Wednesday 14 December 2022
Arrangement of Business
My Lords, it is time to go. Let us kick off. As your Lordships know, the protocol is that if there is a Division in the Chamber while we are sitting, the Committee will adjourn when the Division Bells ring and will then kick back in after 10 minutes.
Energy Bill [HL]
Committee (4th Day)
My Lords, I should inform the Committee that if Amendment 129 is agreed to, I cannot call Amendment 130 because of pre-emption.
Clause 110: Fusion energy facilities: nuclear site licence not required
129: Clause 110, page 99, line 13, leave out subsection (2)
Member’s explanatory statement
This appears to be covered already in previous legislation.
My Lords, I will also speak to Amendment 130, as the noble Lord ably explained.
I understand that the noble Baroness the Minister will respond to this group. By way of background, these amendments relate to Clause 110 in Part 3, Chapter 3, headed “Fusion energy facilities: nuclear site licence not required”. This refers back to the Nuclear Installations Act 1965 and the clause confirms the exclusion of fusion energy facilities from nuclear site licensing requirements. It also defines the term “fusion energy facility”.
I think we are all a lot more au fait with the issues around fusion after the exciting—for some of us—news from California that has come through over the last couple of days. We know that fusion power is a proposed form of power generation that will generate electricity by using heat from nuclear fusion reactions. Devices designed to harness the energy released from this process are known as fusion reactors. Research into fusion reactors began way back in the 1940s but, as of 2022, only one design, which we have all just been hearing about, an inertial confinement laser-driven fusion machine at the US National Ignition Facility, has conclusively produced a positive fusion energy gain factor—that is, more power output than input. As I said, this was highlighted this week as a major breakthrough in the race to find electricity free from a carbon background.
Physicists have pursued the technology for decades and, as I say, it promises to be a potential source of near limitless clean energy. However, a word of caution: as we know, experts are telling us that there is still some way to go before this technology is able to power our homes. Also, in October 2022, West Burton power station site in Nottinghamshire was selected as the home for the UK’s prototype fusion energy plant.
Section 1 of the Nuclear Installations Act 1965 states:
“No person may use a site for the purpose of installing or operating … any nuclear reactor (other than a nuclear reactor comprised in a means of transport, whether by land, water or air), or … any other installation of a prescribed kind, unless a licence to do so has been granted in respect of the site by the appropriate national authority and is in force.”
Our understanding is that fusion energy would not fall into the definition of the NIA 1965, so this is needed to be exempted. May I seek clarification from the Minister on this? We would replace it with a requirement for the Secretary of State to look at new nuclear site licensing which would not be subject to safeguards associated with fissionable materials as this is not totally radioactivity-free but just at a low level.
Fission is the technology currently used in nuclear power stations, but the process also produces a lot of waste that continues to give out radiation for a long time —and we really are talking about a long time. It can be dangerous and must be stored safely. What consideration have the Government given to the Generation IV nuclear reactor technologies that seek both to use this waste as a fuel and subsequently to reduce significantly its half-life? I beg to move.
My Lords, I think I support the broad thrust of this amendment, and certainly the whole. If we are to move at all further on fusion technology, we will need a complete review of all the regulations covering it. We were discussing hydrogen in the same way the other day. This good news from California on fusion technology, to which the Minister referred earlier in the Chamber, should not mean that the pressure is off all other forms of low-carbon heating. It is absolutely clear that we need to have this in perspective. As I see it, the Californian experiment creates 1.5 times the input of energy that went into producing this reaction. I am in favour of fusion technology, but half a century ago I worked at the Atomic Energy Research Establishment at Harwell. Culham was just down the road and I recall that our colleagues there assured us that we would have fusion technology, either here or in the Soviet Union, within the next 25 years. That would have taken us roughly to the late 1980s. We have not got there yet. I hope we will now, but we should not let the good news from California take our eyes off everything else we are doing to decarbonise our energy system.
My Lords, I welcome fusion being mentioned in the Bill and I am sure the Labour amendment is reasonable. We had the big celebration at the Livermore lab in California, but I thought I read earlier this year that the tokamak at Culham had achieved a similar thing for a split second. Clearly, I was wrong. I just want to welcome the recognition that we should still pursue this technology, despite, as the noble Lord, Lord Whitty, rightly says, it having taken a long time. The research must continue—we are part of ITER in France, which will be coming on—and I welcome this being in the Bill. The amendment seems quite reasonable. One thing that fusion does is spread an awful lot of neutrons around, which partly eat up the reactor itself, which could be of some danger.
I thank the noble Baroness, Lady Blake, and the noble Lord, Lord Lennie, for their two amendments, and the noble Lords, Lord Whitty and Lord Teverson, for their contributions. It is really interesting that the noble Lord, Lord Whitty, worked at Harwell. It has been a rolling 25 years for quite a long time, but I think we are now down to nearer 15 years, according to Ian Chapman of the UKAEA. The noble Lord is right to put in a note of caution. The noble Lord, Lord Teverson, is right: we did something similar in Culham, but I think that had similar input to output rather than greater output than input. Certainly, in terms of commercialisation, the UK is ahead of the pack and the rest of the world in developing commercial fusion and spherical tokamak projects.
I can reassure noble Lords that the Government consulted widely last year on the measure explicitly to exclude fusion energy facilities from nuclear site licensing requirements. Following the consultation, they decided that fusion energy facilities should not require nuclear site licences, as this is disproportionate to the hazards associated with them. Unlike fission, fusion does not produce very long-lived, high-level radioactive waste, and there is no risk of a runaway chain reaction. Existing processes of consenting and permitting are proportionate to the hazard of a fusion energy facility. That position was supported by a clear majority of consultation respondents, including the Office for Nuclear Regulation and the current regulators of fusion, the Environment Agency and the Health and Safety Executive. As that was all set out in a full consultation last year, we see no need to consult again on the same issue at this time. Without the amendment, there is a possibility that future fusion energy facilities could inadvertently fall under nuclear site licensing requirements. Those would be disproportionate to the hazards associated with fusion energy facilities, which are significantly lower than hazards associated with traditional nuclear facilities.
On the last point raised by the noble Baroness, Lady Blake, on what the Government are doing to encourage generation 4 reactors, I do not have that information in my notes, but I recall that the advanced nuclear fund is in the range of about £230 million. It is specifically geared at looking at other technologies, such as molten salt reactors—which use a different form of fuel, consisting of less than 5% enriched uranium—and high temperature gas reactors, which I am sure that my noble friend will talk about in relation to Japan.
With those few comments, I ask noble Lords not to press their amendments.
I thank the Minister for her comments; we look forward to further information. With that, I beg leave to withdraw.
Amendment 129 withdrawn.
Amendment 130 not moved.
Clause 110 agreed.
Clause 111: Climate Change Act 2008: meaning of “UK removals”
Amendment 130A not moved.
Clause 111 agreed.
Amendment 130B not moved.
Clause 112: The Independent System Operator and Planner (“the ISOP”)
130C: Clause 112, page 100, line 7, at end insert “including the oversight of efficiency and loss reduction in cabling”
Member's explanatory statement
This amendment would give the Independent System Operator oversight of cabling efficiency and losses.
My Lords, most of the amendments in the group refer to Clauses 112, 114 and 116.
I will begin with Amendment 130C, which would give the independent system operator oversight of cabling efficiency and losses. As an electricity customer, you pay for what goes through your meter. You might also pay for peak demand or for when you take the power, but you mostly pay for how much power you use in total. If there are any losses before your meter, you do not pay; it is the electricity supplier’s problem. In much the same way, if you have a water meter, you do not pay for water leaks outside on the road—not directly, anyway—because that is the water board’s loss. However, you pay for leaks on your side of the meter; similarly, for electricity meters, you pay for cable losses in your own wiring.
In small installations, such as houses, shops and factories, the cable runs between the supply and the appliances have short electrical loads, so cable losses are usually small. However, in large factories, especially farms, electrical loads may be hundreds of miles away from the mooring—the incoming supply and electricity meter—so power losses can be quite significant. Producers tend not to realise that they are paying for that twice: first, the voltage drop means that equipment works less well—fans do not give as much throughput and luminaries do not give as much light—and, secondly, they are paying for the loss in the cable as well as in high electricity bills. Giving the ISOP oversight of that element would allow independent tackling of the position.
Amendments 130D, 130E and 130F in my name, and other amendments to Clause 112, would include certain distribution systems in the functions of the ISOP. Ofgem and BEIS suggested that the ISOP could be responsible for taking greater roles in co-ordinating elements of heat and transport decarbonisation, for example in local energy mapping and planning. The ISOP could also co-ordinate across organisations—such as distribution and network operators, transmission operators, gas networks and government departments—to ensure a consistent strategic direction. These roles would be subject to further consultation.
The co-ordination risks that emerge from choosing to create regional system operators is that the single point of accountability across the whole energy system would be lost, particularly if there were faults in multiple parts of Great Britain at the same time. Ofgem is conducting its review into the future of local energy institutions and governance, including framework options for enduring arrangements at local levels that cover regional systems operation. Any decisions on reforms would benefit from absorbing the outcomes of that review.
Amendment 131, to which the noble Lord, Lord Teverson, will speak, would require the ISOP not just to strategise and plan but to have a responsibility to deliver. The noble Lord’s Amendment 134, to Clause 114, would ensure that energy efficiency is a core objective of the ISOP and that its plans and strategies take into account a circular economy model.
Amendments 134A and 138A, in my name, would require the ISOP to carry out its functions to promote a social objective, which is defined, to promote particular objectives, as in Clause 114, and to have due regard to certain principles, as in Clause 115. Social objectives and the need to balance the interests of energy workers are absent from the list in the Bill. As the Bill imposes a duty to promote competition, without a balancing amendment, the legislation could lead to a further race to the bottom in terms of pay, terms and conditions and outsourcing, which would undermine the network’s ability to deliver a steady, sustainable supply of power for householders and industry.
Amendment 135, in the name of the noble Lord, Lord Foster of Bath, would include paragraph 21 of the Glasgow climate pact in the net-zero objective in Clause 114(2). Paragraph 21 is about limiting the temperature increase to 1.5 degrees, agreed at COP 26 in 2021.
Amendment 136, in the name of the noble Lord, Lord Teverson, defines security more broadly by including the concept of adequate capacity. His Amendment 138 would ensure that energy efficiency is a core objective of the ISOP and that its plans and strategies take into account, when appropriate, the circular economy model.
Amendment 146A seeks to insert a new clause after Clause 116 that would create a duty of collaboration between the ISOP and licensed distribution system operators. Amendment 156, in the name of the noble Lord, Lord Teverson, seeks to ensure that multi-purpose interconnectors are part of a strategic offshore grid.
Clause 112 introduces the concept of the ISOP and describes what it would do. It includes, in subsection (3), a representative but not exhaustive list of its internal functions and activities, and subsection (2) notes that functions will be typically conferred on the ISOP by legislation, including this Act or instruments made under legislation, for example, licences or codes. The ISOP has hitherto been referred to in consultation and other documentation as the future systems operator —the FSO.
Clause 114 sets out the ISOP’s main objectives. Three objectives are listed, and the ISOP is required to carry out its functions in the way it considers would best achieve them. Alongside those objectives, Clause 115 states that when carrying out its functions, the ISOP must have regard to
“the need to facilitate competition”
“the desirability of facilitating innovation in relation to the carrying out of relevant activities”.
It must also have regard to the consumer and
“the whole-system impact of a relevant activity”,
as defined in the previous clause. I beg to move.
My Lords, I thank the noble Lord, Lord Lennie, for having gone through my amendments, and very effectively too. I have five amendments in the group. They are key amendments, because I want to understand whether the ISOP will be effective.
Amendment 131 tries to put a bit of backbone into the ISOP. Clause 112(3) refers to what it is supposed to do. The words used are “co-ordinating”, “administering”, “planning” and “forecasting”, but it does not state what it is actually going to do. It comes over as a think tank rather than a decisive organisation. That is why the amendment says that it has a responsibility to deliver its plans and strategies. I am thinking of organisations such as the Strategic Rail Authority, set up by the last Labour Government—we are talking about ancient history; I am trying to think of another network, and railways are quite a good one. They implemented it for a while, but then they decided to abolish it, because it did not manage to do anything. Great British Railways has now been put forward by the Department for Transport but, clearly, it is hesitating about doing it. Again, it is a strategic network authority, but everybody is trying to grasp what it will add and what it will do. I am trying to understand where the hard facts and actions are that will mean that the ISOP is taken any notice of. It may be able to do loads of work, like the Infrastructure Commission, for example, but that does not necessarily mean that anything will come out at the end.
On its website, Ofgem states that its vision is for
“an energy system to be on track for net-zero”.
That sounds very similar to the objectives of the ISOP. What I do not understand is the relationship between the future ISOP and Ofgem, because they seem to have similar requirements in what they do. If they have different strategies, who wins? How does it work out? I seriously do not understand that and it needs to be resolved.
On the ISOP’s objectives, I applaud the net-zero objective; I welcome that very much. I am more concerned about the efficiency objective, which seems to mix up energy efficiency and energy economy. Economy of energy is not the same as energy efficiency. As energy efficiency is a core objective of our net-zero targets, as the Minister has agreed many times, it should be a separate objective. Sure, economic efficiency should be an objective too, but I see that as about being cost effective rather than being energy efficient; hence, I have separated them out.
Amendment 136 is about adding to energy security. Clearly, energy security is important, but one of the main challenges to the grid at the moment is not so much energy security, although that is important, as having the capacity to deliver. They are separate things. At the moment, we have a real challenge in the electricity grid’s capacity to deliver in respect of new developments. There is a crisis at the moment, so I believe strongly that a capacity objective needs to be part of the security objective. As for energy efficiency, the circular economy needs to be within that, because that is the direction in which all these things are going.
I turn to Amendment 156 and the very different area of multi-purpose interconnectors. They are part of the strategic offshore grid and I am interested to understand where interconnectors fit in with the ISOP. Does it have a responsibility for those as well in terms of co-ordination? Interconnectors are absolutely core to how we plan our grid. Does the ISOP have to optimise its network plan with those multi-purpose interconnectors? If not, an additional costly and environmentally damaging network will be needed to integrate the MPI into the overall system. My question is really: how does that fit and how do the interconnectors fit?
What I am trying to get at—I am sure the Government are not trying to move any other way—is, in reality, when it comes down to it, what does the ISOP add to what we have at the minute? What does it do when it disagrees with Ofgem, and is it something about which we will be saying in five years’ time, “Wow, that restructured our energy, got it right and delivered it”? That is what I am trying to understand.
My Lords, I pick up a point just made by my noble friend about interconnectors and declare that I live near the Suffolk coast, which will be seriously impacted by a number of energy projects—ones that the Environment Secretary, Thérèse Coffey, has now asked to be reviewed because of the onslaught of the various schemes, particularly in relation to how the energy will be brought onshore. I am also very pleased that my noble friend raised energy efficiency in Amendment 134. As the Minister knows, I have gone on about that and will bring forward further amendments on it later in our deliberations.
I will talk about my Amendment 135, which relates to climate change mitigation. It would update the duty of the ISOP in the light of the decisions made in Glasgow in 2021. Currently, the duties of the ISOP—as set out in Clause 114—include carrying out its functions in the way that it considers best calculated to enable the Secretary of State to
“meet the duties imposed by—
(a) section 1 of the Climate Change Act 2008 (net UK carbon account 10 target for 2050), and
(b) section 4(1)(b) of that Act (UK carbon account not to exceed carbon budget).”
In other words, the ISOP must carry out its functions in a way to help the Secretary of State meet our net- zero objectives.
However, those objectives were refined at Glasgow, where paragraph 21 of the pact recognises that
“the impacts of climate change will be much lower at the temperature increase of 1.5°C compared with 2°C and resolves to pursue efforts to limit the temperature increase to 1.5°C”.
Amendment 135 would therefore add, after the duties imposed in Clause 114(2)(a) and (b), a new duty imposed by paragraph 21 of the Glasgow Climate Pact 2021. All three of our recent Prime Ministers have applauded and welcomed that paragraph, which was, I understand, written by Alok Sharma. Boris Johnson did so in a press release on 13 November 2021. Liz Truss, writing in the Sun on 30 October 2021 said:
“We are determined to see action on coal, cars, cash and trees to preserve our natural environment and limit global warming to 1.5°C above pre-industrial levels and prevent the worst impacts of climate change.”
The current Prime Minister, Rishi Sunak, said on 7 November this year:
“I believe we found room for hope in Glasgow. With one last chance to create a plan that would limit global temperature rises to 1.5 degrees, we made the promises to keep that goal within reach. And the question today is this: can we summon the collective will to deliver them? I believe we can.”
All three support efforts to limit the temperature increase to 1.5 degrees. Should noble Lords wish to read it, page 14 of the government document, Net Zero Strategy: Build Back Greener, justifies that. Given the Government’s emphasis in government documents and statements from three Prime Ministers on limiting the temperature increase to 1.5 degrees, it makes sense for it to be part of the Secretary of State’s duties and the duty of the ISOP to enable the Secretary of State to meet them. That is what this amendment does. I am sure the Minister will not disappoint the current Prime Minister or the two previous Prime Ministers, and I look forward to hearing how he is going to support this very modest amendment.
My Lords, I will speak briefly to this group of amendments, as it is the first opportunity we have had to discuss the ISOP and its important function going forward. I congratulate the Government on bringing this forward. This is a well-drafted part of the Act. It certainly has clear priorities, and I am sure that, once enforced, it will be an additional facet that will help the UK to speed towards its objectives. I fully support it.
I have one question, which is similar to that of the noble Lord, Lord Teverson, in trying to better understand how this balancing act will occur in practice between the Secretary of State and the department; the private sector, which will be initiating projects; and the ISOP. To bring that into clear focus, I will put forward a practical project, if I may. Many of us will have heard about the audacious plan to link us to Morocco, with interconnection via a 1,000 kilometre-long, very low-loss cable—a dedicated source of generation benefiting from the very secure supply of solar and wind that exists in Morocco and that part of the world.
As I understand it, at the moment this decision is floating around and it is within the Secretary of State’s gift to pass a CFD. I hope the Secretary of State will indeed decide that this is a project worthy of a CFD, because I am sure it will be quite a low-cost option for us. How would the ISOP engage in such a project? How would it weigh up the various advantages that it might offer? What would the practical arrangements be between government agreeing to a CFD and tendering for such a project, and the ISOP taking on more of a research or advisory role? I would be very interested to hear from the Minister on that practical example.
I thank all those who took part in the debate. It was a worthwhile exploration of the ISOP. Let me deal with the various issues that have been raised, starting with Amendment 130C, tabled by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. It seeks to give the ISOP oversight of cabling efficiency and losses.
As our use of electricity grows, so inefficiencies will have a greater impact; energy dissipated from cables in the form of heat is a prime example. As part of its real-time management of the system, the system operator already considers the impact of losses across the network with no need for legislation, and that will continue to be the case for the ISOP.
Amendments 130D, 130E, 130F and 146A, again tabled by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, seek to include operating the distribution systems in the ISOP’s functions and create a duty to collaborate. The relationship between the system operator on the one hand and distribution network operators on the other will evolve over time with better co-ordination to ensure optimal system-wide planning. It is the Government’s view that a new collaboration duty is not necessary. The ISOP’s whole-system duty already includes not just electricity or gas in isolation but their impact on each other, as well as on distribution networks.
Further reform concerning distribution system operation is currently being considered; noble Lords might be aware that Ofgem has issued a call for input. Legislating now is too early and risks pre-empting the outcomes of the work currently being undertaken in this area. This includes assessing and developing institutional and governance reform options for distribution system operation, with potential implications for how the ISOP co-ordinates with distribution system operators.
Amendments 134A and 138A, again by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, seek to include a social objective in the ISOP’s main energy trilemma objectives. The first half of this objective seeks to protect customers who are already protected by the efficiency and economy objective. That objective seeks to protect consumers who are affected, or likely to be affected, by the behaviour of those engaged in relevant activities. This will include the impact on low-income households and the most vulnerable. Furthermore, the ISOP will of course be regulated by Ofgem. In Clause 129, we require Ofgem, when regulating the ISOP, to have regard to protecting the interests of existing and future electricity and gas consumers.
The second half of the amendment seems to entrust the ISOP with some sort of responsibility for the energy sector workforce. Industrial relations and the macro- economic labour impacts of energy and climate policy are obviously important issues, but I submit that they fall outside the competence of a technical energy sector body such as the ISOP.
I move on to Amendments 134 and 138 from the noble Lord, Lord Teverson. Noble Lords will know—it is certainly my strong view—that improving energy efficiency is vital, not only in helping to address the current energy affordability crisis, but, in the longer term, in helping to maintain security of supply and, ultimately, meet our decarbonisation goals. The Committee will be aware that to this end the Government have just announced the ECO+ scheme, with another £1 billion of additional funding to ensure that hundreds of thousands more households benefit from new home insulation and lower bills.
Recognising the importance of energy efficiency, we have explicitly included reference to it among the ISOP’s primary duties in subsection (4)(b) of this clause. However, although it is an important contributing factor to bill reduction, we do not believe that it warrants an entirely separate primary duty.
These amendments would also insert a circular economy objective. Although I am sure that nobody will disagree on the importance of this issue, options to act on circular economy principles will be somewhat limited for the system operator. Adding this as part of a fourth core duty of the ISOP seems a distraction from the energy trilemma that it is being charged to manage.
Amendment 135 by the noble Lord, Lord Foster, seeks to add paragraph 21 of the Glasgow pact to the ISOP’s net-zero duty. Again, I submit that this amendment is unnecessary and does not provide a helpful steer to the ISOP or strengthen its targets. The ISOP already has a net-zero duty and will deliver decarbonisation in its own operations and across the energy sector, thus enabling the Secretary of State to meet his objective under the Climate Change Act 2008. Paragraph 21 of the pact is expressed in the somewhat subtle language of international diplomacy, recognising and resolving to pursue efforts. It does not carry the strength of the legal obligation that we have already placed on the ISOP in this clause.
Amendment 131 by the noble Lord, Lord Teverson, seeks to give the ISOP responsibility to deliver on plans to develop networks. Our aim is that the ISOP will be an expert impartial body with responsibilities across both the electricity and the gas systems to drive progress towards net zero while, most importantly, maintaining energy security and minimising costs for consumers. Investment in our energy networks is vital, of course, and the ISOP will have a key role in planning the electricity and gas systems set out in licences.
However, this clause would move the ISOP from a planning role to a delivery role, which would appear to oblige the ISOP to make investments in the network itself or to usurp the role of the existing regulator. I know the noble Lord is keen that the ISOP is not conflicted, so investment by the ISOP is perhaps not his intention.
The Minister’s comments are very useful, and they are exactly what I wanted to understand. What I do not understand is why anybody should pay attention to the ISOP. If they do not, what happens? That is what I am trying to understand.
It will have a crucial role in co-ordinating and running the network. I think the best way to answer the noble Lord’s question is to say that the ISOP will take over a function that is currently operated by National Grid. The view was that National Grid is somewhat conflicted in that operation, so we thought it more appropriate for this to be done by an independent body. It is not really a new function as such; it is an existing function operated by a somewhat more impartial and non-conflicted body.
Returning to the amendment, if the noble Lord is envisaging the ISOP holding network companies to account for delivery, I would say that Ofgem is better placed to do that in its work as the regulator. Ofgem will allow a fair return and ensure strategic investment, where appropriate, but it will also hold back plans that appear to be poor value for money, balancing risks against saving money for consumers. That is the fundamental role of the regulator.
The ISOP could, of course, support decisions by the Government, Ofgem and other organisations by providing targeted advice based on its expertise on the impact of different potential decisions on the energy system. In answer to the noble Lord’s question, Ofgem would remain the decision-maker on network investment plans submitted through the appropriate price control processes.
Amendment 136, in the name of the noble Lord, Lord Teverson, seeks to change the focus of the ISOP’s core energy security objective to energy “adequacy”. Energy adequacy focuses on the ability of generation assets to cover moments of highest demand and the ability of the transmission system to perform. Meeting these criteria will be the ISOP’s core operational deliverable, and as it is being established on the existing capabilities of the electricity system operator—the ESO—it will contain a wealth of expertise and experience. The ESO also considers this at a strategic level and regularly publishes a wide variety of documentation on its current ability to meet these challenges as well as its short and long-range forecasts. I therefore thank the noble Lord for his amendment, but I prefer to keep the well-understood term “security of supply” rather than his alternative formulation.
On Amendment 156, I reassure the noble Lord that the Government fundamentally and deeply agree that multipurpose interconnectors should be considered as part of strategic network planning. However, strategic network planning will be the responsibility of the ISOP and is subject to ongoing reform under Ofgem’s electricity network planning review, so requiring a certain approach to network planning through primary legislation would, I submit again, deny Ofgem and the ISOP the appropriate flexibility they need to adapt to what is a rapidly changing system that ultimately may require yet further reforms to network planning in the future. I therefore hope the noble Lord will agree that allowing Ofgem and the ISOP to have the appropriate flexibility would better meet what I think we both agree should be an objective.
I welcome noble Lords’ contributions, but I hope that, given the assurances I have been able to provide the noble Lords, Lord Lennie and Lord Teverson, and the noble Baroness, Lady Blake, they will feel able not to press their amendments.
My Lords, we will come to the social objective in group 4, so I will not deal with that here. We welcome the assurance about the ISOP’s continued role regarding cabling losses and so on. As for what the ISOP would eventually do, I suspect that will be discovered, but I think the response was very useful. I noted the comments from the noble Baroness, Lady Worthington, about links to Morocco. Morocco are playing in the semi-final tonight and I wish them all the best in their game against France.
Amendment 130C withdrawn.
Amendments 130D to 131 not moved.
Clause 112 agreed.
Clause 13: Designation etc
132: Clause 113, page 100, line 24, at end insert—
“(1A) The person designated under subsection (1) must be a public body with no other roles or interests in the energy sector.”Member's explanatory statement
This amendment ensures that the ISOP is a public body, not an individual or a private company, and has no conflicting interests.
When I read through this Bill for the first time, this was the area that had the greatest shock value for me. I was involved in the UK Infra- structure Bank Bill where, when it came to how the board or the organisation and everything was organised and chosen, and the whole governance side, there was a large number of pages. This Bill states:
“The Secretary of State may by notice designate a person as the ISOP.”
There is absolutely nothing about how this is done or how it should be enacted. The Secretary of State does not have to consult anybody; he or she can get up in the morning, walk into the office, and say, “You will be the ISOP”, and that will be fine. It seems to me entirely wrong and I very much like the amendment on this tabled by the noble Baroness, Lady Worthington. It is particularly ironic because this Bill has 120 pages of schedules and detail. Even on this section to do with the ISOP, it has eight pages of schedules around transferring assets, and it has six pages of detailed information about transferring pensions, and yet there is nothing about what this body is like. Amendment 132 would state in the Bill that it should be a public body and it should have no other energy interests, obviously, looking back, as the Minister said, to the ESO as it is at the minute and the various potential conflicts that there are. That needs to be at least a fundamental area.
The other thing that particularly struck me when I read through the Bill was that we have this independent system operator and planner, and yet there is nothing in the legislation that says it has to be independent. It is called independent, but there is nothing that I could see that says it is independent. I understand entirely that it has to take notice of strategies and other areas that have been agreed at governmental level—I do not dispute that for a minute—so it has to have regard to the Secretary of State for certain things, but it needs to be independent and stated as such. That is what my Amendment 142 does.
Also missing is any form of accountability, apart from obviously to the Secretary of State. If this is an independent body, there clearly needs to be accountability. My Amendment 114 tries to solve that. I would be very happy for the Minister to offer alternatives, but I suggest that it needs to make a report to Parliament within the first 18 months of its establishment, and then annually.
It needs to state not just the delivery of the objectives, which are listed in the Bill, but a summary of the state of the energy networks as the ISOP sees it. That would be very useful. As we all know, we are going through a huge transition from a very centralised energy system to one that is widely distributed; we a moving from a system that has been based on fossil fuels since its inauguration to clean energy, renewal systems and offshore systems. It is a huge transition, and it is essential that the ISOP is able to report frequently or regularly on how it sees that transition. That would add great value.
I cannot see how the ISOP, given its importance, can be independent. It has to be a public body that reports not just to the Secretary of State but to Parliament on the state of the grid and the progression towards its objectives. I beg to move.
My Lords, I will speak to Amendment 133 in the group in my name and to support Amendments 132 and 133A, which have similar objectives.
I echo the comments made by the noble Lord, Lord Teverson, that simply calling it independent does not mean that it necessarily will be independent, unless provisions are put into the governance and appointment of the body that make it independent. With my amendment, I sought to come up with a version of independence—I am sure the Government could do a much better job, if they put their mind to it—which I borrowed from the model of the National Employment Savings Trust. The NEST is set up by government but is fully independent of government, and it overseas a pension fund for 10 million workers. There are similar potential conflicts in that it could be directed by government, or government could simply pack it with appointees. That is why I have adopted the wording of the amendment: to ensure that the process of creating the independent body is truly independent. That is where it came from, but if there are other versions that do a similar job, I would happily support those too.
It needs to be in the Bill. I do not think anyone wants to see a return to the days when the siting of power stations was decided purely on the basis of whose constituency it might get be built in and, similarly, the avoiding of constituencies where they might not like transmissions lines. You can foresee all sorts of political interferences coming in if this is not an independent body. In the current situation, there are conflicts because we have one private sector operator trying to do multiple jobs, so moving that function out of the national grid is a good idea. Politicising it would be a bad idea.
As I said, that is a very important part of the Bill, and I am very supportive of it, but there is an evident and obvious bit that is missing. I very much look forward to the contribution from the noble Lord from the Opposition who has a similar amendment—Amendment 133A—and to the Minister’s response.
My Lords, I support much of what the noble Lord, Lord Teverson, and the noble Baroness, Lady Worthington, have said, and I will speak to Amendment 133A.
Clause 113 empowers the Secretary of State to designate a person—likely a company—by notice as the ISOP. It sets out that the person designed as the ISOP must state when it comes into effect, so we will know when it is done. We will be able to see it, touch it, smell it and test it out, but I suspect that we will not know much about it before then. The Secretary of State must ensure that, once the first ISOP has been designated, there is always one, and only one, person designated as the ISOP at a given time. The clause also empowers the Secretary of State to revoke the ISOP designation by notice, and again to state when the notice comes into effect. The Secretary of State must publish any designation or revocation notice, so if they screw up, they are out, and we will know about that too.
The Government and Ofgem state that achieving net zero requires co-ordinated expert advice and planning across gas and electricity as well as hydrogen, carbon capture, usage and storage and other technologies. They agree that this requires an independent system operator and planner, an expert and impartial public body with a duty to facilitate net zero while maintaining a resilient and affordable system. The ISOP must be independent and free from conflicts of interest. The Government intend to establish it as a public body with, as I understand it, operational independence from government and no commercial interests. Establishing the ISOP as an independent body would be consistent with day-to-day operational independence; with no commercial interests, the ISOP’s advice will be impartial, accelerating energy systems decision-making for Ofgem and the Government in the best interests of consumers.
The Bill’s Explanatory Notes indicate that the independence of the ISOP is supported by the Government, although some parliamentarians have said that they do not see independence embedded in the legislation. As we heard from the noble Lord, Lord Teverson, and the noble Baroness, Lady Worthington, they have tabled amendments to set standards for the independence of the ISOP. I would welcome the Government’s observations on how that independence will be assured.
I will start with Amendment 132 from the noble Lord, Lord Teverson, which seeks to make the ISOP a public body without roles or interests in the sector. I agree with the sentiment of the amendment. There is a long list of reasons why the ISOP should be a public body, and I will not seek to rehearse the arguments. Suffice it to say that the Government have resolved to make this so, and enshrining this in legislation is unnecessary.
Furthermore, the requirements in the amendment to have no other roles or interests in the energy sector are limiting; they do not cater for the range of possible new roles which it might be beneficial for the ISOP to be involved with in future. For example, this amendment would question Ofgem’s ability to modify the ISOP’s licences to give it a new role in seeking to address any new sets of circumstances that might arise in the market.
Amendment 133, from the noble Baroness, Lady Worthington, seeks to ensure independence for the ISOP by setting specific rules in its constitution. Again, the Government agree that it will be important to ensure that the ISOP has operational independence from government. The most effective model for realising our vision for an independent ISOP is to establish it as a public corporation, in the public sector but outside central government, as a limited company with the Secretary of State as the sole shareholder but not the chair or a director and with Ofgem providing transparent and independent regulation.
We will not shy away from allowing the ISOP the freedom it needs to manage and organise itself to deliver its roles and objectives. However, particularly given that we are working within the framework of the electricity and gas licensing regimes and existing company law, we do not think that primary legislation is a suitable vehicle for detailing the arrangement of appointments. Instead, it would be preferable to provide for this in detail through the licence, articles or framework document.
Amendment 142, from the noble Lord, Lord Teverson, seeks to create blanket independence from government except via the strategy and policy statement. I am sure the noble Lord will recognise that this is a very broad approach to quite a nuanced issue. For instance, the ISOP will be a limited company with the Secretary of State as the sole shareholder; he or she would hold ultimate responsibility for the effective corporate governance of the organisation. The nature and limits of the Government’s role need to be constructed carefully and will be clearly and transparently described in the ISOP’s foundational documentation, which we expect to make public. I am pleased to be able to confirm to noble Lords that the ISOP will sit outside central government control, giving it the operational freedom that will be needed to manage and organise itself.
Amendment 133A, from the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, seeks to ensure the independence of system and distribution operators. Independence from day-to-day government control and other energy sector interests had strong support during our consultation. The ISOP will routinely consult with and utilise the expertise of energy sector participants, but inserting in legislation a formal oversight role such as this effectively places decision-making back in the hands of that sector. Doing so could make the ISOP risk-averse and unwilling to take action that is beneficial to the system or consumers but potentially challenging to market participants. We expect to place a requirement in licence for the ISOP’s board to contain a sufficient number of independent directors, which should help to ensure independence.
Finally, Amendment 144 from the noble Lord, Lord Teverson, requires the ISOP to report to Parliament on its performance, the state of the networks and future challenges. Again, it is the intention of the Government that the ISOP will be a valuable source of expert information and guidance, just as the electricity system operator, or ESO, is today. The ESO reports against its objectives to Ofgem, which makes careful, considered and, importantly, public assessments of licence holders’ performance. The ESO already publishes the network options assessment, which considers the current state of the networks and makes recommendations for improvements. It also publishes a wide range of documentation on future challenges, most famously its excellent and widely read Future Energy Scenarios. The ESO already makes public all the information this amendment requires. If we are being sensible, repeated requests for reporting would only push up costs for the bill payer without any obvious benefit.
As such, I do not support this set of amendments and ask noble Lords not to press them.
My Lords, I thank the Minister for going through that. I can just about accept the bit about communication, because that is likely to happen anyway from a public body. However, I genuinely find the primary legislation here amazingly loose. I get the bit about putting a lot of these conditions into the licence for the ISOP, but this concerns independence and how the selection takes place. As the noble Lord, Lord Lennie, said, we have detail on how to get rid of the ISOP, but no detail on how to recruit it. I would think that the Government would want to put in something more concrete on how the ISOP will be chosen and what nature of body it should be, and something to enshrine its independence. I would have thought that was in the Government’s interest, because they will not be the Government for ever, and who knows what future Governments or Secretaries of State might want to do?
I feel very strongly that this Bill needs to be better here. I would be very disappointed if the Minister or the Government did not, at some point during the passage of this Bill, put a little more flesh on the bones. It is good public practice to do that and be clear. Somewhat exasperatedly, I withdraw the amendment.
Amendment 132 withdrawn.
Clause 113 agreed.
Amendments 133 and 133A not moved.
Clause 114: Duty to promote particular objectives
Amendments 134 to 136 not moved.
137: Clause 114, page 101, line 15, leave out “to existing and future consumers” and insert “and that the market works efficiently in providing supplies to existing and future consumers, including enabling flexible consumption,”
Member’s explanatory statement
This amendment seeks to strengthen obligations on the ISOP to invest in innovative technologies.
My Lords, I will not detain the Grand Committee hugely on these amendments, which in many ways are probing. They propose that the ISOP really needs to keep an eye on future technical and IT advances and all the opportunities that come from them, and to get over decision-making that in many parts of the energy infrastructure has been very much supply-side dominated in the past; we have all come across this. We really need recognition that there needs to be a focus on the demand side as well as that supply. I am trying to understand whether the ISOP will have strong incentives to adopt new digital technologies. Will we have good emphasis on that demand side, as opposed to the supply side? I am really just looking to see how the Minister responds. I beg to move.
My Lords, I return to the situation of the workforce in the debate on these amendments. Clauses 114 and 115 set out important parts of the ISOP’s remit. While the list in the Bill may not be exhaustive, the items prescribed will influence the new body’s behaviour. We support the need for the ISOP to have and promote environmental and other listed objectives. These amendments arise from a concern that the ISOP will not have a duty to consider social objectives.
There is a particular concern in the case of Clause 114, which sets out a requirement for the ISOP to promote economy and efficiency without a countervailing duty to promote social objectives. The GMB union, which represents gas and electricity workers, tells us that this clause could be interpreted as a mandate to pursue lowest-cost levels in the short term, which could lead to a great reliance on outsourcing and job cuts to make the books meet. The amendment attempts to remedy that concern.
It also seems like an inconsistency in the Bill to include consumer objectives in Clause 115 but not in Clause 114, which imposes a stronger duty on the ISOP. Our amendment would also place a duty on the ISOP specifically to consider the interests of low-income households alongside its more general duty to consider consumer impacts overall.
The energy sector faces significant workforce challenges. The Engineering Construction Industry Training Board has warned that an ageing workforce poses a risk to meeting the UK’s environmental objectives. The vacancy rate is higher in the utilities sector than across the whole economy, according to this week’s ONS estimates. Positive industrial relations in the energy sector will be an important component of the just transition that the Government say they want to achieve, and these amendments would support that aim.
My Lords, I understand from the statement by the noble Lord, Lord Teverson, that his Amendments 137, 139 and 140 are probing amendments, but I will seek to provide some clarity on the Government’s intention. The amendments seek to strengthen obligations on the ISOP, in particular requiring it to consider the need for investment in innovative technologies.
I start with Amendment 137. The ISOP will need to judge how to balance the three trilemma duties set out in Clause 114 as the needs of the sector develop and situations arise. We have not sought to place any one trilemma duty above another. There is no need to insert, within the security of supply duty, a further duty towards efficiency; it is already contained in the efficiency duty. These two objectives sit on an equal footing, and adding a further efficiency requirement risks creating an imbalance between them. They are both important.
A flexible energy system will be a vital characteristic. That is why flexibility is already included in this core duty towards efficiency via subsection (6)(c). I hope the noble Lord feels reassured that the Government are well aware of the potential benefits that flexibility can bring and that the Bill has been drafted to reflect this.
I turn to Amendment 139. As a newly independent body, the ISOP will help to shape the energy system and to drive competition while taking a whole-system approach. Energy efficiency is one important aspect, but in our view the ISOP should be unfettered in making its own expert judgments about how to balance energy efficiency alongside the many other important factors that it will need to consider when seeking optimal whole- system outcomes. We should seek to trust the judgment of the ISOP in its whole-system considerations and avoid presupposing or placing constraints on its thinking on these matters.
Turning to Amendment 140, we want the ISOP not only to be on the leading edge of innovation but to seek out where it might facilitate innovation across the sector. Technology is an important part of this, but, again, adding this wording may undermine or undervalue the adoption of new business models, ways of working or other types of innovation. Predictive capabilities will help the ISOP to balance the system. For instance, meteorological forecasting helps to gauge renewable energy supply. However, the amendment appears to extend this to other energy sector actors, which may not prove an efficient use of billpayer funding.
I thank the Minister for that. It was most useful. He has mentioned the energy trilemma twice during this session, and I am interested in whether he still believes that there is an energy trilemma, or whether renewables deliver both security and the lowest cost.
Certainly at the moment, at the current state of operation, they deliver the lowest cost. I am not sure that they deliver security, given that, by their very nature, they are intermittent. That is why, as I constantly say, we need a diverse system—including nuclear, for the benefit of the noble Baroness, Lady Sheehan.
Amendment 141A, in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, seeks to include consideration of the workforce impact of a relevant activity in what the ISOP must have regard to when carrying out its functions. We have already discussed the workforce today in the second group of amendments—the GMB will be very impressed that the noble Lord, Lord Lennie, has raised it in two different groupings—so I do not intend to revisit those arguments at length. Suffice it to say that we believe they fall outside the competence of a technical energy sector body such as the ISOP.
To pick up on the point made by the noble Lord, Lord Teverson, I appreciate that in the context of this amendment the question of resources is critical, but how will the ISOP be at the leading edge of technology, and how will it be able to anticipate the challenges of new technology with existing thoughts about resource? Can the Minister give us a little more knowledge about how much resource will be available to achieve that objective, and what type of resources he anticipates the ISOP will have?
I am not quite sure what point my noble friend is making. There will, of course, be a variety of sources; the whole point about this is that we do not want to constrain what sources might be available in the future. We are setting this legislation potentially for decades to come. We had a discussion in the House earlier today on fusion technology; I do not know whether my noble friend was there. My noble friend Lady Bloomfield also led a debate about it. It may not be many years away, but we do not know at this stage whether it will be a viable source of power. It may turn out to be a wonderful invention and make other sources redundant.
The whole point is that we need to build flexibility into the system. We can plan only on what we know we have available and what is coming on stream, but this legislation could exist for many years, possibly decades, to come, so the important thing is to give bodies such as the ISOP and Ofgem the flexibility to adapt to new technologies.
Just to help the Minister, my interest is really the financial and manpower resource that is available to the ISOP to undertake what is a very significant role in the context of advising government on how to be at the leading edge of innovation and which appropriate technologies to pursue. My question was more about whether it will be sufficiently well resourced for that and what opportunities we will have to ensure that it is satisfactorily resourced.
The source of funding for the ISOP will come from Ofgem and will be regulated by Ofgem. Ultimately, of course, the funding will come from billpayers, so it is important that Ofgem has that regulatory function. It will need to balance the difficult objective of making sure that the ISOP is appropriately funded with the fundamental point that it will all come back to the funding by billpayers eventually.
This is a useful debate. Is the Minister saying that the ISOP’s budget will be agreed by Ofgem? That will be the negotiation. Is that right? Is that how it will work? Will it be Ofgem, not the Secretary of State, that agrees the budget and resources for the ISOP?
Yes, that will be a requirement. The licence will be agreed, but the actual funding will be determined by Ofgem.
Can we pursue this a bit further? If it is to be independent, and if it requires a budget in order to meet what it believes to be its goals, it is constrained in those objectives by its relationship with Ofgem, despite the fact that the Secretary of State has appointed the ISOP. Is that correct?
There will have to be some constraint on the funding. Ofgem agrees the funding for a number of different system operators and bodies, and it will also do so with the ISOP. If the Committee is interested in this, perhaps I can set out in detail in writing how we envisage this funding stream working, if that would be helpful to noble Lords.
Amendment 141 would add consideration of the Climate Change Committee outputs as a fifth duty. The ESO today closely follows the CCC’s work and analysis. The 2022 Future Energy Scenarios, published by the ESO, extensively quotes the CCC. It makes use of CCC charts, discusses its forecasting, takes on board its assumptions and even builds upon the CCC’s pathways in its own analysis. The recommendations of the Climate Change Committee will continue to provide a useful source of information for the ISOP.
Amendment 146 would require that, if giving notice to government that a policy outcome in the strategy and policy statement is not achievable, the ISOP will consider the latest science and CCC opinion. The Government will write the strategy and policy statement as guidance to the ISOP. As described, the ISOP will of course be well aware of CCC opinion. It is not readily apparent what benefit would be brought by a further duty on the ISOP to consider the CCC’s opinion when telling the Government that it does not believe that it can deliver on an objective.
For clarity, the Bill makes provision for two separate strategy and policy statements: an energy statement that will provide guidance to Ofgem and the ISOP and a separate carbon capture usage and storage statement. The energy statement was originally legislated for to provide guidance to Ofgem under the Energy Act 2013. Clause 116 of this Bill modifies that Act to provide guidance also to the ISOP. In preparing a CCUS statement or undertaking a review of an existing CCUS statement, the Secretary of State must take account of the energy policy statement if it is in effect. This is to ensure coherence.
I welcome the contributions and hope that, given the reassurances I have provided, noble Lords feel able not to press their amendments.
Before the Minister sits down, I will make a general point. This will be a transformative time for the energy sector, which will require an independent system operator and planner that is truly independent and accountable and has no conflicting interests. At the moment, it seems that the Government are looking at an ISOP that is more suited to a steady- state situation, which is not what we are in. I hope that they will take that point into account.
I will certainly take that point into account, although I do not necessarily agree with the noble Baroness; it is intended to be an independent system operator—the clue is in the title—but the point I made earlier is that we want to give it sufficient flexibility to take account of any new developments coming onstream.
I thank the Minister for his comprehensive reply to my probing amendments and would very much welcome his writing to clarify some of these areas. I had not really thought through the funding of the ISOP before Committee; I am trying to think through the conflicts of interest between Ofgem and the ISOP. As we all know, the person who agrees the budget rules the body that receives it. I understand from what the Minister has said that Ofgem can effectively accept or reject ISOP recommendations, but it seems to me that, unless something in the licence or primary legislation says that the ISOP needs some degree of budget to carry out its functions—indeed, is rather more specific than that—the client-master relationship could be a real problem, so I want to think that through. In the meantime, I thank the Minister for his response and beg leave to withdraw my amendment.
Amendment 137 withdrawn.
Amendments 138 and 138A not moved.
Clause 114 agreed.
Clause 115: Duty to have regard to particular matters
Amendments 139 to 141A not moved.
Clause 115 agreed.
Clause 116: Duty to have regard to strategy and policy statement
Amendments 142 to 146 not moved.
Clause 116 agreed.
Amendment 146A not moved.
Clause 117: Licensing of electricity system operator activity
147: Clause 117, page 105, line 4, at end insert—
“(11) In section (Modifications of licences etc) of this Act (modifications of licences etc)—(a) in subsection (1)(a) for “of the Electricity Act 1989 (transmission licences)” substitute “or (da) of the Electricity Act 1989 (transmission and electricity system operator licences)”;(b) in subsection (1)(c), for “6(1)(b)” substitute “6(1)(b) or (da)”.”Member’s explanatory statement
This amendment amends new clause (Modifications of licences etc) to take account of Clause 117(4).
Amendment 147 agreed.
Clause 117, as amended, agreed.
Clauses 118 to 123 agreed.
Clause 124: Duty to keep developments in energy sector under review
Amendment 148 not moved.
Clause 124 agreed.
That brings us to Schedule 10. Hold on. I am being pointed at by the clerk. Let us pause for a moment. The tension builds. What have I missed out? Noble Lords can speak among themselves for a moment. I will have a wee seat and try to work out what on earth I have done wrong—not very much, I hope.
We will adjourn for five minutes. If we do not, this could go badly wrong. The professionals will come on and sort the entire thing out.
Clause 125 agreed.
Schedule 6 agreed.
Clause 126 agreed.
Schedule 7 agreed.
Clauses 127 to 130 agreed.
Schedule 8 agreed.
Clauses 131 to 151 agreed.
Schedules 9 and 10 agreed.
Clause 152 agreed.
Schedule 11: Minor and consequential amendments relating to Part 5
149: Schedule 11, page 257, line 3, at end insert—
“Energy Act 2022
12 In section (Modifications of licences etc)—(a) after subsection (1) insert—“(1A) The Secretary of State may modify—(a) a condition of a particular licence under section 6(1)(g) of the Electricity Act 1989 (code manager licence);(b) a document maintained in accordance with the conditions of licences under section 6(1)(g) of the Electricity Act 1989, or an agreement that gives effect to a document so maintained.”;(b) in subsection (2)(a)—(i) after “7”, insert “or 7AC”;(ii) after “transporters” insert “or code manager licence”;(c) in subsection (2)(c), after “7” insert “or 7AC”;(d) in subsection (7), after “(1)” insert “, (1A)”.”Member's explanatory statement
This amendment amends new clause (Modifications of licences etc) to take account of clauses 136(6) and 137(7).
Amendment 149 agreed.
Schedule 11, as amended, agreed.
Clause 153: Competitive tenders for electricity projects
149A: Clause 153, page 127, line 20, at end insert—
“(2) Strategic transmission network projects that are—(a) identified in the Electricity networks strategic framework,(b) built ahead of need whilst long term good value for money, and(c) in the opinion of the Secretary of State essential to support renewable and energy security objectives,are not subject to the competitive tender process.”Member's explanatory statement
The fact sheet accompanying the Bill states that the Government are proposing to exempt ‘upfront certain strategic transmission network projects’ from the competitive tender process for electricity. However, there is not any government guidance on what will be exempt and how. This amendment seeks to put this into legislation.
Amendment 149A, in my name and that of my noble friend Lord Lennie, concerns the Government’s proposals to exempt
“upfront certain strategic transmission network projects”
from the competitive tender process for electricity. The comprehensive fact sheet that goes with this part of the Bill makes clear—note that these are its words, not mine—that
“Introducing competition will provide new opportunities to invest in networks where it is efficient to do so. The creation of a new competitive market should improve efficiency in investment, foster innovative solutions to network needs, including increasing the opportunities for smart and flexible solutions, and reduce costs to consumers. This is also expected to encourage greater levels of inward investment into electricity networks, to help provide sufficient additional network capacity to meet growing demand in Great Britain.”
The Bill will achieve that, because the measure will enable competitions to be run for the building, ownership and operation of onshore electricity networks in Great Britain, building on the existing competition regime for offshore transmission assets. It will take powers to enable the Secretary of State to appoint a body to run tenders and to set criteria to determine a network project’s eligibility to be competed. It will also extend Ofgem’s power to make regulations that will set out the process by which the tenders will be run.
The relevant paragraph—I will quote it in full—states:
“Once competition is in place, the time taken to compete projects can be taken into account at an early stage to avoid any delay to the overall process from identification of need to commissioning. However, for projects beyond a certain stage of planning at the point that competition comes into effect, delays from competing and/or uncertainty about the applicability of competition could be unavoidable. For this reason, Government proposed in the British Energy Security Strategy to exempt upfront certain strategic transmission network projects during a transitional period after competition is introduced.”
The argument is that
“This will provide certainty to the market and encourage strategic investments to proceed apace to support our renewable electricity and energy … objectives. Further detail … will follow in … response to … consultation on competition”.
The reason for our amendment on that part of the Bill is that we are concerned about the lack of clarification on how the implementation will be brought forward, and we believe that Amendment 149A would achieve that. We have mentioned several times in the debate the need for transparency and good governance, and our hope is that everyone will approach the matter on a level playing field so that everyone can make decisions in an open way. We believe that the amendment is straightforward, and we hope that the Government will accept it and, as such, put it into legislation. I beg to move.
My Lords, I will speak briefly to the group of amendments beginning with Amendment 153, merely to state the obvious: that it is a good thing. I hope that the introduction of competition will get us around some of the blockages we are experiencing at the moment, where many projects have received planning consent and have the right payments and investments in place but transmission and grid connection are holding them up. I sincerely hope that competition will successfully unlock more projects and more private investment in the system, which will mean that those projects are connected.
I have one question for the Minister. A lot of the detail on how that will operate is obviously in the schedule, but the schedule itself refers to regulations, so when can we expect to see those regulations? I understand that a consultation is currently open, but I would be very grateful for any indication as to how long we will wait before that happens.
I understand the points just made by the noble Baroness opposite about needing greater clarity. I hope we will get that through the regulations. In one way, I am very happy that in the interim period some projects will be maintained in the current form without the opening up of competition. However, I am also a bit wary that that might slow down the opening up of the broader market, so I am not inclined to support the amendment as drafted, although I understand the general principle that more clarity is better than less.
My Lords, I will speak to Amendments 150 to 155 in the name of my noble friend the Minister, Lord Callanan. These are minor and technical amendments to ensure that the competitive tender regime for onshore networks and the energy network special merger regime function effectively.
Amendment 150 clarifies which regulated activities can be tendered for under the onshore electricity network competition regime set out in Schedule 12 to the Bill. Paragraph 2 of Schedule 12 sets out which types of electricity project are eligible for competition on electricity networks. The Government intend that an entity that requires a licence for system operation will not be eligible for competition. This is because that body oversees electricity balancing and flows across the country, in a co-ordination role.
As it stands, the legislation incorrectly cross-refers to an independent system operator licence, rather than the existing system operation licence. Amendment 150 will correct this, thereby ensuring that the competition regime will be fit for purpose as soon as it receives Royal Assent.
Amendment 151 changes part of Schedule 12 to the Bill, which amends the Electricity Act 1989. As it stands, this part incorrectly refers to Section 6CB(2) of the Electricity Act 1989 when defining when a person can be considered to have made a connection request. This should instead refer to Section 6CC(2).
Amendments 152 to 155 ensure that the Competition and Markets Authority can address any adverse effects that have arisen or may arise from the substantial prejudice identified from a relevant merger. This is consistent with the general UK merger regime and the equivalent special merger regime in the water sector. Without these technical amendments, the Competition and Markets Authority would be able to address only the substantial prejudice to Ofgem’s ability to regulate network companies at source and not the adverse effects that arise from it. Accepting these amendments would mean that the wording in the new regime was more consistent with the existing powers in the wider merger landscape in the United Kingdom, where adverse effects are already in scope. I hope that noble Lords will agree that these minor and technical amendments are necessary to ensure that the two new regimes operate as intended.
I turn to the other amendment in this group, Amendment 149A, tabled by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. It seeks to add to Clause 153 exemptions from competition for certain strategic transmission network projects. The Government recognise the importance of clarifying which projects are within the scope of competition and which are to be exempt so that network companies can proceed at pace with arranging their project plans and supply chains. The Government have stated the importance of achieving this clarity in various publications this year, including the electricity networks strategic framework, which the noble Lord and the noble Baroness have referred to in their amendment. In this, the Government committed to exempt certain strategic projects from competition to achieve certainty for industry and to help achieve net-zero network delivery.
The strategic framework did not, however, identify specific projects in the way that the amendment suggests. Ofgem has since consulted on specifically which projects to exempt from this, and the Government have worked closely with it during its consideration of responses. Ofgem will publish a list of projects to exempt by the end of this year.
It is the Government’s opinion that it is best to set out the criteria to determine a project’s eligibility for competition in regulations. The type of network project suited to competition in the interest of enabling savings for consumers may change over time. For example, one criterion for late-stage competition, set out in our indicative draft statutory instrument laid before the House, is that the project should have a value equal to or over £100 million. This is because this is the price of projects where we expect to find savings when the project is completed. This threshold may reduce in future as competition becomes embedded in network regulation, so tender costs could reduce.
Establishing the criteria in the Bill would prevent the Government reacting to changes in market conditions. Beyond this, the amendment is unnecessary because it would duplicate existing policy work to exempt certain strategic projects. It could even potentially confuse the process of exempting those strategic projects by creating another avenue for exemptions beyond projects falling outside existing criteria in secondary legislation, which Ofgem will apply to projects to determine their eligibility. I ask the noble Baroness to withdraw her amendment.
I thank the Minister for the clarification on the technical issues raised under the government amendments. I wonder whether there has been some slight movement in this area. The point still stands that in the long term transparency and good governance must be paramount, but with those comments, I withdraw the amendment.
Amendment 149A withdrawn.
Clause 153 agreed.
Schedule 12: Competitive tenders for electricity projects
150: Schedule 12, page 257, line 23, leave out “section 4(1)(ca)” and insert “section 4(3A)(a)”
Member's explanatory statement
This amendment ensures that the cross-reference in new section 6BA(3) of the Electricity Act 1989 (inserted by paragraph 2 of Schedule 12 to the Bill) is to section 4 of that Act as it currently stands.
151: Schedule 12, page 266, line 40, leave out “section 6CB(2)” and insert “section 6CC(2)”
Member's explanatory statement
This amendment fixes an incorrect cross-reference in the amendment made by paragraph 5(5) of Schedule 12 to the Bill to section 6F(8) of the Electricity Act 1989.
Amendments 150 and 151 agreed.
Schedule 12, as amended, agreed.
Clause 154 agreed.
Schedule 13: Mergers of energy network enterprises
152: Schedule 13, page 278, line 39, leave out from “for” to “there” in line 40 and insert ““lessening of competition” (in each place it appears)”
Member's explanatory statement
This amendment, and the other amendments in Lord Callanan’s name in relation to Schedule 13, amend the inserted Schedule 5A for the Enterprise Act 2002 (which modifies Chapter 1 of Part 3 of that Act as it applies in relation to energy network mergers) by bringing the modifications into line with the wider regime for mergers.
153: Schedule 13, page 279, line 20, leave out from “for” to “there” in line 21 and insert ““lessening of competition” (in each place it appears)”
Member's explanatory statement
See the explanatory statement for the amendment in Lord Callanan’s name at page 278, line 39.
154: Schedule 13, page 279, line 29, leave out from “subsection” to end of line 31 and insert “(2)(a) and (b), for “lessening of competition” there were substituted “prejudice””
Member's explanatory statement
See the explanatory statement for the amendment in Lord Callanan’s name at page 278, line 39.
155: Schedule 13, page 279, line 32, leave out from “for” to “there” in line 33 and insert ““lessening of competition””
Member's explanatory statement
See the explanatory statement for the amendment in Lord Callanan’s name at page 278, line 39.
Amendments 152 to 155 agreed.
Schedule 13, as amended, agreed.
Clause 155 agreed.
Clause 156: Standard conditions for MPI licences
Amendment 156 not moved.
Clauses 157 to 160 agreed.
Schedule 14 agreed.
Clause 161: Extension of domestic gas and electricity tariff cap
156A: Clause 161, page 134, line 9, at end insert—
“(7) In section 12 (Interpretation) after “wholly or mainly for domestic purposes” insert “, including the supply of gas or electricity to any common parts of a building where the primary purpose is domestic dwellings””Member's explanatory statement
Currently the supply of gas and electricity to the common parts of blocks of flats (for example, corridors and outdoor lighting) is deemed to be commercial. This amendment reclassifies such supplies as domestic, extending default tariff protection to them.
The amendment is in the name of my noble friend Lord Kennedy. Currently, the supply of gas and electricity to the common parts of blocks of flats—corridors and outdoor lighting, for example—is deemed to be commercial, and this amendment seeks to reclassify such supplies as domestic, which would then extend default tariff protection to them.
We accept that Clause 161 has been superseded by the Energy Prices Act. We note that in the clause the Government propose to give themselves the power to impose price caps on communal and district heating networks. We see this as a good thing, because they are also uncapped, and people are seeing large price rises.
We know that the supply of mains gas and mains electricity to the common parts of domestic buildings is deemed to be a commercial supply. This, in practice, means that the freeholder or managing agent enters into a long-term commercial contract for the mains supply to the common parts. This is an interesting area, and I would be interested to hear the Minister’s response. Such supplies are taxed at 5% VAT and are exempt from the climate change levy in the same way as mains supplies to a house. Is it not also the case that the same gas and electricity mains supply the flats in the building, and the flats are all subject to the Ofgem price caps?
As with everything else in leasehold, there can sometimes be an undisclosed fee or commission for the landlord or managing agent to arrange the supply to the common parts. These contracts also allow other charges to be passed on. I therefore have a rather simple question for the Minister: will the Government extend the gas and electricity price caps to mains gas and electricity supplies in common parts of buildings containing two or more flats?
I look forward to discussions on further amendments in this group tabled by the Government, the noble Lord, Lord Teverson, and my noble friend Lord Whitty.
My Lords, as my noble friend has just said, Amendment 159 in my name is in this group and deals with the issue of a social tariff. We are well aware that earlier forms of social tariff, which were non-mandatory and non-general, had some benefits, but did not fully meet the needs of vulnerable consumers.
Last year, I chaired a commission that did a job for Energy UK on vulnerable consumers, which indicated considerable disadvantage to them even before the present heights in fuel prices. Our report was accepted in broad outline by the energy companies—Energy UK being the trade association—and many have adopted aspects of it relating to their customer service and how they deal with vulnerable consumers. By “vulnerable”, I am talking about those who are vulnerable due to economic, social or health limitations. The companies have accepted most of the recommendations in relation to services and the way that they deal with individuals, but they have not addressed their tariffs.
This proposed new clause intends to put an obligation on the Minister to start planning for the introduction of a social tariff—or mandatory revision of social tariffs—so that we deal with this through the structure of the actual tariffs and prices paid by different consumers. This is not a new concept but, if it were generalised in this way, with effective planning during the period when we will probably continue to have substantial government intervention of the kind that we have seen in recent weeks, we could get to a steadier state of tariff determination by the well-planned adoption of a system of social tariffs. They are more effective than price caps or any temporary interventions by the Government—welcome though those are—and would mean that tariffs for defined groups of consumers were geared to their needs in particular.
The form of social tariff is not prescribed in detail in my amendment, but the NEA, of which I am a vice-president—I should have declared an interest at an earlier stage—has drawn up, along with Fair By Design, a new social tariff that must satisfy a number of conditions. First, we would have a system of auto-enrolment of all eligible consumers; this can be done with the suppliers’ existing databases, including stepping up the effectiveness of the priority registration scheme—which still needs some serious attention—and by cross-reference to DWP records. The new scheme would be in addition to the warm home discount and default price cap, because they perform different functions that cannot be replicated by a general cap. The system would be mandated across all suppliers, which would mean that those who qualify for a social tariff would not lose out because their supplier has not gone as far as other suppliers.
The tariff will be targeted at those who are most in need—either because of low income or because they are vulnerable households in terms of requiring more heat or using and controlling their heating system—and, in particular, at those who use prepayment meters. As noble Lords will know, they are currently seeing significant detriment in the market as a result of the present situation. They must be a priority group who would benefit from the introduction of a social tariff. It must also reduce the costs for the designated consumers. The new social tariff must help vulnerable consumers reduce their overall energy costs and must be protected and priced below the default tariff price cap level.
This intervention could take different forms. That is why we are calling for the Minister to be obligated by the adoption of this amendment to introduce a plan for social tariffs that will follow the period of substantial interventions that we have seen since the Bill first appeared before this House. They were welcome interventions but are, essentially, temporary. We are looking at a much longer-term provision that would look after all vulnerable consumers as far as possible. It would oblige suppliers to identify them and offer the social tariff to them. This would be a more permanent solution. It needs planning and it needs to close the definition, but we should start the process by putting a requirement in the Bill for Ministers, the department and Ofgem to begin to look at this option.
My Lords, I will speak first to my Amendment 157. Since I put it down when the Bill first started, a lot of water has gone under the bridge—or perhaps electrons down the copper pipe. We have had the Energy Prices Act since then, and I suspect the Minister will say that all this area is already being dealt with, but perhaps I can go into a number of things.
The noble Lord, Lord Whitty, explained the social tariff very well, so I will not go through that again except to say that the last time I raised this issue with the Minister, he was quite acerbic in his reply. It is an important area, and I very much look forward to hearing the Minister’s reply again. It is a long-term solution, which is the important part of that proposal as opposed to anything else.
I have listed heating oil in my amendment. I declare an interest in that my property is partly heated by heating oil, being off the grid. I would be interested to understand where we are currently, under the Energy Prices Act, on help to those with heating oil. While I have always recognised that distribution is not an easy issue, it is important because, not least in Northern Ireland but also in the rest of the United Kingdom, a number of rural areas are off the grid.
The other area I have mentioned is the nuclear financing Act that we passed on 31 March this year. I suspect the Minister will not agree to my amendment to repeal that Act—strangely, I get that feeling—but my serious point is that it introduced the regulated asset base solution to financing nuclear. Clearly, one of the main effects of that is that consumers pay up front for the development of nuclear power. This is not a speech against nuclear but a plea to rethink that at a time of maximum energy prices.
Given that Sizewell C is moving ahead and given the various commitments that the Government have made on helping with its financing, I would be interested to understand from the Minister whether that charging mechanism on consumer bills is about to go ahead or has already happened, and to learn where it is going. It is our opinion—and mine, in particular—that that basis of charging is utterly inappropriate at the present time.
My other amendment in the group, Amendment 158, is about how energy costs differ according to where one is based geographically; it is almost like a postcode lottery, but obviously with much larger regions. It seems very discriminatory that there are different regional pricing regimes for energy because of the different DNOs and other circumstances. I am interested to hear the Minister’s response to the proposal to take away that discrimination and ensure that there is equity across Great Britain for those energy charges.
I start by discussing Amendments 157 and 159, which aim to protect vulnerable consumers, tabled by the noble Lords, Lord Teverson and Lord Whitty. The latter would expect me to remind the Committee that the Government have taken decisive action to support households to stay warm through, for instance, the energy price guarantee—as an aside, it is a pity that we have not taken decisive action to get the Room to stay warm at the moment, although that would not be up to the Government but to Parliament. This support is on top of the £37 billion cost of living support package announced in May, which provides targeted support for 8 million vulnerable and low-income households on means-tested benefits. Further support was announced in the Autumn Statement for next year, including £900 to households on means-tested benefits, £300 to pensioner households and £150 to individuals on disability benefits.
On the extension of the price cap to heating oil—which is dear to the heart of the noble Lord, Lord Teverson—the Government believe that, as the structure of the heating oil market is different, imposing a price cap below wholesale costs would simply drive many companies out of the market, thereby reducing competition, which could result in supply shortages.
The noble Lord also asked about support for those on heating oil. The alternative fuel payment scheme will provide a one-off payment to UK households that use alternative fuels for heating, such as heating oil or LPG, instead of mains gas. That £200 payment will ensure that all households that do not benefit from the energy price guarantee to heat their homes will receive equivalent levels of support for the cost of the fuel that they use.
I apologise, but I must come back to the Minister: where we are on the delivery of that scheme? As I understand it, it will go through local authorities. Is the cheque in the post?
There will be an application process. If the noble Lord has some patience, he might receive news on that in fairly short order.
On the proposal for extending the warm home discount, the Government have extended the scheme until 2026 and expanded it to £475 million a year in 2020 prices. The amendment also seeks to increase the winter fuel payment; the Government have already announced that the pensioner cost of living payment of £300 per household will be paid alongside the winter fuel payment.
Amendments 157 and 159 also refer to the introduction of a social tariff for vulnerable consumers. The warm home discount was introduced to replace various ad hoc forms of social tariff that we used to have. The energy price guarantee has been extended to April 2024 and, as we look beyond that, we will need to develop a new approach to consumer protection. That is why, as noble Lords will recall, in the Autumn Statement, we set out plans to work with consumer groups and industry to explore options, including social tariffs, as part of our wider retail market reforms. While I welcome the intention of these proposals, I hope that noble Lords will recognise that the Government are taking substantial measures in this area.
The noble Lord, Lord Teverson, will not be at all surprised by my reaction to Amendment 236. The Nuclear Energy (Financing) Act 2022 is mentioned in Amendment 157, and the noble Lord’s Amendment 236 seeks to repeal it. I wonder why we spent many days debating the nuclear Act only for it to be repealed with a stroke of the noble Lord’s pen. The Government will not accept his amendment as we believe that the Act is a key part of delivering new nuclear projects.
I know that the Liberal Democrats and the noble Lord have strong views on that legislation but, as he will remember, the Act passed unamended with the support of the Opposition. The regulated asset base funding model allows a company’s investors to share some of a project’s risks with consumers, which can lower the cost of finance for funding new nuclear power plants in the longer term. Given the role the Act has in meeting our nuclear ambition and the importance of new nuclear power in a secure, low-cost energy system, we will not accept the noble Lord’s amendment.
To clarify, I said that I did not expect the Minister to accept my amendment, but I did ask a serious question: when will the RAB model be applied? When will it start to go on energy bills? Is it still the Government’s intention that it should go on energy bills—and in the near future, given that the Government are moving ahead with their plans for Sizewell C?
The future funding of Sizewell C will be set out at the time, but it is certainly our intention to implement the provisions in the Act.
The noble Lord, Lord Teverson, also tabled Amendment 158 on network charges. Network charges have regional differences because there is a variation in the costs of transporting energy in different areas. Ofgem previously undertook a fairly comprehensive review of this area and concluded at the time that there was no compelling case to change the approach to national charges. It found that changing the model would mean that approximately 16 million households would face higher bills, and 11 million would see reduced bills. Action is taken where there are markedly higher network costs for consumers. For example, the Government’s hydro benefit replacement scheme provides annual assistance of more than £90 million to protect consumers in the north of Scotland from the high costs of distributing electricity. With those reassurances, I hope the noble Lord will not press his amendments.
The noble Lord, Lord Kennedy, is not with us, but I will say a word about his Amendment 156A. The Energy Prices Act has ensured support for households and businesses across the country. For households that fall outside the scope of the energy price guarantee, the costs of commercial energy contracts are also being capped by the Energy Bill Relief Scheme. In the longer term, the Government aim to ensure that consumers always pay a fair price for their energy, and that will be considered as part of the forthcoming energy retail strategy.
Finally, I turn to the amendments tabled in my name. I oppose that Clause 161 should stand part of the Bill. As noble Lords will be aware, this is because Clause 161 has been superseded by provisions in the Energy Prices Act 2022. I am grateful to the House for supporting it to be enacted extremely quickly. It enabled the extension of the price cap beyond 2023 and allowed it to be retained to help deliver the energy price guarantee. The longstop has been removed and more flexible arrangements have been introduced for ending the cap to ensure that regulation can keep pace with changing conditions in the energy market. The clause is therefore no longer relevant and, in my humble view, should not stand part of the Bill. Consequently, I have also tabled Amendment 245A to remove the commencement provisions for Clause 161.
Can I clarify the Minister’s remarks on the social tariff? He recognises that the price support scheme is essentially temporary, welcome though it is, and the warm home discount is a fairly crude measure in that it does not relate to the particular structure of bills of individual vulnerable consumers. Does he not like the term “social tariff”? Does he recognise that, when this emergency period is over, it would be sensible to look again at the whole structure of support for vulnerable consumers on a more permanent basis, so that it can address their individual and collective requirements? Some of them have quite high unit cost bills, which are not directly affected by the warm home discount. Is he rejecting a review of the situation entirely or just objecting to giving it a title that he does not particularly like?
I forget who said that you can reverse the meaning of anything by putting the word “social” in front of it: social democracy, social work and various other things—I do not mean that seriously, of course. I have nothing against the title “social tariff”; my argument is merely that the warm home discount was introduced to replace the original ad hoc social tariff arrangements because it was deemed to be a better system that does essentially the same thing. The whole principle of a social tariff is to provide a discount for certain vulnerable consumers. That is also what the warm home discount does, in our view more effectively. We said we would work with consumer groups and others to review the whole system. Frankly, I do not mind what it is called; it is about producing the most effective system of support that we can, always bearing in mind the costs of such a scheme.
I thank the Minister for his comments on Amendment 156A. I will relay them to my noble friend Lord Kennedy and look forward to future developments, as he outlined. I also thank my noble friend Lord Whitty and the noble Lord, Lord Teverson, for their amendments and discussion on the very important issues around social tariffs. As has been highlighted, I am convinced that we will come back to discuss these long-term issues, although we recognise the support that has been given to vulnerable users in recent months.
We do not support Amendment 236 in the name of the noble Lord, Lord Teverson. However, we think there is merit in the Government paying closer attention to customer involvement in the regulated asset base. If things go ahead as envisaged, the customer will be involved in funding nuclear plants. As has been outlined, it is crucial that customers have a closer role in monitoring how that money is raised and spent. With that, I beg leave to withdraw my amendment.
Amendment 156A withdrawn.
Clause 161 disagreed.
Amendments 157 to 159 not moved.
Clause 162 agreed.
Clause 163: Payment as alternative to complying with certain energy company obligations
Amendment 160 not moved.
Clause 163 agreed.
Clause 164: Smart meters: extension of time for exercise of powers
160A: Clause 164, page 139, line 14, at end insert—
“(5) Within six months from the date of the provisions of this section coming into force, the Secretary of State must produce and lay before Parliament a report setting out options for securing a guaranteed roll out of smart meters to at least 70% of coverage in all regions and nations of the UK by 2025.(6) The report must consider among other options—(a) mandation of smart meter installation;(b) transfer of responsibility for smart meter roll out to Distribution Network Operators; and(c) date limited phase out of non-smart meters.”Member’s explanatory statement
The Bill extends the time frame (for the third time) by which the smart meter roll out can be completed. This amendment suggests that the Government report should be aiming for at least 70% coverage in all regions and nations of the UK by 2025 and proposes policy options to meet the target.
My Lords, we come to smart meters—again. I think the smart meter rollout started when the noble Lord, Lord Henley, was BEIS Minister, in 2016 or thereabouts, and it was extended in 2018 and 2020. We are all on the same page with smart meters—we want them installed throughout the country, we want them to be smart and we want them to work—but we have not got there yet. This Bill extends the timeframe by which smart meters will be rolled out. This amendment suggests that the Government should aim for at least 70% coverage in all regions and nations by 2025.
The official national smart meter rollout began in 2016, as I said, and was meant to finish in 2020, after an extension in 2018. Installations were paused at the start of the coronavirus pandemic and suppliers have been given additional time to install smart meters. Energy firms had until December 2021 to take “all reasonable steps” to install smart meters in homes and small businesses. They now have until the end of 2025 to install them in all remaining homes and businesses, with annual installation targets that they have to meet.
Until 2019, the majority of smart meters installed were what were known as first-generation, or SMETS 1, meters. They had a series of technical problems, particularly that they are prone to losing their smart capabilities if you switch energy provider. The information is no longer relayed and therefore the advantages of planning on the part of the suppliers and savings on the part of the customer are lost. Energy companies were encouraged to stop installing these by March 2019 and start installing second-generation, or SMETS 2, smart meters. So far, more than 11 million second-generation smart meters have been fitted.
The biggest year yet for the national rollout was 2021. By September 2021, 26.4 million smart and advanced meters had been installed, representing 47% of coverage. Installations were up 21% on the previous year. In September 2022, the UK surpassed 19 million smart meter installations since 2012. ElectraLink data shows that nearly 209,000 smart meters were installed in September 2022, 6% more than in September 2021. Analysts estimate that there have been 1.7 million installations in the first nine months of this year, slightly below the target of 1.8 million installations in the first nine months of last year. However, in October 2022, the Telegraph reported that energy companies are set to miss their targets for installing smart meters this year amid reports of supply chain and staffing issues.
The smart meter factsheet for the Bill states that:
“Under section 88 of the Energy Act 2008, and associated sections of the Electricity and Gas Acts, the Secretary of State has powers to modify energy licence conditions and industry codes for the purposes of the rollout of smart meters. These powers are currently due to expire on 1 November 2023. This measure provides for these powers to continue … until 1 November 2028”
—a further five years. On when the rollout will finish, it says that:
“The Government wants as many households and small businesses across Great Britain as possible to benefit from smart metering”—
as do we all. It continues:
“Therefore, minimum annual installation targets for energy suppliers were introduced at the beginning of 2022 to drive rollout momentum. This Targets Framework will be in place until the end of 2025, with installation targets for the final two years of the policy to be set during 2023.”
I agree that the extension is necessary. As the factsheet says,
“This measure will ensure that Government can continue to drive the rollout of smart meters across Great Britain by enabling us to effectively deliver the current Targets Framework and ensure we maximise the long-term benefits of a market-wide smart metering system following a post-implementation review of the rollout after 2025.”
I beg to move.
My Lords, I declare an interest in that every month I have to disappear under the stairs in my house with a camera with a flash on it to take a photograph of my ancient meter and then walk back to my laptop and submit my meter reading. In the other property, where I have some control over the electricity, I have a smart meter but it has gone dumb, so I still have to go over there, open the cupboard, take a photograph of it and send the information back to the other electricity supplier, because it is a SMETS 1 meter that went dumb when the energy supplier was changed. In my own house I have asked three times for the meter to be replaced but I have not been able to get that to happen.
I remember during the passage of one of the other Energy Acts having an agreement with the noble Lord, Lord Grantchester, who I greatly like—ah, excellent, he is coming in behind me. When the Government moved the date to 2023, we said to them, “You’ve got no chance of completing this programme by 2023 as you want; why don’t you save yourself the problem—we all admit that this is a difficulty—and extend it?”. The Government still insisted on 2023 being the date by which this rollout would be completed. In the Bill there is a total admission of the failure of that rollout, because it has to go back to 2028. As the noble Lord, Lord Lennie, stated, this rollout started in 2011. We had a 2020 target at that time and we have got nowhere near it.
Another statistic comes out to me—the noble Lord, Lord Lennie, got hold of the September quarterly figures; I am afraid that I only got to June, so my apologies for that. There was celebration that smart meters had now got to more than half of the premises they were meant to—only half, so half of the premises do not have them. Of those installations, 29.5 million were in homes and SMEs but only 26 million of those were operating smart meters, so that brought it down to 45%. Certainly, when I looked at the installation rates over the last period, never mind the problem with lockdown and the whole Covid issue, I saw that there has been a decline, quarter on quarter, in the monthly installations taking place, so this has clearly not worked.
We have a smart meter rollout but a dumb rollout system. Something that is clearly a problem here is that the system for doing this is so complex that it can hardly work. That is why I welcomed a reflection in the amendment from the noble Lord, Lord Lennie, and in my amendment, that the obvious way to make this work is to give it to the DNOs and to work with local authorities on a street-by-street basis or in village clusters to get this thing done. It is clear that we need a smart meter system to move down to smart appliances where we can have a much quicker and better decarbonised electricity system—probably for gas as well, but it is the electricity system that benefits from that.
We have a complete failure of this system. We also have communication problems in the northern region—they are very off and on as to whether they work properly. This system is not good. I beg the Government to be courageous, cut out the system as it is at the moment, get the DNOs to do it in conjunction with local authorities, and you will get a result: it will happen.
I believe my Amendment 161A on prepayment meters is important. The Minister will know, but something like 10% of all meters are prepayment meters. One of the problems with those is that at the moment, with the energy crisis we have, people can just self-disconnect. If they do not have the money or have to spend their money elsewhere, they just do not fill up the meter. No one really knows about that—they are just not used. One of the things we are asking for here is priority for the rollout of prepayment meters; the dumb ones should be replaced by smart meters before the end of 2025. Then you can start to tackle the self-disconnect problem—it is controllable and beyond the consumer.
My Amendment 161AZA would also give the Secretary of State the opportunity to stop self-disconnection through prepayment meters. I am not quite sure how that would work, but I feel that this is a real crisis area that we should all be concerned about and try to find ways to address. It is clear that it is the most vulnerable citizens who are on prepayment meters. Smart meters are one way of solving disconnection, so that is something we should concentrate on. We can also use technology such as apps, rather than cash and other means. I will be interested to hear the Minister’s views on how we tackle prepayment at the moment. I know he has talked about various schemes that we have had before, but I look forward to his response on that.
The real challenge on smart meters is getting rid of the dumb system that does not work at the moment. Let us get a change, decide to do it a different way and roll these things out effectively.
The noble Lord, Lord Teverson, has spelled out exactly a problem with the meters. An additional problem is the disillusionment of the consumer. We started with great expectations that the SMETS 1 meters would work; they did not. The rollout has been wrong, the information to the consumer has not helped and the word on the street—or off the street—is that, basically, smart meters do not work. Only a very small minority of people are using them properly, even the latest ones, so any new scheme or intensified rollout needs to be accompanied by a very clear informational and educational process. Maybe the DNOs have to do it. One way or another, we cannot rely on individuals overcoming their suspicion of the system and wholeheartedly endorsing a system we were relying on to solve a lot of the problems of energy efficiency and escalating energy prices in the domestic sector. It will require not only the physical installation of the systems but a mindset change on behalf of consumers.
I thank noble Lords for their contributions. In a second I will say more about the details of smart meters, which come under my ministerial portfolio, but I will start with Amendment 161 from the noble Lord, Lord Teverson. The option of a DNO-led rollout was extensively consulted upon at the start of the programme. It was discarded as an inappropriate model for a rollout that has always prioritised consumer benefits. If the noble Lord did my job and received some of the letters and complaints about DNOs that I do, I suspect he might have slightly less faith in their ability to roll out the smart meter system.
The Government have also learned from the international smart meter programmes where network-led rollouts have not delivered the benefits envisaged. Research shows the importance of consumer engagement to maximise take-up and enable households and small businesses to save energy. Frankly, it does not make sense for organisations with almost no consumer interaction to lead the rollout.
A street-by-street approach by network operators is not as practicable as it would seem, as it would obviously require a whole road of people being at home at the same time—and indeed consenting to have them fitted. Changing the delivery model for the rollout in such a fundamental way, at what is now a fairly advanced stage of the programme, would risk delaying the programme and reducing consumer benefits. I will come back to more on smart meters later.
I turn now to Amendment 161A, also in the name of the noble Lord, Lord Teverson, and the replacement of legacy prepayment meters. The Government agree with the noble Lord’s assessment that smart meters offer a better service than legacy prepayment meters. The smart prepayment rollout is making good progress; the most recent figures showed that 13% of all smart meters were in prepayment mode, which is broadly in line with the overall levels of prepayment meters in the market.
A mandatory approach to installations would present considerable practical barriers. We have to look at this logically: some people have principled objections—perhaps bizarrely, but they do. For those who refuse, we would in effect be saying that energy suppliers would need to obtain forced powers of entry, to break into someone’s home against their will and compulsorily install a smart meter. That would add severe civil liberties implications; I much prefer a carrot approach, rather than a stick approach. It would also reduce installation capacity, be costly and, of course, be extremely intrusive for consumers.
The Government continue to closely monitor smart prepayment delivery. The existing smart metering powers, for which we are seeking an extension in this Bill, enable the Government to take further action to support the prepayment rollout, if needed.
The noble Lord also proposes that we plan to end prepayment meter self-disconnection. As I said on an earlier group of amendments, the Government have provided £37 billion in cost of living support this year. Support is easier to access for those with a smart prepayment meter. It has in fact been quite problematical to roll out to those who do not have a smart meter; they have to apply for vouchers, have them delivered and go to their local shop and so on—take-up is lower than it is for the main scheme. The £400 Energy Bills Support Scheme discount is applied automatically for those on smart prepayment meters, as it is for those on normal credit meters. There is also no need to obtain or redeem a voucher.
I can also tell the Committee that there are strict rules in place to protect energy consumers, particularly vulnerable consumers. This means ensuring that prepayment meters are accessible and considering whether a consumer’s vulnerability makes a prepayment meter a poor choice.
Ofgem rules protect prepayment customers from disconnection. Energy suppliers are obliged to make emergency credit available where that is technically feasible, or otherwise provide alternative, short-term support, and to take all reasonable steps to proactively identify prepayment meter customers who are self-disconnecting and provide the appropriate support. The Government welcome the steps that Ofgem is taking to ensure that energy suppliers comply with their obligations, including through its market compliance review into customers who are struggling with their bills.
Turning to Amendment 161AZA in the name of the noble Lord, Lord Teverson, on restrictions around the installation of prepayment meters, the Government recognise the importance of protecting consumers, particularly those having payment difficulty and in debt. There are, however, already robust protections in place, as well as significant financial support for all consumers. It should not be forgotten that many households prefer to pay for their energy by prepayment meter as this allows them to control and budget for the amount they spend and mitigate the risk of going into or exacerbating existing debt. Ofgem rules already require energy suppliers to offer a prepayment service only where it is safe and reasonably practicable to do so, and these apply whether a meter is smart or traditional.
There are clear requirements for suppliers on the steps to take before installing a prepayment meter for debt or switching a smart meter from credit to prepayment mode. These steps include conversations to discuss debt repayment, budget management and energy efficiency measures or referrals to debt advisers and charities. Before a prepayment meter is chosen as the debt repayment pathway, they must establish whether this is safe, and the customer’s ability to pay has to be assessed. Suppliers have to give their customers seven days' notice before installing a prepayment meter or switching a smart meter to prepayment mode, and they must have already allowed a customer 28 days to repay their debts. Ofgem recently published a letter in which it set out its expectation that suppliers should ensure prepayment meters are safe and reasonably practicable in every case, and should act quickly to change the meter to non-prepayment where necessary.
Let me highlight some of the circumstances in which it is not deemed safe to have a prepayment meter. They include having specific disabilities or illnesses, or having children under the age of five. It is important that the rules that are in place are strictly enforced. Following its market compliance reviews in recent months, the Secretary of State has additionally asked Ofgem to do more to ensure that suppliers are complying with the rules that are in place and that they are fulfilling their licensing conditions.
Amendment 160A, in the name of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, is concerned with the coverage of smart meters. Let me reassure noble Lords that the Government want as many houses and small businesses to benefit from smart metering as possible. We have taken measures to normalise smart metering as the default meter offer across Great Britain. Under the smart meter targets framework, energy suppliers are set minimum annual installation targets to drive rollout momentum.
Regarding the options that noble Lords have set out, I have explained that a transfer of responsibility for the rollout to distribution network operators would risk slowing down progress considerably. I said earlier that mandating smart meter installation, or a date-limited phase-out of non-smart meters, would prove problematic. The noble Lord, Lord Teverson, is unfortunate if he is one of the few remaining customers who has a SMETS 1 meter that has not yet converted to a SMETS 2 meter, or, rather, a meter that has regained its smart capability. He is right that a number of SMETS 1 meters were installed initially that went back into dumb mode when supply was changed. I have been in correspondence with the data communications company about that, urging it to improve the conversion, which is done remotely by software update.
If I may, I will just point out to the Minister that I may be one of the few, but I am actually one of 4 million.
I will confirm the exact figures for the noble Lord. The latest numbers I have were considerably less than that. I do not have the figures in front of me, but I will certainly check that.
I have met the chief executive of the data communications company to discuss this a number of times over the last year, and the vast majority of SMETS 1 meters have now been remotely updated. I was told that conversions by software updates for the few that remain have been attempted on half a dozen different occasions. Presumably in such circumstances the only option for the suppliers, if they cannot be remotely updated, will be to switch them to SMETS 2 format. The vast majority have been updated, but I will get the latest figures for the noble Lord. If I am wrong on my figures, I apologise, but my impressions certainly from the discussions with the DCC is that the vast majority have been remotely updated by software updates and should therefore be able to operate in smart mode.
There are, of course, a number of other problems in the rollout; for instance, blocks of flats where the meter is a considerable distance away from the property. Different technological solutions are being developed for those and are in the process of being rolled out. There was a particular difficulty at Fylingdales, in Yorkshire, where there was interference in the signal, but again technological solutions have now been rolled out for them.
Finally, I will tell noble Lords the story of my noble friend Lady Bloomfield’s hairdresser, who attended her to coiffure her excellent hairstyle and remarked on how great her in-home display was in enabling her to monitor her energy usage in real time, saying, “I need to get one of those”. When my noble friend said that it was a smart meter, the hairdresser replied, “I don’t want a smart meter—I want the display”. So we still need to provide a lot of education for consumers.
I know that noble Lords will have seen the PR and advertising campaign being rolled out at the moment by a smart energy company to try to drive rollout. I remain of the view that it is much better to incentivise consumers to voluntary adopt them rather than to mandate their installation. Indeed, in the last year or so, my own postbag from MPs has switched from a number of people writing to say that they do not want a smart meter and questioning why the companies keep writing to them to ask if they want one, to a number saying that they now want one but cannot have one because they live in the 0.5% of the country which is not reached by either the mobile signal or the Arqiva long-range radio signal. So I think that public attitudes are switching, and many more people are now willing to take smart meters. As the noble Lord, Lord Teverson, said, we are now at about 50% adoption. We need to keep pressing to persuade other consumers to take them and to roll out the solutions to the more difficult and hard-to-reach areas—and that will continue.
The decision to take a voluntary approach is right; it was informed by consumer research which found that making installations mandatory was counterproductive. It acts against the British spirit, if I may put it like that: people do not like being instructed to do something; they would much rather voluntarily decide that it is a good thing for themselves. To have mandatory installations risks causing considerable consumer animosity and reducing levels of engagement. Consumer demand for smart meters remains strong, and we do not believe that making them mandatory is necessary.
The Government have confirmed that a mid-point review of the targets framework will take place in 2023. That will assess the latest available evidence on the progress of the rollout and consider how the framework can best drive the highest levels of smart coverage by the end of 2025. There will be a consultation and a government response on the review, which will serve the purpose of the report requested by many noble Lords.
Therefore, I hope that, with the account of my noble friend Lady Bloomfield’s hairdresser and the other reassurances I have been able to provide, noble Lords will feel able to withdraw their amendments.
I just want to make the point that we are coming up to three years after the programme was supposed to have finished. Where are we now? On the smart meters that work, in June—I do not have the figures for after that month—we were 45% through a programme which we should have completed two and half years ago. It is a failure.
I have been a strong advocate of smart meters. Perhaps the Minister’s research is different from mine but in continental Europe, according to my understanding of the research I have done, the model for rollout that has been successful is through the equivalent of DNOs. However much you defend it—I am sure that the Minister wants the programme to be as successful as I do—it is a failure, so it needs changing. I do not know whether he has seen the organogram of all the organisations involved in rolling out smart meters, but it is one of the most complicated that I have seen. It is too complicated and clearly does not work. I finish with those words, but I feel strongly that, while smart meters are really important for the delivery of a modern, dispersed and clean energy system, we are just not getting there.
I do not agree with the noble Lord. Obviously, during the pandemic, rollout ceased because people did not want people in their properties, so it was impossible to do it and the target was missed during those periods.
Clearly, we both have the same objective: we want to drive rollouts as quickly as possible. I remain of the view that the existing framework is appropriate. Rollout is proceeding; many thousands are being installed every week. Of course, we would always like to see faster progress, and one reason for taking the additional powers is to drive faster rollouts.
The performance of some suppliers is better than others. Maybe at some stage it would be good to have league tables of suppliers to judge them against each other. Some are excellent at promoting them, and some, because of their business models, are not so good, so perhaps a bit of public naming and shaming would be the appropriate way to go forward on this.
We all share the same objective, and I am certainly willing to consider any good suggestions for how we can drive the rollout further, short of mandating their installation, which would be a retrograde step.
My Lords, did the Minister’s hairdresser end up with a smart meter, or not?
Not yet. It was only last week.
Okay. The issue is that if we carry on doing the same thing over and over again, we will get the same result. We will not get to the end of the smart meter rollout until the end of this century. It seems crazy that the Minister cannot accept that the rollout has been a failure overall. We all want this to succeed.
I remember our discussion right at the beginning about whether we should incentivise customers to take smart meters because they would be fearful of this thing coming into their houses and would not know what was going to happen with it. The response was, “Oh no, everyone will want one of these things, they’re marvellous. You’ll see how much energy you use and how much it’s costing you, we’ll get half-hour rollouts of energy supply issues, it’ll be a just in time system and perfect for the new world.” That is not happening.
We have to get to at least 70% rollout by the end of the extended period allowed by the Bill. Otherwise, we will end up with insufficient data on which to make the judgments that need to be made. On that basis, I beg leave to withdraw my amendment.
Amendment 160A withdrawn.
Amendment 161 not moved.
Clause 164 agreed.
Amendments 161A and 161AZA not moved.
Committee adjourned at 7.03 pm.