1: Before Clause 1, insert the following new Clause—
“Principal purpose(1) The principal purpose of this Act is—(a) to increase the resilience and reliability of energy systems across the United Kingdom,(b) to support the delivery of the United Kingdom’s climate change commitments,(c) to reform the United Kingdom’s energy system while minimising costs to consumers and protecting them from unfair pricing, and(d) to improve the overall efficiency of the United Kingdom energy system and economy.(2) The Secretary of State must report to Parliament annually on—(a) how the resilience and reliability of energy systems across the United Kingdom are being increased;(b) how the United Kingdom’s climate change commitments in relation to energy are being delivered, including updates on—(i) the decarbonisation of existing electricity usage, and(ii) the electrification of processes in the United Kingdom so that they are powered by electricity rather than other primary energy sources;(c) how costs to consumers are being minimised and how unfair pricing is being avoided.(3) In performing functions under this Act, the Secretary of State and any public authority must have regard to the principal purpose set out in subsection (1).”
My Lords, the Bill has had a protracted journey through this House. I make it around eight months since Second Reading, and the global energy system and its impact on households has never been far from the top of the headlines over that whole tumultuous period. So although we may not see some of the passions we saw on display in the previous debate on the Public Order Bill, it underscores the vital importance of many of the issues we are going to talk about today. As Vaclav Smil said in his excellent work Energy and Civilisation:
“Energy is the only universal currency: one of its many forms must be transformed to get anything done.”
It is a pleasure to open the debate on Report and I look forward to this really important legislation making its way to the other place and, I hope, on to the statute book very soon.
I thank the noble Baroness, Lady Worthington, for her support of my Amendments 1 and 136 in this group and for her help in developing them. I declare my interests as an engineer and project director with Atkins, working on the energy system, and as a director of Peers for the Planet. Upfront, I thank the Minister and his team for meeting me and for all their engagement on these issues.
I was keen to come back to this issue on Report due to the number of developments in this area since Committee. Without repeating much of what I said then, back in September last year—again, it has been a long journey on the Bill—it is worth coming back to the headline concern I raised and that I want to progress with this amendment. Electrical generation and distribution is at the core of the net-zero energy system, being the enabler for ambitions in so many other areas.
We are not building electrical generating capacity or network capacity anywhere near quickly enough to meet the Government’s aspirations—and not just the 2035 decarbonisation target. Setting it aside for one moment: if we do not manage to vastly increase our generating and network capacity over the coming decade, all the other aspirations, in terms of energy security, decarbonising heating, the uptake of electric vehicles and hydrogen production, will simply not be possible at scale. That is why Amendment 1 places the electrical generating system at the core of what the Bill is trying to achieve by setting out its principal purpose.
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Our amendment offers a really good approach to setting a clear pathway and a plan for the electricity system to 2035, ensuring that it is recognised in the Bill that this is the linchpin of the net-zero system. However, if the Minister does not think that the Bill is the right place for it, I would like some reassurance on two things. First, can he confirm that work is under way in the department to produce a delivery plan for a 2035 energy system and what the scope of that plan will be? Secondly, can he give a timescale within which this will be issued?
I support the other amendments in this group on Ofgem and look forward to the upcoming speeches from noble Lords on them. I also look forward to hearing from the Minister and hope that he can provide the reassurance I am asking for. I beg to move.
My Lords, I declare my interest as co-chair of Peers for the Planet. I will speak to my Amendment 133. I am grateful for the support of my co-signatories: the noble Lords, Lord Hollick and Lord Teverson, and the noble Baroness, Lady Altmann.
I also very much support the case for Amendment 1 made by the noble Lord, Lord Ravensdale. One phrase stuck out for me: his advocation of a “coherent, system- level plan”. In so many of the areas around energy efficiency that we will deal with later in the Bill, this is what we have been missing—not individual initiatives but a strategic approach, with time limits, timescales and targets to be met, so that we can see delivery.
I also support Amendment 130 from the noble Lord, Lord Teverson—which is a different approach to achieving the same goal as my Amendment 133—and Amendment 132 in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake of Leeds, which would finally ensure that the long-awaited strategy and policy statement setting out the Government’s priorities would be published within six months. I very much hope that the Minister can respond positively to that and say that that statement is imminent.
Ofgem’s current remit pre-dates the 2050 net-zero target set by Parliament in 2019. Amendment 133 gives Ofgem a specific statutory net-zero objective linked to our climate change targets, in so doing mirroring the remit that the Government are giving the future systems operator. In Committee, the Minister said of similar amendments updating Ofgem’s remit that the Government “agreed with their intent” but did not consider them necessary because of the existing decarbonisation objective, referring to the 2010 change to Ofgem’s remit, which included a non-specific greenhouse gas reduction objective.
However, this existing duty is limited and related to the reduction of electricity and gas supply emissions of targeted greenhouse gases only—in other words, to reduce greenhouse gas emissions by an unspecified amount over an unspecified timescale. It does not link to our net-zero targets and as a result is less specific and ambitious than what the Government are legislating for the future systems operator.
My Lords, I declare my interest as a member of Peers for the Planet. I am speaking specifically to Amendment 133—so excellently spoken to by the noble Baroness, Lady Hayman—to which I have added my name. I also support the other amendments in this group.
As the noble Baroness, Lady Hayman, has made clear, the future systems operator, which will regulate under the terms of the Bill in future, will have a statutory net-zero objective linked specifically to our climate change targets. Currently, Ofgem does not have that, and this amendment simply seeks to bring it into line. The consequences of an ill-defined and time-limited free objective to reduce greenhouse gas emissions is that Ofgem is not giving sufficient weight to net zero and focusing instead on near-term energy costs, which do not properly recognise the cost impacts for future consumers of delaying specific action to achieve net zero.
The network companies are therefore currently incentivised not to plan ahead. Instead, they are encouraged to defer investment to the last possible moment, and not to anticipate the increases in long-term demand that we are all aware are coming. This has discouraged future-proofing of our energy infrastructure and left us with an ageing network infrastructure that is not really fit for purpose now, let alone for 2050, with constraints and delayed reinforcements being a barrier to connections for housing developments and to the connection of low-carbon power, transport and heating. The reality is that we will need much more grid infrastructure due to the decarbonisation of heat—which is commendably legislated for in the Bill—and of transport through the increased take-up of electric vehicles.
The Financial Times reported last year that renewable energy developers are being told that they will have to wait six to 10 years to connect to regional distribution networks. RenewableUK has highlighted that, in Scotland, a significant number of offshore wind farms that were granted leases last year by the Crown Estate Scotland will not be able to get a grid connection until the mid-2030s. Clearly, there is not a sufficient sense of urgency. Indeed, part of this is likely to be due to the non-specificity of the timescale for achieving net zero that Ofgem currently has.
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I care as much as anyone about rising energy prices. I realise that consumers must be looked after. The cost of infrastructure is going to impact on bills. Nobody wants to pay more needlessly. If we look to the long run, it is worth being more specific and adding these kinds of targets to Ofgem’s remit now. The amendment will not upend Ofgem’s other duties. The interests of current and future consumers will still be considered as a whole. They will continue to include security of supply and fulfilment by the authority of its designated regulatory objectives. All this will do is to give a renewed, sharper focus.
I ask the Government to think again about these proposals. As the noble Baroness, Lady Hayman, said, they have industry-wide support. I will listen carefully to my noble friend’s response.
My Lords, I am aware of the desire to get to votes, so I shall be brief. It is a great pleasure to follow the noble Baronesses, Lady Altmann and Lady Hayman. They have overwhelmingly made the case for Amendment 133 and the need for the systems operator to have that net-zero duty.
I shall briefly address Amendment 1, which sets the tone and direction of this debate in an important way. The noble Lord, Lord Ravensdale, and the noble Baroness, Lady Hayman, made the case for the need for an energy system to deliver for net zero. I want to focus on one word in Amendment 1—“resilience” and the need to increase it. We are now in the age of shocks. So many shocks have hit the world and our country, whether they be climatic, health or economic. There is a need for resilience. There is an idea that we can pick off these new, shiny technologies and say, “Great, we will chase after this or after that”. We should look at the basics, starting with an energy system which understands that the cleanest, greenest, cheapest, best possible energy is the one you do not need to use.
I am not sure that the report is out yet, but it is worth noting anecdotally the interesting experiments in energy demand that have happened during the winter. They will ensure that we can manage the peaks of demand and have less need for generation overall. I wanted to set out that focus on resilience because, in later amendments, we will get to the issue of community energy—local energy generation systems in local communities, spread around our islands. These will give us a real foundation of resilience and security that we desperately need for the future.
My Lords, perhaps for the purpose of the whole of Report, I should declare my interest at chair of Aldustria Ltd, which is concerned with battery storage.
I liked the speech by the noble Lord, Lord Ravensdale, today, as well as the speeches he gave on the levelling-up Bill debate yesterday evening. There is an important need for an understandable programme that moves us forward—a route map that works, rather than just targets and slogans. Of course, we will have Green Day on Thursday. When the Minister replies, could he give us a few clues as to what will be said then? The House would be all ears and grateful for the advance information. I thought that the net-zero report, commissioned by the Government and produced by his honourable colleague, Chris Skidmore MP, was an excellent document. I hope that the Government can say that we will be moving ahead in a comprehensive way in much of the area under discussion.
I will speak mainly about the three amendments that we have around Ofgem. It is just stark staringly obvious that Ofgem, our regulator for the energy industry, should have a net-zero objective. I cannot see how you can argue against that, for all the reasons that the noble Baronesses, Lady Hayman and Lady Altmann, have gone through so well. If there was one example of that to me, it is that Ofgem has clearly been very effective in its own mind at making decisions for customers of today but has been utterly unable to make decisions for customers of future generations. That area of the grid is now utterly incapable of delivering; whether it is offshore, onshore or developments on the residential side, those connections and that grid are unable to help us to move towards those net-zero objectives. On connection dates, I know one of 2035, which just happens to be the year when the Government’s target is to have finished decarbonising the electricity grid. Clearly we are not going to make that unless we move it forward very quickly, and I have concerns that we will already not be able to meet it.
My Lords, my thanks to noble Lords who have spoken in the debate: the noble Lords, Lord Ravensdale and Lord Teverson, and the noble Baronesses, Lady Hayman, Lady Altmann and Lady Bennett. I will quickly review what I think they said and set out our amendment.
The noble Lord, Lord Ravensdale, set out the principal purpose for the Bill. Split in four ways, it will: increase energy systems’
“resilience and reliability … support the delivery of the UK’s climate change commitments … reform the UK’s energy system while minimising costs to consumers and protecting them from unfair pricing”,
and improve the overall efficiency of the UK energy system and economy. It also requires an annual report to Parliament on the above. The first three of those points are lifted directly from the opening paragraph of the Explanatory Notes, while the fourth is also an objective of the ISOP simply made wider.
Labour tabled an amendment in Committee, and I will remind noble Lords of its contents. The context of that was, at that time, the cost of living crisis; the energy price cap was going up to £3,549 per year. National Energy Action predicted that the number of UK households in fuel poverty would rise to 8.9 million. Tory leadership candidates at that time were vying for leadership to be Prime Minister but were running away from the issue of net zero; the High Court found that the net-zero climate strategy was inadequate, and the Climate Change Committee found that credible plans existed for only 39% of emissions, citing “major policy failures” and “scant evidence of delivery”. As regards energy security at that time, gas prices were expected to surge to record highs the week after the Nord Stream 1 pipeline was shut down, and European prices had risen by nearly 400% over the past year. The UK relies on gas for about 40% of its power generation, and even more on the coldest days when demand is high and wind generation tends to be low. In 2017, a BEIS report included a scenario for a complete cut-off of Russian gas and found that the UK could see “significant unmet demand” if the cut was prolonged and continental European countries paid whatever was necessary.
First, I thank the noble Baroness, Lady Worthington, and the noble Lord, Lord Ravensdale, for bringing forward Amendments 1 and 136 and the noble Lord, Lord Teverson, for his contribution to the debate. As I set out in Committee, although the Government believe these amendments are well intentioned, ultimately, they are unnecessary. First, the Bill has a clear purpose, so I do not think any introductory clauses are necessary. Where appropriate, the Bill already sets out fairly clear objectives and general duties for the Secretary of State and other specified bodies in carrying out their functions under the relevant parts.
Secondly, in regard to an annual report, I assume noble Lords are aware that the Energy Act 2013 introduced the power for the designation of a strategy and policy statement that sets out the Government’s strategic priorities for energy policy, the roles and responsibilities of those implementing such policy, and the policy outcomes that we want to see achieved. We have committed to a second statutory consultation this spring. I therefore believe that an annual report to Parliament would cause unnecessary duplication of the existing strategy and policy statement.
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What is missing as a first step to give industry direction is a clear delivery plan for how we are going to achieve targets for our power-generating system. Amendment 136 achieves this by requiring this plan to be produced and setting a clear, measurable pathway for what needs to be achieved each year to 2035. The need for such a plan has been set out clearly in two recent reports published since Committee: the NAO report, Decarbonising the Power Sector, and the CCC report, Delivering a Reliable Decarbonised Power System. Both of these starkly highlight the challenge the Government have in meeting that 2035 target. The CCC and previous BEIS analysis state that we need to get to approximately 250 gigawatts of installed capacity by 2035 from a current base of around 108 gigawatts. Imagine the huge complexity and scale of our current energy-generating system. We need to build it all over again, and more, in 12 years. We have not, historically, come close to the build rates that would be needed to achieve that.
If we look at all the risks in terms of achieving our energy security and decarbonisation ambitions, the one that should really be flashing red on the Government’s dashboard is the risk of not achieving sufficient low-carbon generating and network capacity by 2035. But the important point made in the NAO report is that we cannot even make an adequate assessment of that risk, because we do not have a coherent delivery plan to back up the Government’s ambitions. I know that BEIS and now DESNZ have perhaps had one or two distractions in terms of the energy system over the past year, so the position we are in is understandable. But now the Government need to come back to this issue with real urgency.
As the National Audit Office states:
“The longer DESNZ goes without a critical path bringing together different aspects of power decarbonisation, the higher the risk that it does not achieve its ambitions, or it does so at greater than necessary cost to taxpayers and consumers”.
The Government have individual targets for solar, wind and nuclear, but these need to be brought together into a coherent, system-level plan, the delivery of which will see so many attendant benefits for the country in economic growth, energy security, decarbonisation and the health and well-being of the population.
The change advocated in Amendment 133 has broad support, as was recognised by the Government in their consultation on the future systems operator. The Government themselves noted that
“there were several strong calls for Ofgem’s remit to be reformed to focus on enabling net zero”.
The change was recommended in a report by your Lordships’ Industry and Regulators Committee, chaired by the noble Lord, Lord Hollick, and was also recommended this year by the Skidmore review and the Climate Change Committee. The latter argued that:
“Giving Ofgem a net zero responsibility”
will help it to
“think … strategically about the changes that lie ahead so that we can minimise the cost to the consumer in the long run.”
Just yesterday, the National Infrastructure Commission, in a fairly coruscating report on the Government’s progress towards reaching net zero, recommended the change in its Infrastructure Progress Review.
Support does not end there. The new duty is strongly endorsed by the main industry trade bodies: Energy UK, whose 100 members deliver nearly 80% of the UK’s power generation and over 95% of the energy supply; RenewableUK, which represents 1,000 businesses employing 250,000 people in the UK; and the Energy Networks Association, whose members include every major electricity and gas network operator in the UK and which employs 40,000 people in Great Britain.
This is not just a matter of semantics. The reason all these organisations and bodies support this change is that they believe it essential for increasing the pace and scale of investment in the UK’s electricity grid, which we were hearing about earlier, in order to deliver net zero and ensure that long-term planning happens at the pace needed. As the noble Lord, Lord Hollick, who cannot be with us today, said when we were debating a similar amendment in Committee:
“Many of our witnesses”
at the Select Committee
“told us that the net zero target should be included explicitly within Ofgem’s strategic duties … If there is no explicit reference to net zero, there is a danger that the decisions will be very short-term in nature, focusing on short-term costs for consumers and not the long-term costs of failing to achieve net zero and invest in the infrastructure necessary to achieve that.”—[Official Report, 16/1/23; col. GC 418.]
The trade bodies that represent the industry have been clear that they consider the lack of a clear duty that specifically refers to our net-zero targets as a reason why there has been historic underinvestment in the grid. Ofgem is not currently empowered to consider the benefit of long-term investments with sufficient weight, meaning that new renewable infrastructure is having to wait years to connect to the grid in some cases. This is not a case of it saving the consumer money, as it will cost more in the long term if we continually, but only slowly and incrementally, improve localised energy grid infrastructure. To put it colloquially, it will mean repeatedly digging up the road many times over, rather than digging it up once and for ever.
As RenewableUK has commented to us, at present
“grid development only takes place when there is overwhelming demand for it”,
rather than in future anticipation. That would make sense in a situation where there were uncertainties, but we are certain that we are going to have vastly increased demand for electricity in the near future and that the grid will be decarbonised. We know that every street in every town is going to need to be able to install EV charging points, and we hope that new developments will need to install solar panels and heat pumps, which will all need to connect to the grid. This is something we all know we need to do, but as things stand, by the time there is what is seen as overwhelming demand for grid expansion, it is very hard for grid development to catch up.
Responding to this amendment in Committee, the Minster also said that Ofgem would be keen to avoid any confusion over the need to balance decarbonisation, affordability and security of supply. I agree: Ofgem has repeatedly made it clear that it would welcome such clarification. My amendment does not alter those other aspects of Ofgem’s remit or weaken them in any way. It is for the Government to clarify to Ofgem how those various trade-offs can be balanced.
As I said, Amendment 132 in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake of Leeds, would ensure that the long-awaited strategy and policy statement setting out the Government’s priorities is published within six months—something that is overdue and badly needed. But as all the committees and trade bodies I have cited make clear, doing this does not detract from the need for legislative change to reflect our 2050 targets.
We should not miss the opportunity given by the Bill to update the consumer interests that must be protected when Ofgem carries out its functions to include our statutory responsibilities to achieve net zero by 2050. I end by reminding the House of the contribution from the noble Lord, Lord Hollick, in Committee. He said that it would be ironic if the regulator most responsible for regulating the journey to net zero is one of the only regulators which does not have a specific responsibility in its remit. I hope we can persuade the Minister to agree.
There is a specific example of a 3-gigawatt east coast offshore wind farm being developed by RWE. This will be instrumental in meeting the Government’s 2030 net-zero target, but it has a grid connection date of 2032.
The Minister and others in his position have said, all the time, “This is not necessary—it is already covered.” However, those examples already given by the noble Baronesses in the debate show that the directions and the objectives that the Government now have are not sufficient, and that this needs to change. We need to change it now, otherwise our decarbonisation of the grid by 2035, let alone net zero by 2050, will be missed. That cannot be allowed; these amendments must be part of the Bill.
However, the Bill is a hotchpotch of things thrown together, lacking an overarching theme to tackle these issues. Our amendments would have set out a purpose for the Act, increasing resilience and reliability; supporting the delivery of UK’s climate change commitments; reforming energy systems; binding the Secretary of State and public authorities to these purposes; requiring the Secretary of State to designate a statement as a strategy and policy statement with regard to the purpose of the Act; and requiring the Secretary of State to review the strategy and policy statement on a five-year basis. That would have forced successive Governments into long-term thinking about the specific purpose, not limiting the impact and ambition of the Bill to what has been tacked together, which simply does not go far enough or tackle the immediate problems.
The amendment from the noble Lord, Lord Teverson, would place gas and electricity markets under a duty to assist in the delivery of net zero, and our amendment would require the Secretary of State to designate a statement giving GEMA a mandate for considering the role of energy in supporting government policy in achieving net zero. The amendment from the noble Baroness, Lady Hayman, would include in Ofgem’s general duties a specific requirement to have regard to meeting the UK’s net-zero emissions.
Briefing from RenewableUK sets out the argument for Ofgem remit reform. It states:
“Ofgem’s remit has not changed since its establishment in 2000, and does not prioritise electricity decarbonisation”—
in line with recent government legislation or stated ambitions. It has only a consideration of greenhouse reduction. It continues:
“As a result, Ofgem has been unable to substantially reform its working practices and regulatory frameworks in response to the 2008 Climate Change Act and the UK’s subsequent net zero ambition, to detriment of renewable energy investment and decarbonisation pace.”
It goes on to say that the Government have an opportunity to reform Ofgem’s remit in the Bill we are addressing today.
There is some key evidence for that. Mike Thompson, the Climate Change Committee’s chief economist, noted the integration of energy with transport and heat, including the potential for
“cars sitting on driveways acting as batteries and putting electricity back into the grid”.
He argued that there is a
“need for real integration and a regulator that can think from a systems perspective”,
suggesting that hydrogen and heat networks should be within Ofgem’s remit.
Jonathan Brearley, chief executive of Ofgem, said:
“Planning the system and setting how it evolves should not really be done by the regulator. The regulator’s job is to make sure that that is done efficiently and effectively by the companies concerned.”
We appreciate that argument.
A number of witnesses told the committee that the net-zero target should be included explicitly within Ofgem’s statutory duties. Dr Hardy said that he would
“put net zero up top”,
balancing out its other duties against the context of
“hitting that legislated carbon target”.
Professor Mitchell said that
“net zero has to be the raison d’être of Ofgem”
and argued that
“delivering on legally enshrined commitments to decarbonise”
should form part of Ofgem’s principal duty.
The committee concluded:
“To ensure that, on an enduring basis, the appropriate focus is given to net zero within its competing priorities, we recommend that Ofgem’s duties should be amended to include explicit reference to having due regard to the net zero target. While Ofgem maintains that net zero considerations already factor into its decision-making, adding net zero explicitly to its statutory duties will serve to make this clear.”
We feel that the UK needs not to be left behind but to show similar ambition in its plans for the future of the electricity industry, including Ofgem’s remit.