energy security. To respond to the point made by my noble friend Lady McIntosh—I do not know whether she was in the House for Oral Questions earlier—the interconnectors have been helping the continent this year. We have 20% of the entire EU gasification facilities at LNG ports, and we have been using them to help Germany, Italy and others to refill their storage capacity during the winter months. So the interconnectors have been operating as much as they possibly can in the other direction, because the Germans failed to provide enough LNG capacity for themselves. So, given that we co-operate with them on this, we would hope that that co-operation would be reciprocated in response to any peak demand over the winter.
However, as the noble Lord, Lord Teverson, intimated without saying it directly, desperate situations sometimes cause desperate measures, as we saw during the vaccine crisis and the pandemic. We have legal and robust contracts with Norway, which is a trusted and valued supporter of ours, but we are not complacent about any potential risks. We keep these matters under careful consideration. I would say that at least a good proportion of the Norwegian output is portrayed directly via British infrastructure, and there is no option to go anywhere else. It does not apply to all Norway’s sales, but a good proportion come directly to the UK, and there are no connecting pipelines back to the continent except through the United Kingdom. I hope that that reassures the noble Lord slightly—but he is right to raise these matters and we do keep them under constant review.
Our current approach is agile and offers flexibility to the gas market when other sources are more expensive or not available. It can help to balance the effect of price volatility, allowing shippers—gas traders—to utilise market opportunities throughout the year. So the Government recognise the need to have some natural gas storage facilities in place as a source of balancing system flexibility when demand for gas is high—and also, of course, and crucially, allowing potentially for the future storage of hydrogen. Given the current situation in the international gas market, it is sensible that all possible options are considered to maintain security of gas supply, which includes the future of gas storage if required.
I understand that the Committee wants to push me further on the issue of the rough storage facility. Centrica has taken a decision and has applied for the consents to enable it to at least partially reopen the site for this winter. It has submitted a proposal for our consideration, which we are looking at. I can go no further than that at the moment, but I assure the Committee that when we have further news on this, I shall make sure that noble Lords are informed at the earliest possible moment.
As I said at OQs this afternoon, licences have been granted by Ofgem, by the regulatory bodies, because the safety and security of the facility is important. Centrica has taken a commercial decision to open part of the storage facility for this winter, and it has submitted other plans for our consideration, which we are doing. I apologise to the noble Lord, but I can go no further than that at the moment. As soon I have further information, and we expect progress in the near future, I will inform the noble Lord and the rest of the Committee.
I will leave that as a comment; there is nothing I can reply to on it. When I have further information, I will update the Committee.
The commitment proposed by my noble friend Lord Moylan to have in storage gas equivalent to 25% of forecast domestic consumption by 2025 is extremely ambitious. It is also horrendously expensive to do and, I submit to the Committee, unnecessary. The Government fully recognise the importance of gas storage, as I said, and officials continue to work on the future role that it can play in the clean energy landscape, particularly as gas production, as a number of noble Lords have said, can start to decline. But, of course, the fact that we get 45% of our production from our own continental shelf is, in effect, a giant gas storage facility and that is why we have traditionally had much less than continental countries which do not have those advantages. There is an integrated market—that is correct—and both sides benefit from it. As I said, the interconnectors over this year have been operating massively in the direction of the rest of continental Europe from the UK.
I think I have answered all the questions that were raised about gas storage facilities.
When my noble friend says “tankers”, I take it she means LNG tankers. I forget the exact figure, but we get 45% from our own domestic capacity and about 3% to 4% through interconnectors, so I guess the rest will be made up from LNG shipments. We have three LNG gasification terminals in the UK. Those figures are off the top of my head; I will correct them if they are not right.
Turning to the amendment in the name of the noble Lord, Lord Foster, I am sure he expects the reply that he is going to get. As he will be well aware, changes to tax policy are considered as part of the Budget process. As Treasury officials are always very keen to tell me whenever I put forward such proposals, they have lots of proposals from people for exemptions from various taxes but not many proposals for how to make up the revenue that would be lost from them. I am sure that the Chancellor will want to take that fully into consideration in the context of the Government’s wider fiscal position. I fully take on board the points that the noble Lord made. The Government keep all taxes under review and always, the Treasury tells me, welcome representations to help inform future decisions on tax policy.
In case there are any Treasury officials listening or, indeed, reading Hansard, I suggest that one form of new tax would be on the trading of fossil fuel commodities. This is a huge source of revenue to the suppliers of fossil fuels into the market, and the commodity trading markets is a very good place to look for taxation revenue.
I thank the noble Baroness for her suggestion. The Treasury is not normally shy in coming forward with proposals for extra taxes if it thinks it can get away with it. Of course, we have already imposed the excess profits levy on a number of producers in the UK; indeed, those producers already pay increased rates of corporation tax. We must be careful that we do not disincentivise investment. Putting aside the wider politics of it, which we all understand, I am sure that everybody is aware that we need tens of billions of pounds of investment into existing oil and gas facilities. I welcome the support of the noble Lord, Lord Teverson, for the continued production of UK gas; it is an important transition fuel and I hope he will manage to convince some of his Liberal Democrat colleagues to support us in this. We do need gas in the short term, but many of those same companies are investing many billions of pounds also in offshore wind and other renewable energy infrastructure, so we want to be careful not to disincentive them too much from that. I am sure the Treasury will want to take into account all these helpful considerations as to how it can increase its tax base.
In conclusion, I am grateful to noble Lords for their amendments on these topics. I hope I have been able to provide at least some reassurance to some people on their amendments and that they will therefore feel able not to press them.
I thank the Minister for his reply. On the tax treatment of batteries for solar power, I heard the Prime Minister at Prime Minister’s Questions today say on a number of occasions, “What I am about is cutting tax”, so perhaps he could suggest to her that this is one of the first tax cuts she could make.
On long-duration storage, the Minister made the point that there is a wide range of technologies, some of which are innovative, and the Government need to consider them. As I said in moving my amendment, that is acknowledged, but there are some that are not innovative: they are proven and effective and we need to get on with them. I hope the Minister can find a way of addressing this, because we will come back to it. The Government need to find a way, whether it is through specific pathfinder pilots or whatever it is, to get on with some of the things that need to happen now. The Minister said that it was premature at this stage to come forward with this stuff. If he talked to the project managers of Coire Glas, I think they would tell him it is not premature at all; in fact, it is desperately needed. They have a project ready to go, but they have no revenue model. We know we need it, the Government acknowledge in their consultation on long-duration storage that we need to massively ramp this up, so we really need to get on with it. I am afraid the Minister did not really address that.
I have one final question for the Minister. He said we will have the solution “by 2024”. Can he confirm that that means we will have the revenue models by 1 January 2024? There is a big difference between “by 2024” and during 2024. The industry is very worried that, when it has pressed the department on this, it has been given no assurance that it actually means “by 2024” and that it could be by the end of 2024. Can the Minister clarify that, in writing perhaps, to me and other Members of the Committee? These are critical things. We just have to get on with doing the things that we know how to do. There are lots of things that we do not know how to do. I beg leave to withdraw my amendment.
Amendment 50 withdrawn.
Amendment 51 not moved.
Clause 65 agreed.
Clause 66: Obligations of relevant market participants
52: Clause 66, page 58, line 4, leave out “relevant market participants (see subsection (8))” and insert “the Consolidated Fund or gas shippers”
Member’s explanatory statement
This amendment means the Secretary of State may put a levy on gas shippers, but may not put it on gas or electricity suppliers, thus taking responsibility away from levies to households.
I shall speak also to Amendments 54 and 62, tabled in my name and that of my noble friend Lord Lennie. Clauses 66 and 67 set out a series of powers to raise a levy or levies to fund the hydrogen business model. Detailed design of these will be subject to further consultation, which I hope and assume will take place thoroughly and may indeed reach similar conclusions to those put forward in this group of amendments.
We know that this could be done through payment to a hydrogen levy administrator, paid by counterparties of hydrogen production primarily, as well as those of carbon dioxide transport and storage in cases where shortfalls in licensees’ allowed revenue are caused by low-carbon hydrogen producers. Subsection (2) also allows for payments to the administrator for the purpose of meeting other costs. These payments, as written, can be taken from “relevant market participants”, which are defined in subsection (8) as gas suppliers, electricity suppliers and gas shippers.
This is where our Amendments 52 and 54, and others in this group, seek to make changes. These amendments mean that the Secretary of State can put a levy on gas shippers, but cannot put one on gas or electricity suppliers, thus preventing responsibility for the levies falling on households. As per Clause 66, relevant market participants can be required to pay levies via revenue support regulations. This amendment quite simply means that levies are to be put on shippers rather than suppliers, making it more difficult for these costs to be passed directly to households and therefore limiting the impact on bills. I am aware that the emphasis in these amendments is on pricing and protecting the consumer. Surely, in the current climate we need to make sure we take every opportunity to make affordability one of our primary considerations. I support the need to protect the environment, as highlighted in the amendments tabled by the noble Baroness, Lady Worthington, which is a very important consideration.
Where shippers have above what is in reserve provision, Amendment 62 guarantees that the difference should be restored directly to customers from shippers, in contrast to how the LCCC works with retailers and customers at present. Under circumstances where sums are apportioned under Clause 76, held by the counterparty, the amendment ensures that any leftover money goes directly back to energy supply customers—the people who supplied them in the first place—rather than being held back.
I look forward very much to the discussion on the amendments laid by the noble Lord, Lord Teverson, and the noble Baroness, Lady Worthington. I believe this is an area where the Minister could signify a willingness to move, given that our priority, as I have said, must be to work in any way possible to reduce the impact on the bills of people who are under such enormous stress and strain at the moment. I beg to move.
My Lords, I will speak to Amendments 55, 56 and 57 to Clause 66, which are in my name. As has been eloquently expressed by the noble Baroness, Lady Blake of Leeds, we absolutely need to put at the forefront of our attention the need to minimise adding costs to consumers at this time. Please excuse my coarse language, but it feels to me that the Government are in danger of moving from “cutting the green crap” to forcing us to take on crap green. That is essentially what we are doing here.
It is an adding of potentially unlimited expense for a commodity which will play a role—I am not completely against the use of hydrogen for certain applications—but the idea that it will be used at scale for homes is completely ludicrous. It is therefore absolutely right that we limit the levy to the people who will benefit from its use. That will not be consumers and certainly not electricity bills. What we want is cheaper electricity. I am confident that electricity will soften as we get off fossil fuels and rely more on more predictable and stable forms of electricity generation, such as nuclear, offshore wind and a whole panoply of ways of making electricity that we can control more easily than relying on imported gas. Those costs will soften, and we want to keep them cheap because that will enable us to electrify whole other segments of the economy.
So I absolutely support limiting this levy to gas, whether that is by saying it should be gas shippers or removing the reference to electricity, as my Amendment 55 does—I am completely agnostic on that, but the issue is fundamental. I will quote from a briefing that some of us may have received from E.ON, a big provider of energy which quite cleverly split itself into a clean electricity part and a not-so-clean one. The clean part says clearly that “recovering the costs of these new technologies through electricity bills is regressive and difficult to justify considering the soaring cost of living and the potential benefits of these technologies to individual consumers are uncertain. It is damaging that the Bill allows the Government to recover the costs of hydrogen revenue through electricity suppliers and, therefore, electricity consumers.” I fully support that and I have to say that my amendment was tabled before I read the briefing.
I considered striking out the whole levy with a clause stand part debate, but I thought that might be more the approach of the noble Baroness, Lady Bennett, so in Amendment 56 I am simply saying that there should be a sunrise to delay us rushing into adding more costs. The amendment proposes that the regulations should not be brought in until 6 April 2026. Amendment 57 simply states that a financial impact assessment must be made available if and when this levy starts to be added to bills.
My guess is that the use of hydrogen will be limited. It will be very expensive and it is very inefficient, so the costs should not and will not be borne in time. But I am worried that in this Bill we seem to be diverting towards a distraction and risking an illogical transition which will slow us down and add costs unnecessarily. That is damaging to the net-zero cause and to people’s confidence in this transition. We should therefore be very circumspect on this levy provision; we should be narrowing its application and slowing it down. I hope that the Government will consider this, because I am sure they have read the science and understand the physics as well as everybody else. It really ought to be limited.
My Lords, I think we are all trying to achieve the same thing here. As the noble Baroness, Lady Blake, said, maybe we need to take this forward as a way to do it. The cost to consumers is absolutely central at the moment, and this is not a short-term thing—it is at least medium term. Later we will come to an amendment which says we should repeal the Nuclear Energy (Financing) Act, which was all about raising costs to consumers in the short term and has nothing to do with nuclear power otherwise.
In my amendment, I am trying to do something very similar to what has already been debated: if we are going to accept this levy—we know levies are always very contentious when implemented in terms of who has to pay for them and who gets the benefits from them, which leads to a lot of argument—it is quite clear that for hydrogen there is only a very limited sector of organisations, people and population who will actually benefit from it. In its own way, my amendment seeks to prevent other consumers who are not benefiting from hydrogen having to pay for that investment.
It is very much in line with other Members’ amendments and it is absolutely fundamental to the messages that we as a Parliament, and the Government, are putting out at the moment to consumers and company users of energy. Let us make sure that, if we have this levy, it is kept to those who benefit from hydrogen rather than those outside who do not.
I thank the noble Lords, Lord Lennie and Lord Teverson, and the noble Baronesses, Lady Worthington and Lady Blake, for their amendments relating to the hydrogen levy provision. Before turning to the amendments, let me make the general point that these provisions in the Energy Bill will not, as all noble Lords are aware, immediately introduce this levy; they will only enable government to introduce the levy later through secondary legislation.
I will start with Amendments 52, 54 and 62 in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. Amendments 52 and 54 seek to limit the energy market participants that could be obliged to pay any future hydrogen levy to gas shippers only. The Government intend that the levy would initially be placed on energy suppliers, and it will operate in a similar way to the existing levy schemes, where revenue support is funded through energy supplier obligations, such as the supplier obligation that funds the current contracts for difference regime. That is because these funding mechanisms are well understood by the private sector and have been extremely successful. The Government consider that establishing a similar levy would provide investors and developers with confidence to invest in low-carbon hydrogen production projects.
The option to levy gas shippers has been included with the intention to allow for a greater range of options for future levy design. The Government anticipate that the costs of any future levy on gas shippers would be passed through the energy supply chain and ultimately on to energy users, in a similar way to existing supplier obligations. It is unlikely therefore that these amendments would have the effect of preventing costs associated with the levy being passed on to households.
I turn to Amendment 62, which seeks to guarantee the return of overpayments of the levy to energy customers. The Government’s intention, and our expectation, would be that, in the event of overpayment by relevant market participants, those sums would be returned to market participants, who in turn should then pass them on to their customers.
Amendment 53, tabled by the noble Lord, Lord Teverson, seeks to ensure than an obligation to pay a hydrogen levy would, where possible, be placed only on those who would directly benefit from the low-carbon hydrogen production funded by the levy. Low-carbon hydrogen could support decarbonisation across the economy, which could benefit gas and electricity customers generally.
The powers that we have in the Bill provide options for where a hydrogen levy might be placed in the energy value chain, enabling future regulations to make provisions requiring one or more descriptions of gas suppliers, electricity suppliers and/or gas shippers to pay the levy. The Government have not yet reached a decision regarding which types of market participants will be obliged to pay the levy. That decision will be taken in due course and will no doubt be discussed in our Lordships’ House during the course of the secondary legislation that would be required to implement it. The decision will take into account a wide range of considerations, including but not limited to considerations related to fairness, which I know are the focus of the amendments tabled by the noble Lords. Given the Government’s approach to policy development on this levy, I hope that noble Lords recognise the amendment is unnecessary.
I turn to Amendments 55, 56 and 57, tabled by the noble Baroness, Lady Worthington. Amendment 55 seeks to ensure that an obligation to pay a hydrogen levy administrator could not be placed on electricity suppliers. I would contend that it is crucial that the provisions in the Bill allow for a range of options for where the levy might be placed to help enable the Government to future-proof the levy over the longer term and accommodate changes to the wider energy market.
As I alluded to earlier, we expect low-carbon hydrogen to play an important role in decarbonising the electricity sector. This provides support to the case for including electricity suppliers as a possible point of obligation for the levy. I understand the concern expressed by the noble Baroness and, if she will allow me, I will take this away and possibly revisit it at Report, but I hope she will not press her amendment.
I am grateful for the Minister’s response. I have no doubt that hydrogen will have a role to play, but it is more likely to go into fertiliser production or long-distance fuels for shipping and aviation. The provisions being taken here do not allow for it to be applied to the sectors that consume fossil fuels—gas obviously covers fertilised gas. This needs to be thought through in relation to where hydrogen will most likely be needed. It will play a tiny role in decarbonising electricity, if at all, because there are so many other ways of doing it more cheaply and more efficiently.
I understand the point made by the noble Baroness. I have also seen the models of where it is most likely that hydrogen would be used, and I have considerable sympathy for many of the points that she made. As to the where it will be used, it will clearly be in industrial processes and heavy-goods transportation. These would be more likely uses than home heating or decarbonisation, but it would possibly play a role. Nevertheless, as I said, I have taken note of what has been said in the Committee and understand the points that have been made. If the noble Baroness allows me, I will take them away to look at, and possibly revisit them at Report.
Amendment 56 seeks to impose restrictions on when the hydrogen levy can be introduced to fund the hydrogen business model. This will help to unlock potentially billions of pounds worth of investment in hydrogen that we need across the UK. The Government are committed to ensuring that long-term funding is provided through the hydrogen business model, and the provisions in the Bill do not require the Government to introduce the levy by a particular date. We do not expect the levy to be introduced any time before 2025, and so we do not expect it to have any impact on consumer bills before then, at the earliest. Decisions regarding when to introduce the levy will take into account wider government policies and priorities, including considerations related to energy bill affordability, which is always at the forefront of our considerations.
The first set of regulations under Clause 66, establishing the levy, will also be subject to the affirmative resolution procedure, so we would fully expect Parliament to exercise its role, and particularly your Lordships’ House to scrutinise how the Government intend to exercise those powers.
Amendment 56 would, in my view, introduce restrictions that are unnecessary, given the Government’s approach to decisions related to when to introduce the levy and the parliamentary scrutiny requirements that would be associated with any relevant secondary legislation.
Amendment 57 seeks to protect consumers by introducing a requirement for the Secretary of State to publish a specific consumer impact report before making regulations under Clause 66, establishing a hydrogen levy. As I mentioned, the parliamentary procedure for the first set of regulations that establish the levy will help ensure that the levy receives sufficient scrutiny from Parliament. Crucially, I can tell the Committee that it is already the Government’s intention to publish an impact assessment alongside the draft regulations made under Clause 66. I hope noble Lords will recognise that the amendment is unnecessary and feel able to not press their amendments.
I thank the noble Lord for his comments and welcome, as we all do, the commitment to revisit one of the amendments from the noble Baroness, Lady Worthington. We look forward with interest to that. However, on some of the other aspects, there will be conversations between now and Report, and I am fairly confident that we will come back to discuss what is, in our view, a really important area. With those comments, I beg leave to withdraw the amendment.
Amendment 52 withdrawn.
Amendments 53 to 57 not moved.
Clause 66 agreed.
Clauses 67 to 69 agreed.
Clause 70: Allocation notifications
Amendment 58 not moved.
Clause 70 agreed.
Clause 71 agreed.
Clause 72: Duty to offer to contract following allocation
59: Clause 72, page 63, line 36, leave out from second “counterparty” to end of line 38 and insert “and the eligible low carbon hydrogen producer specified in the notification must, in accordance with provision made by revenue support regulations, contract on—”
Member's explanatory statement
This amendment makes the signing of a revenue support contract or contract for difference (CFD) mandatory for a firm which has successfully bid for it.
I shall move Amendment 59 and speak to Amendments 60 and 61, in my name and that of the noble Lord, Lord Howell of Guildford, who sends his apologies. He had a diary clash, but assures me that he is fully supportive of this discussion. In fact, he informed he that he was around when the very first CfDs were used as private contracts, a long time ago, and is very keen that they remain a trusted and respected form of investment, hence he was keen to lend his name.
These are obviously probing amendments, designed to start a discussion about the need to preserve integrity in the CfD mechanism. The UK deserves huge credit for having introduced this mechanism, which is seen as investable and a dependable way of getting large investment into decarbonised infrastructure—something we all need.
It is regrettable that there is now a set of circumstances whereby contracts, once awarded, are not being taken up. The reason they are not being taken up is that market prices are currently so high that if you took on your contract for difference, you would be required to pay back into the fund anything above your strike price. Some of these contracts have been awarded at around £55, £59 or £60 per megawatt hour—market prices are way above that—so people are choosing not to take up the contract and to delay.
Now, I am aware of three wind farms that have currently delayed this for these reasons. It makes perfect sense for them: they are representing shareholder value and possibly could not do otherwise, because of the existence of a loophole, which is that there is no requirement to take up the contract once it is awarded. What we want to try to do is close that loophole and, if possible, do something about it in the current time. Amendments 59, 60 and 61 all seek to do that.
It is important to note that these three wind farms—I do not want to overblow this; it is not everybody—are all in foreign ownership. Ørsted, RWE and EDP Renewables in Spain own these sites. It is public money that they are essentially not giving back, having got this contract. It feels very wrong, at the time of a cost of living crisis, when we need every penny, for hundreds of millions of pounds to be lost to these companies and their shareholders as a result of this loophole in how the contracts are drafted and can then be delayed.
I am sure that the Government are working hard to try to address this too. It strikes me that we have an Energy Bill and can therefore get this right for future contracts, but if we can also do something about current contracts, that would be enormously beneficial. I thank Carbon Brief for helping me understand how many wind farms are involved in this: they are Hornsea Two, Triton Knoll and Moray East, I am told by an article in the Times, just to get that on the record in Hansard. If the Government know differently, and if they can tell us exactly the extent of the problem, that would be super helpful, because we have not been able to find it from official sources. This is, as I say, from research by Carbon Brief. If the noble Lord, Lord Howell, were here, I am sure he would say how keen he is for this to be resolved. I look forward to the Minister’s response.
The history of contracts for difference is longer than I thought; I thank the noble Baroness for mentioning that. They became a big thing in the last Energy Act during the coalition Government and have been amazingly successful. I have to admit that I did not realise that this issue was quite so significant, but it is interesting that, given the financial investment required for offshore wind farms and the time they often take to implement and build, this is a case where the risk goes up for the financial investor, as opposed to a low-risk contract for difference. I am therefore also interested to understand from the Minister whether these businesses are just delaying until they see the lay of the land and whether they still have those options, because there is that risk-reward ratio.
I very much support the intention of this amendment, but the energy industry has also talked about contracts for difference being a way forward even in the fossil fuel industry, and a way that we could decouple power prices from gas prices. It may be that the Government are not doing anything in that area, but I am interested to understand whether that is something the department is investigating as a way forward on that decoupling.
Contracts for difference are a fantastic invention. As the Minister said, at the moment they are bringing good money back into the public sector—technically into the counterparty company, but effectively into the public finances. I very much support the motivation of this amendment.
My Lords, we are also very supportive of contracts for difference and of this attempt to ensure that contracts entered into are adhered to. I was not quite sure whether the noble Baroness, Lady Worthington, had the total number of these failures to enter the contracts, other than the three she cited, which is probably enough. Maybe the Minister could help with that if she does not have that information.
The only thing that concerns me is that, although I cannot think of what it could be, there might be some reasonable exemption for not signing up. However, apart from that, it seems to me entirely sensible to tighten this obligation.
I thank the noble Baroness, Lady Worthington, and the noble Lord, Lord Howell, for their amendments. I say at the outset that the CfD model will remain an important tool in the armoury of financing options to encourage investment in green energy, although I understand that the point of these amendments is to preserve its integrity.
Amendment 61 seeks to make the signing of a contract for difference—known as a CfD—mandatory for a renewable electricity project that has successfully bid for one in a competitive CfD allocation round. I point out, however, that the Energy Act 2013 already contains, in Section 14(2)(d), powers very similar in effect to the amendment. Section 14(1) of the 2013 Act provides for a CfD counterparty, acting in accordance with provisions made by regulations, to offer to contract with an eligible CfD generator. Section 14(2) of the Act allows for regulations to be made that make further provision about an offer to contract, including, at Section 14(2)(d), provision about what is to happen if the eligible generator does not enter into a CfD as a result of a contract offer. Successful applicants for a renewable electricity CfD are expected to enter into a contract with the Low Carbon Contracts Company if offered one following a CfD auction. Those who do not are excluded under Regulation 14 of the Contracts for Difference (Allocation) Regulations 2014, as amended, from submitting an application at the same site for a specified number of future CfD allocation rounds—an “excluded site”. The 2014 regulations were made under the powers in Section 14 of the Energy Act 2013.
The purpose of this exclusion mechanism—commonly referred to as the non-delivery disincentive, or NDD—is to deter speculative bids and incentivise successful CfD applicants to sign contracts and deliver operational renewable power stations within a set timeframe. The NDD has been very effective in discouraging non-compliance across the four CfD allocation rounds held to date between 2015 and 2022. I am informed that only three small projects, totalling 41 megawatts, have refused to sign a CfD contract, out of the 26.6 gigawatts of capacity that has so far been awarded. I am afraid I do not have a specific answer on the three wind farms that the noble Baroness mentioned. If I can get further details, again, I shall put that in writing for the Committee.
The 2014 regulations were amended as recently as this July to extend the exclusion period so that an application cannot be made in respect of an excluded site in the subsequent two applicable allocation rounds, strengthening the previous policy of excluding a site from only one subsequent allocation round. I draw the attention of the Committee to the Contracts for Difference (Allocation) and Electricity Market Reform (General) (Amendment) Regulations 2022.
We have already announced that we will move to annual CfD auctions, bringing forward the next round to March 2023. The Government therefore believe that the current legal provisions that exclude non-compliant applicants are proportionate and effective, and do not require further strengthening.
In law, the Government have the power to use them. I am afraid I am not able to comment on what action we might take on the three specific cases which the noble Baroness, Lady Worthington, mentioned, but as I said, I will take that back to the department and write to noble Lords to set out whatever action is being proposed.
My briefing suggests that only three small projects totalling 41 megawatts have refused to sign a CfD contract, but that does not sound like a big enough totality to incorporate three large wind farms. I am afraid I do not have any further details on that at this moment.
Amendments 59 and 60 similarly seek to make the signing of a revenue support contract mandatory for a firm which has successfully bid for it through an allocation process put in place under Clauses 68 to 74. Clause 72 provides for a hydrogen production counterparty and carbon capture counterparty, acting in accordance with provision made by regulations, to offer to contract with an eligible low-carbon hydrogen producer or eligible carbon capture entity respectively in specified circumstances. Clause 72(3) provides the Secretary of State with a power to make further provision in regulations about an offer to contract made under this clause. Subsection 3(d) sets out that this may include provision about
“what is to happen if the eligible low carbon hydrogen producer or eligible carbon capture entity does not enter into such a contract as a result of the offer.”
As I have explained, a similar power in the Energy Act 2013 has been exercised to introduce the non-delivery disincentive for the CfD regime, which has been very effective in discouraging non-compliance across the four CfD allocation rounds.
We are considering how to evolve our approach towards more competitive allocation processes under Clauses 68 to 74 for the industrial carbon capture business models. Work is under way to develop the possible design of a more competitive allocation process for the hydrogen business model, including the offer to contract process. I therefore ask the noble Baroness and the noble Lord not to press Amendments 59 and 60, but again thank them for helping to test the robustness of the Government’s decarbonisation ambitions.
I hope I have been able to reassure noble Lords and that, with the offer to write with further details on the wind farms, they feel able to withdraw their amendment.
I thank the Minister for her reply. I have not been clear enough; it is entirely my fault. These are not non-delivery instances. These are instances in which a wind farm is completed, has a CfD and then delays the actual mechanic of the strike price by a certain number of months or years. In doing so, they are ensuring that they can sell at merchant value now and then take up the strike price when the prices fall. Essentially, they have de-risked completely, so that we are carrying all the downside risk and they are taking all the upside risk. That is not how a CfD works. Three of them are doing this, so my fear is that this has almost become quite a clever standard practice. If it persists, this is hundreds of millions of pounds that could be coming back. It completely undermines the integrity of the whole process. So it is not the non-delivery or refusal to sign—I understand that all those provisions are there—it is the delaying out. There is nothing government or the LCCC can use to compel them to take it up at the point of signing. It is on that that I would love to receive a note.
We are obviously going to come back to this. It is all in the interests of getting value for money, keeping up the reputation of this sector and making it as full of integrity as we can. I will withdraw the amendment, but I look forward to continuing the conversation.
Amendment 59 withdrawn.
Amendments 60 and 61 not moved.
Clause 72 agreed.
Clauses 73 to 75 agreed.
Clause 76: Application of sums held by a revenue support counterparty
Amendment 62 not moved.
Clauses 76 and 77 agreed.
63: After Clause 77, insert the following new Clause—
Enforcement(1) Revenue support regulations may make provision—(a) for requirements imposed under the regulations on—(i) a gas supplier who holds a licence under section 7A(1) of the Gas Act 1986, or(ii) a person who holds a licence under section 7A(2) of that Act (gas shipper),to be enforceable by the Gas and Electricity Markets Authority as if they were relevant requirements within the meaning of sections 28 to 30O of that Act;(b) for requirements imposed under the regulations on an electricity supplier who holds a licence under section 6(1)(d) of the Electricity Act 1989 to be enforceable by the Gas and Electricity Markets Authority as if they were relevant requirements within the meaning of Part 1 of that Act;(c) for requirements imposed under the regulations on—(i) an electricity supplier who holds a licence under Article 10(1)(c) of the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231 (N.I. 1)), or(ii) a gas supplier who holds a licence under Article 8(1)(c) of the Gas (Northern Ireland) Order 1996 (S.I. 1996/275 (N.I. 2)),to be enforceable by the Northern Ireland Authority for Utility Regulation as if they were relevant requirements within the meaning of Part 6 of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I. 6)).(2) References in subsection (1) to enforcement include enforcement under the terms of a licence mentioned in any of paragraphs (a) to (c) of that subsection.”Member's explanatory statement
This amendment enables revenue support regulations to make provision about the enforcement of requirements imposed by the regulations.
Amendment 63 agreed.
Clause 78 agreed.
Clause 79: Transfer schemes
Amendment 64 not moved.
Clause 79 agreed.
Clauses 80 and 81 agreed.
65: After Clause 81, insert the following new Clause—
Modifications of licences etc
(1) The Secretary of State may modify—
(a) a condition of a particular licence under section 6(1)(b) of the Electricity Act 1989 (transmission licences);
(b) the standard conditions incorporated in licences under section 6(1)(b) of the Electricity Act 1989 by virtue of section 8A of that Act;
(c) a document maintained in accordance with the conditions of licences under section 6(1)(b) of the Electricity Act 1989, or an agreement that gives effect to a document so maintained.
(2) The Secretary of State may modify—
(a) a condition of a particular licence under section 7 of the Gas Act 1986 (licensing of gas transporters);
(b) the standard conditions incorporated in licences under section 7 of the Gas Act 1986 by virtue of section 8 of that Act;
(c) a document maintained in accordance with the conditions of licences under section 7 of the Gas Act 1986, or an agreement that gives effect to a document so maintained.
(3) The Secretary of State may modify—
(a) a condition of a particular licence under Article 10(1)(b), (bb) or (d) of the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231 (N.I. 1)) (transmission, distribution or SEM operator licences);
(b) the standard conditions of licences under Article 10(1)(b), (bb) or (d) of that Order;
(c) a document maintained in accordance with the conditions of licences under Article 10(1)(b), (bb) or (d) of that Order, or an agreement that gives effect to a document so maintained.
(4) The Secretary of State may modify—
(a) a condition of a particular licence under Article 8(1)(a) of the Gas (Northern Ireland) Order 1996 (S.I. 1996/275 (N.I. 2)) (licences to convey gas);
(b) the standard conditions of licences under Article 8(1)(a) of that Order;
(c) a document maintained in accordance with the conditions of licences under Article 8(1)(a) of that Order, or an agreement that gives effect to a document so maintained.
(5) The powers conferred by subsections (1) to (4) may be exercised only for the purpose of facilitating or supporting enforcement of, and administration in connection with, obligations under regulations within section 66 (including facilitation and support by way of allowing or requiring the provision of services).
(6) Provision included in a licence, or in a document or agreement relating to licences, by virtue of any power under subsections (1) to (4) may in particular include provision of a kind that may be included in revenue support regulations.
(7) If under subsection (1) or (2) the Secretary of State makes modifications of the standard conditions of a licence, the GEMA must—
(a) make the same modification of those standard conditions for the purposes of their incorporation in licences of that type granted after that time, and
(b) publish the modification.
(8) If under subsection (3) or (4) the Secretary of State makes modifications of the standard conditions of a licence, the Northern Ireland Authority for Utility Regulation must—
(a) make the same modification of those standard conditions for the purposes of their incorporation in licences of that type granted after that time, and
(b) publish the modification.
(9) Before making a modification under this section, the Secretary of State must consult—
(a) the holder of any licence being modified, and
(b) such other persons as the Secretary of State considers it appropriate to consult.
(10) Subsection (9) may be satisfied by consultation before, as well as by consultation after, the passing of this Act.
Member’s explanatory statement
This new clause and new clause (Section (Modifications of licences etc): supplementary) confer power to modify certain licence conditions, industry codes etc for purposes related to the enforcement of the hydrogen levy.
My Lords, in moving Amendment 65 I shall speak also to Amendments 66, 147, 149 and 190 standing in my name. These amendments will allow the Secretary of State to modify the licences of certain gas and electricity market participants in Great Britain and Northern Ireland. They will also allow the Secretary of State to modify documents maintained in accordance with these licences, such as industry codes, or agreements that give effect to such documents. The Secretary of State will be able to make such modifications only for the purpose of facilitating or supporting enforcement of, and administration in connection with, hydrogen levy obligations.
As I have said, decisions on the detailed design of the levy are pending. However, it is likely that persons other than the levy administrator will need to perform functions, provide services, and/or provide information and advice that support and facilitate the administration and enforcement of the levy. This power is required in order that the Secretary of State can modify relevant licences and codes to support and facilitate the administration and enforcement of the levy. In particular, it is required so that the Secretary of State may make modifications to support or facilitate persons who are parties to relevant industry codes to take on roles related to the levy’s administration and enforcement.
I can tell the Committee that there is precedent for this type of provision, with similar powers contained in the Energy Act 2013 and the recent Nuclear Energy (Financing) Act 2022. Provisions in the Energy Act 2013 were used to make licence and code modifications in relation to the contracts for difference regime. This power will help future-proof the levy, enabling the Secretary of State to implement licence or code modifications in order to accommodate any future changes to the levy design.
I can reassure your Lordships that these amendments of course include a requirement for the Secretary of State to consult the holder of any licence being modified and such other persons as the Secretary of State considers it appropriate to consult before making any modification. This will help ensure that relevant bodies are engaged in any potential modifications.
In addition, before making modifications under this power, the Secretary of State must lay a draft of the modifications before Parliament, where they will be subject to a procedure analogous to the draft negative resolution procedure used for statutory instruments. This also allows for additional scrutiny for any proposed modifications under this power. I beg to move.
Briefly, I thank the Minister for that explanation. I am sure, looking back at comments made earlier this afternoon, that the team opposite cannot be happy with the number of government amendments that are coming through on the Bill at this stage—I hope that will be taken up on a serious note on this and other Bills that have come forward.
The only slight question I have is that we talk about consultation as though everyone understands exactly how it happens and everyone is happy with the way it is done. Is it possible to be slightly more specific about who else might be consulted apart from the owner of the licence? I would also like some reassurance around the openness and transparency of a process to make sure that all parties are aware of any changes made in the future.
Amendment 65 agreed.
66: After Clause 81, insert the following new Clause—
“Section (Modifications of licences etc): supplementary(1) In this section “relevant power” means a power conferred by any of subsections (1) to (4) of section (Modifications of licences etc).(2) Before making modifications under a relevant power, the Secretary of State must lay a draft of the modifications before Parliament.(3) If, within the 40-day period, either House of Parliament resolves not to approve the draft, the Secretary of State may not take any further steps in relation to the proposed modifications.(4) If no such resolution is made within that period, the Secretary of State may make the modifications in the form of the draft.(5) Subsection (3) does not prevent a new draft of proposed modifications being laid before Parliament.(6) In this section “40-day period”, in relation to a draft of proposed modifications, means the period of 40 days beginning with the day on which the draft is laid before Parliament (or, if it is not laid before each House of Parliament on the same day, the later of the 2 days on which it is laid).(7) For the purposes of calculating the 40-day period, no account is to be taken of any period during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than 4 days.(8) A relevant power—(a) may be exercised generally, only in relation to specified cases or subject to exceptions (including provision for a case to be excepted only so long as specified conditions are satisfied);(b) may be exercised differently in different cases or circumstances;(c) includes a power to make incidental, supplementary, consequential or transitional modifications.(9) Provision included in a licence, or in a document or agreement relating to licences, by virtue of a relevant power—(a) may make different provision for different cases;(b) need not relate to the activities authorised by the licence.(10) The Secretary of State must publish details of any modifications made under a relevant power as soon as reasonably practicable after they are made.(11) A modification made under a relevant power of part of a standard condition of a licence does not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of Part 1 of the Gas Act 1986, Part 1 of the Electricity Act 1989, the Electricity (Northern Ireland) Order 1992 or the Gas (Northern Ireland) Order 1996. (12) The power conferred by a relevant power to “modify” (in relation to licence conditions or a document) includes a power to amend, add to or remove, and references to modifications are to be construed accordingly.(13) In section 81 of the Utilities Act 2000 (standard conditions of gas licences), in subsection (2), after “Smart Meters Act 2018” insert “or under section (Modifications of licences etc) or sections 193 to 195 of the Energy Act 2022”.(14) In section 137 of the Energy Act 2004 (new standard conditions for transmission licences), in subsection (3)—(a) omit the “or” after paragraph (f);(b) after paragraph (g) insert—“(h) under section (Modifications of licences etc) of the Energy Act 2022,”Member's explanatory statement
See the explanatory statement for new clause (Modifications of licences etc).
Amendment 66 agreed.
Clause 81, as amended, agreed.
Clause 82: Financing of costs of decommissioning etc
We come to Amendment 67. Lord Callanan?
67: Clause 82, page 71, line 22, leave out subsection (1) and insert—
“(1) The Secretary of State may by regulations make provision for requiring relevant persons to provide security for the performance of obligations relating to the future abandonment or decommissioning of carbon dioxide-related sites, pipelines or installations.(1A) For the purposes of subsection (1) an installation, site or pipeline is “carbon dioxide-related” if it is, or is to be, used for a purpose related to the geological storage, or transportation, of carbon dioxide.(1B) In this section references to an installation, site or pipeline include one that is located in, under or over—(a) the territorial sea adjacent to the United Kingdom, or(b) waters in a Gas Importation and Storage Zone (within the meaning given by section 1 of the Energy Act 2008).”Member's explanatory statement
This amendment and the amendments in the name of Lord Callanan at page 71, line 34 and page 71, line 38 revise the scope of the power in subsection (1) so that it is defined in terms of the provision of security for the performance of certain obligations, rather than by reference to the provision of security in respect of specific kinds of costs.
I apologise to the House for the delay. It is typical that I should do that when the new Leader has just arrived and when my possible reappointment is still under consideration.
Amendment 67 ensures that regulations requiring provision of security for decommissioning can capture obligations relating to “carbon dioxide related” installations, sites and pipelines. It also clarifies that the power extends to both onshore and offshore assets.
Amendment 69 expands the class of people who may be required to provide security in respect of their carbon capture usage and storage decommissioning obligations. This includes an economic licence holder under Clause 7, or someone to whom a notice has been, or may be, given for the preparation of an abandonment programme under the Petroleum Act 1998. Amendment 68 amends the label to “relevant person” so it is more consistent with this revised definition. Amendments 73, 77 and 85 are consequential to those amendments.
Amendment 70 introduces a broader definition of decommissioning costs. This is to ensure that the regulations requiring provision of security reflect the full range of decommissioning obligations. These obligations include such things as the decommissioning of infrastructure and the post-closure monitoring obligations as set out in the Government’s 2021 consultation. Amendments 71, 72, 74, 83 and 89 are consequential.
Amendment 80 broadens the type of matters relating to decommissioning funds that may be covered in guidance. For example, it may include guidance on the structure, accrual and management of decommissioning funds, as well as guidance about the methodology for calculating the decommissioning costs. This amendment also removes the duty on the Secretary of State to publish guidance under Clause 82. However, it leaves open the possibility that a similar duty may be imposed via regulations. Amendment 82 is consequential on Amendment 80.
Amendment 75 introduces the defined-term decommissioning fund and ensures that all costs included in the amended definition of decommissioning costs can be covered by such a fund. Amendments 76, 79 and 83 make consequential changes to the rest of the clause to ensure consistency.
Amendment 78 enables certain functions to be conferred on the Oil and Gas Authority in addition to the Secretary of State and the economic regulator, which is Ofgem.
Amendment 84 makes consequential changes to the definitions in Clause 82, as a result of Amendment 78 and other proposed amendments to this clause.
Amendment 87 ensures that there is no misalignment in terms of the persons on whom requirements may be imposed between Clauses 82 and 83.
Amendment 88 enables the Secretary of State to make amendments to the relevant licensing regulations for carbon dioxide storage in Northern Ireland as well. The regime for decommissioning funds will apply UK-wide. This amendment will help to ensure that there is regulatory consistency across Great Britain and Northern Ireland in relation to those decommissioning funds.
In this grouping we also have Amendment 81 tabled by the noble Lord, Lord Lennie, which seeks to expand the scope of guidance for decommissioning funds. The purpose is to require that it must consider where financial responsibility lies at the end of the CCUS lifecycle when that asset is due to be decommissioned. The Government of course acknowledge the complexities where a former petroleum installation is repurposed for carbon storage purposes. That scenario is addressed by the change-of-use relief provisions in Clauses 85, 86, and 87.
Clauses 85 and 86 amend Section 30A of the Energy Act 2008, updating the existing legislation to bring it in line with current government ambitions for CCUS. Clause 87 gives the Secretary of State a power to make regulations regarding the provision of information where this relates to change-of-use relief. However, it will not be necessary to rely solely on guidance to deal with that situation. That is because the existing law in Part IV of the Petroleum Act 1998, combined with the amendments to Sections 30A and 30B of the Energy Act 2008 provided for by Clauses 85 and 86, already provides the necessary safeguards.
In short, any person required by Part IV of the Petroleum Act 1998 to supply and carry out an abandonment programme in respect of an offshore petroleum installation will not qualify for relief from that obligation unless the Secretary of State has designated the asset as eligible for this relief and other qualifying requirements are met.
The proposed amendments to Sections 30A and 30B of the Energy Act 2008 also mean that, to qualify for change-of-use relief, the previous oil and gas owner would need to pay a top-up amount into the decommissioning fund to reflect the decommissioning liability that the previous owner is being relieved of. Therefore, there is no further need to set out in guidance where financial responsibility lies for any reused assets.
Amendment 86 was tabled by the noble Baroness, Lady Liddell of Coatdyke, and the noble Lord, Lord Foulkes, who I am sorry to say are not with us. This amendment concerns the protection of a licence holder’s commercially sensitive information. It does this by enabling certain commercially sensitive information to be protected from certain disclosure requirements contained in Part 1 and Part 2. These provisions, as drafted, enable the Secretary of State and economic regulator to be able to access information that is necessary for the conduct of their functions.
It may be appropriate in some cases for the economic regulator to provide such information to relevant regulatory bodies or entities on whom powers or duties have been conferred by legislation, such as the counterparty to the emitter contracts or to obtain relevant information from those entities to ensure that decision-making is robust and takes into account all relevant considerations. Meanwhile, provision has been made in Clauses 26 and 27 to confirm that appropriate data protection requirements would continue to apply.
I beg to move Amendment 66. I would request that the noble Lord, Lord Foulkes, and the noble Baroness, Lady Liddell, not move their amendment, but I guess that if they are not here they will not be moving it in any case.
I thank the Minister for that. When I read the Bill, I looked at Chapter 2, entitled “Decommissioning of carbon storage installations”. My first question was: is not carbon storage all about being permanent? How the heck do you decommission a big hole under the North Sea and move all the carbon dioxide somewhere else? I do not want to understand the detail of this—if the Minister wants to accuse me of being thick or stupid about this, I can take it—but what installations for carbon capture and storage will be decommissioned and where the carbon will go. I should like to understand the scenarios so that I can understand how this part of the Bill works.
I should also be interested to know that. First, may I say to the new Leader of the House that I would strongly recommend the reappointment of the noble Lord, Lord Callanan. That probably does him no favours at all, but that is just how it is. Secondly, I was going to set out a hypothetical situation about an oil and gas plant—
Okay, do not reappoint him. What can I say? I was going to set out a hypothetical situation about an oil and gas plant that had been decommissioned, but not fully, and was to be recommissioned and transferred to CCUS usage. I do not know whether that will never be possible, but who knows? It is a complicated situation and I wanted to know where the Minister thought responsibility would lie. However, I am pleased to say that he has pointed us towards the 1998 Act, the 2008 Act and some other Acts, so somewhere in there lies an answer. It would seem sensible to draw together whatever is the answer to the question and put it in the Bill, to update it. The Minister can come back on that and to the question of the noble Lord, Lord Teverson, about whether that will ever be the situation.
As for the other government amendments to the Bill, I have again to make the point that this Bill of 350-plus pages, three parts and however many clauses is surely sufficient to cover the energy circumstance. As I said in my introduction yesterday, the Bill is a mix of all sorts of things without a coherent theme. If it had a coherent theme, it might well have covered these matters in the first place, but that is really for then, not for now.
I thank noble Lords, and let me apologise to the Committee for the number of government amendments. They are quite technical, and the Bill is obviously very large. It was drafted at pace, and it was not possible with the resource we had available to get all the details finalised, which is why there are a number of technical amendments.
The answer to the question of the noble Lord, Lord Teverson, which is a very good one at first sight, is that, of course, when the storage facilities are full, the storage facilities themselves are not decommissioned. They are used, but all the storage infrastructure—pipework and all the associated engineering, platforms, injection facilities, et cetera—will need to be decommissioned. I am sure the Liberal Democrats fully support the “polluter pays” principle, whereby someone who has benefited from a facility should be made to bear the costs of decommissioning it, which is why we are setting up a fund to do that. I reassure him that we do not decommission the actual sites—as he said, it would be quite difficult to extract the carbon dioxide from them to put it somewhere else—but they require monitoring, and the associated infrastructure will need to be decommissioned, which is why the fund is being established.
Amendment 67 agreed.
Amendments 68 to 80
68: Clause 82, page 71, line 28, leave out “licence holder” and insert “person”
Member's explanatory statement
This amendment and the amendment in the name of Lord Callanan at page 71, line 29 enable regulations under clause 81(1) to apply to a person falling within paragraph (a) or (b) of subsection (3).
69: Clause 82, page 71, line 29, leave out “and” and insert “or”
Member's explanatory statement
See the explanatory statement for the amendment in the name of Lord Callanan at page 71, line 28.
70: Clause 82, page 71, line 34, leave out paragraph (a) and insert—
“(a) require relevant persons to provide the Secretary of State with estimates of costs that are likely to be incurred in connection with obligations such as are mentioned in subsection (1) (“decommissioning costs”);”Member's explanatory statement
See the explanatory statement for the amendment in the name of Lord Callanan at page 71, line 22.
71: Clause 82, page 71, line 38, leave out from “decommissioning” to “and” in line 39 and insert “costs”
Member's explanatory statement
See the explanatory statement for the amendment in the name of Lord Callanan at page 71, line 22.
72: Clause 82, page 72, line 3, leave out from “relevant” to “at” in line 4 and insert “persons to review estimates of decommissioning costs”
Member's explanatory statement
This amendment is consequential on the amendments in the name of Lord Callanan at page 71, line 22 and page 71, line 28.
73: Clause 82, page 72, line 9, leave out “licence holders” and insert “persons”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 28.
74: Clause 82, page 72, line 15, leave out subsection (5)
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 22.
75: Clause 82, page 72, line 25, leave out paragraph (a) and insert—
“(a) requiring that security for the discharge of liabilities in respect of decommissioning costs must be provided by way of a fund (a “decommissioning fund”);” Member's explanatory statement
This amendment introduces the expression “decommissioning fund” and removes a requirement that regulations must specify the arrangements under which such funds are to be held.
76: Clause 82, page 72, line 30, leave out from “of” to end of line 31 and insert “decommissioning funds”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 72, line 25.
77: Clause 82, page 72, line 32, leave out “licence holder” and insert “person”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 28.
78: Clause 82, page 72, line 36, leave out “an appropriate” and insert “a relevant”
Member's explanatory statement
This amendment and the amendment in the name of Lord Callanan at page 73, line 25 enable certain functions to be conferred on the Oil and Gas Authority (in addition to the Secretary of State and the economic regulator).
79: Clause 82, page 72, line 37, leave out from “of” to end of line 38 and insert “decommissioning funds”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 72, line 25.
80: Clause 82, page 72, line 42, leave out subsections (8) and (9) and insert—
“(8) Regulations under subsection (1) may require the Secretary of State to publish guidance about—(a) estimates of decommissioning costs (including factors which it may be appropriate to consider in deciding whether or not to approve estimates of such costs);(b) the structure, accrual and management of decommissioning funds.”Member's explanatory statement
This amendment and the amendment in the name of Lord Callanan at page 73, line 7 replace the duty to publish guidance with a power to require the Secretary of State to publish guidance and make other changes to the provision about guidance.
Amendments 68 to 80 agreed.
Amendment 81 not moved.
Amendments 82 to 84
82: Clause 82, page 73, line 7, leave out “under or”
Member's explanatory statement
See the amendment in the name of Lord Callanan at page 72, line 42.
83: Clause 82, page 73, leave out lines 10 to 23 and insert—
““decommissioning costs” is to be interpreted in accordance with subsection (4)(a);“decommissioning fund” is to be interpreted in accordance with subsection (6)(a);”Member's explanatory statement
This amendment omits and inserts definitions in consequence of other amendments of clause 82 in the name of Lord Callanan.
84: Clause 82, page 73, leave out lines 25 to 31 and insert—
““geological storage” has the same meaning as in Part 1 (see section 55);“relevant authority” means the Secretary of State, the economic regulator or the Oil and Gas Authority.”Member's explanatory statement
See the explanatory statement for the amendment in the name of Lord Callanan at page 72, line 36.
Amendments 82 to 84 agreed.
Clause 82, as amended, agreed.
Clause 83: Section 82: supplementary
85: Clause 83, page 73, line 34, leave out “licence holders” and insert “persons”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 28.
Amendment 85 agreed.
Amendment 86 not moved.
Amendments 87 and 88
87: Clause 83, page 74, line 29, leave out “licence holder” and insert “person”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 28.
88: Clause 83, page 74, line 36, at end insert “or
(d) the Storage of Carbon Dioxide (Licensing etc) Regulations (Northern Ireland) (S.R. (N.I.) 2015 No. 387),”
Amendments 87 and 88 agreed.
Clause 83, as amended, agreed.
Clause 84: Application of Part 4 of Petroleum Act 1998 in relation to carbon storage installations
89: Clause 84, page 75, line 25, leave out “and legacy”
Member's explanatory statement
This amendment is consequential on the amendment in the name of Lord Callanan at page 71, line 34.
Amendment 89 agreed.