Monday 19th December 2022
(1 year, 4 months ago)
Grand CommitteeEnergy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Amendment Paper: HL Bill 39-V Fifth marshalled list for Grand Committee - (15 Dec 2022)
Lord Callanan
Member's explanatory statement
This amendment amends the definition of “heat network” to include any appliance connected to a heat network where the main purpose of that appliance is to provide heating or cooling for the network.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, the Committee will note the large number of amendments tabled in my name on heat networks. These amendments are needed to ensure that Ofgem can operate effectively as the heat networks regulator. A large proportion of them ensure that Ofgem’s enforcement powers will replicate those that it has as gas and electricity regulator. These amendments also ensure that the Bill reflects the approach to regulation which the Government committed to in their response to the heat networks market framework public consultation. The majority of these amendments are minor and technical in nature. Some are a little more substantial, and I will address those first.
Amendments 162C and 162YYI will ensure that any price cap introduced through regulations in future can apply to non-domestic as well as domestic heat network consumers. They also widen the scope of the regulator’s power to conduct pricing investigations into instances where non-domestic heat network consumers are receiving disproportionately high prices.
The Government are committed to introducing consumer protection rules that ensure that heat network consumers receive a fair price for their heating. Regulations under the Bill will provide Ofgem with powers to investigate and intervene where consumer prices appear disproportionate, compared with heat networks with similar characteristics or compared with alternative and comparable heating systems.
Non-domestic heat network consumers, particularly micro-businesses, can be vulnerable to receiving disproportionately high prices from heat suppliers. We therefore consider it appropriate to make this amendment so that the regulator’s price investigation powers extend to non-domestic consumers, in addition to domestic consumers. The Bill also provides the Secretary of State with powers to introduce various forms of price regulation, including a price cap, should it be necessary to protect consumers while growing and decarbonising the market.
The Government have committed to using any future powers to set price caps cautiously to avoid undermining investment in this nascent sector and putting at risk the supply of heating to consumers. Should a price cap be appropriate in future, we want to ensure that it could apply to both domestic and non-domestic consumers. In particular, we found in our public consultation in 2020 that micro-businesses supplied by heat networks share similar characteristics with domestic consumers. We therefore consider that these two consumer groups should have similar protections. This amendment would enable any future price cap to also apply to non-domestic consumers such as micro-businesses.
Amendments 162YYV to 162YYY serve to ensure that the full extent of heat network regulatory activities performed by Ofgem in Great Britain, the Utility Regulator in Northern Ireland, consumer advocacy bodies and other entities are funded by heat networks and holders of gas or electricity licences. Last year, the Government ran a public consultation on a mechanism for recovering the costs of heat network regulation. The nascent state of the sector and small consumer base means that recovering these costs solely from heat networks would amount to an extra £10 or more on each heat network consumer bill per year. This would be too high and create risks to the competitiveness of the market and, of course, issues of affordability for heat network consumers.
The Government consulted on heat network, gas and electricity regulatory costs being spread evenly across heat network, gas and electricity consumers in Great Britain. The Government have estimated that this approach would amount to less than £2 added to each heat network consumer bill per year, and an additional 10p per gas and electricity consumer bill per year. Most consultation respondents agreed that this approach was the fairest and crucial to supporting the growth of the heat networks sector. The Northern Ireland Executive conducted an equivalent public consultation for cost recovery in Northern Ireland and determined this a desirable approach.
This amendment sets out for transparency purposes the full extent of the regulatory activities in scope of this approach to cost recovery. The amendment also includes Ofgem’s role as a licensing authority under the Heat Networks (Scotland) Act 2021 in the cost-recovery regime. The Scottish Government passed this Act to introduce their own heat networks regulatory framework. By ensuring a funding route for Ofgem to perform this role, the Government are helping to ensure that Scottish heat network consumers receive robust protections and that heat networks regulation is coherent across Great Britain.
The remaining amendments are minor and technical, so I will not detain your Lordships for too long with them. In summary, these amendments, first, ensure that the provisions relating to heat networks regulation are accurate; secondly, allow for regulations and authorisation conditions to be made about the connection of premises to a heat network; and, thirdly, relate to Ofgem and the Utility Regulator in their role as heat networks regulator in Great Britain and Northern Ireland respectively.
I hope, therefore, that noble Lords will agree that these amendments are necessary to enable a fair and consistent heat network market across the United Kingdom. The one non-government amendment in this group is in the name of the noble Baroness, Lady Worthington. I thank her for her thoughtful contributions—actually, I should do that at the end, after she has spoken. Oh, she is not here. I beg to move Amendment 161AA.
Lord Ravensdale (CB)
My Lords, first, I declare my interests as a project director working in the energy industry for Atkins and as a director of Peers for the Planet. I will speak to Amendment 162 in the name of the noble Baroness, Lady Worthington, who cannot be here today.
To give some context to this amendment, I welcome paragraph 14(3) of Schedule 15, in that it provides for all the conditions which may be attached to a heat network authorisation. All of this is welcome—in particular, paragraph 14(3)(f) refers to
“conditions about limiting emissions of targeted greenhouse gases in relation to relevant heat networks”.
However, it is noteworthy that the schedule does not include any conditions about the actual heat source for the emissions, and that is what Amendment 162 focuses on. It is a probing amendment, seeking to determine whether the Secretary of State or Ofgem already have the power to control the heat source using the heat networks and whether they are minded to use them.
There are some fuels which it may be in the public interest to restrict using in a heat network. For example, the UK Government are currently establishing carefully controlled trials for hydrogen for heating. Presumably, the Government would not want to be powerless to prevent a heat network provider using green hydrogen for heating if they had concerns about, for example, safety or the cost effectiveness of hydrogen as a power source. If the hydrogen trials are not taken forward, the Government may not want someone to use hydrogen in a heat network without effective oversight from Ofgem.
In another example, it may be appropriate to restrict the use of biomass, which is ostensibly low or zero-carbon. However, the Minister will have heard concerns from the noble Baroness, Lady Boycott, and other Peers last week, and there are concerns about whether the Government would have the powers to restrict biomass for local heat networks to the sustainable practices the Minister outlined in his response to that question. Can the Minister confirm in his summing up whether the Government have powers to restrict the source of heat input as applied to heat networks? If so, where? If not, would he consider taking these powers?
Lord Lennie (Lab)
My Lords, I thank the Minister and others who have spoken in this brief debate for bringing forward these amendments, as they represent necessary but foreseeable conditions for what is already a doorstep of a Bill. As the Minister said in his introductory statement, these amendments collectively show why and how heat networks and heat zones will be regulated and established.
In response to the noble Lord’s query, my understanding is that there are currently 14,000 heat networks, which represent 480,000 customers—about 2% of the total energy network. However, that percentage is predicted to rise to just under 20% by 2050. They will be a huge and significant part of the future energy market, and thus crucial in meeting net zero as they can unlock otherwise unobtainable and inaccessible large-scale renewable and recovered heat sources, such as waste heat. They are especially important for built-up areas, as they are the most effective way of accessing waste heat from industry and heat from rivers and mines.
There are currently no specific protections for customers of heat networks. A recent Competition and Markets Authority report said that while the majority of heat networks customers received a service comparable to that for other traditional customers, a significant minority did not. Higher prices and more frequent outages were just a couple of the highlighted issues. The CMA recommended regulating the sector, with Ofgem announced as the regulator and Citizens Advice and the energy ombudsman named as alternative dispute resolution bodies.
I have some questions for the Minister. First, on non-domestic customers, what steps do the Government envisage will be taken to draw the line between which of them will receive these protections and which will not? Secondly, while protecting these provisions, why have they come to us so late and to what extent were Scottish heat network customers not receiving equivalent protections under the initial drafting of the Bill? Finally, does this come into play only in a case where the powers in Clause 171 to designate GEMA as the licensing authority in Scotland are used?
Lord Callanan (Con)
I thank all noble Lords for their contributions to this brief debate. I acknowledge the point made by the noble Lord, Lord Teverson: it will be difficult for me to ask him in future to limit the number of Liberal Democrat amendments after tabling all these. I quite take his point there; all I will say is that I flagged up to noble Lords at Second Reading that these amendments would be coming forward. There will be more on other subjects, as I also flagged up at Second Reading, which are still being drafted and will be tabled as soon as possible.
I first remind noble Lords, in acknowledging the point made by my noble friend Lord Lucas, that heat networks will play a crucial role in the UK reaching its net-zero targets, as they are one of the most cost-effective ways of decarbonising heating, particularly in built-up areas, where it would be more difficult to have individual property solutions. Noble Lords will probably be aware that the Climate Change Committee estimated that around 18% of UK heat will potentially come from heat networks by 2050—up from around 2% currently—to support the cost-effective delivery of our carbon targets. However, the sector is currently unregulated.
The Bill will provide regulation for that sector and give Ministers a power to introduce, among other things, consumer protection rules and carbon emission limits on heat networks. The majority of heat networks are performing perfectly well and often run by local authorities, housing associations and others, but one or two small, private networks are abusing their customers. Of course, once you are connected to it, that is effectively a monopoly. You have no choice but to take your business elsewhere, so regulation is required in the sector.
I will now talk to Amendment 162. The Bill already allows the Government to control heating sources by providing for authorisation conditions to contain emissions limits; this is contained in paragraph 14(3)(f) of Schedule 15. By gradually lowering emissions limits, authorisation conditions will drive changes in the types of fuels and technologies used to power various heat networks.
Using emission limits allows for dynamic, ongoing regulation. I submit that mandating specific heat sources is a more limited approach that risks the Government and this House picking winners. The exact approach for implementing emission limits will of course be subject to further consultation with industry and stakeholders. Settling on a pathway ahead of that consultation would, at this stage, be unwise.
Removing whole fuel types risks ignoring other factors that will come into play, such as technological improvements, system efficiencies, varying fuel costs, the replacement cycle of generation assets, and the need for flexibility in a system to provide separately for back-up or peak demand.
The Government are of course committed to net zero by 2050, and we see heat networks playing a vital role in this. The Government wish for the Bill and its secondary legislation to ensure that the heat network sector thrives and expands and is not held back in this goal. Therefore, I hope that the noble Lord, on behalf of the noble Baroness, Lady Worthington, will feel able not to press the amendment.
Lord Lucas (Con)
My Lords, I am delighted that my noble friend is so optimistic and shares the Climate Change Committee’s optimism about the future of heat networks. Will he therefore encourage his colleagues to support deep geothermal which, if we are to need that volume of energy, must be a serious contender as it is on the continent. However, in this country, since we have not had the exploration, there is a lot of uncertainty about whether the particular strata will behave in a way that allows heat extraction. It would be a real help to that industry if the Government were to take an interest in how to reduce that first well risk, so that we can get going in the way that the Netherlands and Germany have to take advantage of the deep heat that we all believe—or the British Geological Survey at least believes—is down there and available.
Similarly, is my noble friend content that the regulations governing tidal rivers—such as the one just outside—are such that we can use those as a source of heat for heat networks?
Lord Callanan (Con)
My noble friend makes some good points. There is tremendous potential from deep geothermal, and we are funding some exploratory projects. However, the performance is mixed: some projects have drilled and not found any rocks hot enough to power the network. What is perhaps more viable, particularly in mining areas, is the use of waste mine water for powering heat networks. There are a number of exciting schemes that I have visited, particularly in the north-east of England, where they can extract the warm water from existing mine workings, put it through heat exchangers and use it for heat networks. There are a lot of promising developments in this area.
I will get a more detailed answer for my noble friend on his question about tidal waters, but I know that there are some concerns in the industry about over-regulation from the Environment Agency in some of these areas—they have been flagged up to me. I wrote to Defra about a year ago on this subject but, to be honest, I cannot remember what reply I got—if any—at the time. I will write to him on that subject.
Lord Callanan
Member's explanatory statement
This amendment (together with the amendment in the name of Lord Callanan at page 139, line 35) widens the provision made by Clause 165(3) about the treatment of heat pumps so that it applies in relation to communal heat networks (as well as district heat networks).
Baroness Blake of Leeds (Lab)
My Lords, I rise to address the amendments in this group. My noble friend Lord Whitty outlined clearly the reasons for his amendments. I will speak to Amendment 161CA in my name and that of my noble friend Lord Lennie. At this stage, it is appropriate for me to declare my interest as a vice-president of the Local Government Association because it comes up in subsequent groups.
I want to refer to my experience when I was the leader of Leeds Council. Leeds PIPES is one of the most successful district heating schemes in the country and is expanding. It aims to take more than 16,000 tonnes of carbon out per year. It is already securing reductions in fuel bills of between 10% and 25%. The other element, which we have not addressed, is that, by working locally through these schemes, we have been able to bring training and employment to the local community. Indeed, 60% of the project spend is by local businesses in the community, making it a win-win scenario.
Social housing and council housing are not the only beneficiaries of the schemes, although they are an important aspect as there are more than 2,000 such homes already on the system. The system has started to be installed and expanded into the city centre, including in council buildings, ensuring that it is a sustainable project. I look forward with interest to the Minister’s response to the specific concerns raised by my noble friend Lord Whitty about consumer protection. The third amendment in his name, on the contribution to net zero, is valuable; it highlights how these networks need to be taken seriously. We need to make sure that they are sustainable and that their future is secure on behalf of the consumers that they supply.
Amendment 161CA in my name and that of my noble friend Lord Lennie refers specifically to ensuring
“that regulation covers systems that are operational but are operating inefficiently to the detriment of customers.”
As one of the heat network providers, Switch2, explains, a 2018 study by the CMA found that,
“although heat networks provide customers with a cost effective, efficient supply of heat compared to alternatives, some customers experience poorer outcomes in terms of price and service.”
That provider has contributed to the thinking on why heat network efficiency is so important. It says:
“The efficiency of your heat network is the crux of effective operation. Before the energy crisis and regulatory requirements, heat network efficiency was often seen by operators as a ‘nice to have’, rather than a necessity, despite significant cost saving benefits to both residents and operators.”
I think we have moved forward a great deal on that consideration.
Although we are focused on the incredibly high cost of gas at the moment, I hope that we can do everything in our power to improve efficiency and take this issue forward. It is clear that the Government are aware of this issue and are acting on it to a degree. Would it not be sensible to ensure that the regulatory remit also covers inefficiencies and that consumers are protected from the issue, rather than just requiring operators to apply for grants voluntarily?
Lord Callanan (Con)
I thank the noble Lord, Lord Whitty, and the noble Baroness, Lady Blake, for their comments and amendments. As I said on the previous group, the Government are committed to introducing protections for heat network consumers that ensure that they receive a fair price and a reliable supply of heat, and are not disadvantaged compared to other consumers. Ensuring that heat network consumers receive comparable protections to gas and electricity consumers is the primary reason for agreeing to the CMA’s recommendation to regulate heat networks.
We also recognise the vital contribution that heat networks will ultimately make in decarbonising heat in buildings. I highlight to the noble Lord that the Bill already provides for the heat networks regulator to prioritise protection of consumers and the decarbonisation of the sector. The Bill provides for Ofgem to be the heat networks regulator in Great Britain, with the Utility Regulator taking on the equivalent role in Northern Ireland.
Schedule 15 to the Bill provides for regulations making provision about the objectives of the regulator. This includes its principal objective to protect the interests of existing and future heat network consumers. This is equivalent to Ofgem’s principal objectives to protect the interests of existing and future gas and electricity consumers. We intend for this principal objective to be set out in the regulations.
Schedule 15 also provides for regulations specifying the interests of existing and future heat network consumers that are to be protected. This includes consumers’ interests in the reduction of greenhouse gas emissions generated by heat networks. Schedule 15 also provides for the introduction of carbon emissions limits on heat networks in England and Northern Ireland. We intend again for this to be provided for in the regulations.
The regulations will also give Ofgem powers to investigate and intervene on networks where prices for consumers appear to be disproportionate compared to systems with similar characteristics or if prices are significantly higher than those consumers would expect to pay if they were served by an alternative, comparable heating system. Ofgem will also be able to set rules and guidance on how heat networks recover their costs through their heat tariffs.
Amendment 161CA tabled by the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, is on ensuring the efficiency of existing heat networks. I thank them for highlighting the importance of ensuring that regulation facilitates the improvement of technical standards on heat networks. This will ensure efficient heat networks that provide fair prices and reliable heat to consumers at the same time.
I reassure noble Lords that the Bill, more specifically paragraph 14(3)(d) of Schedule 15, already provides measures for ensuring heat network efficiency. Schedule 15 provides for the introduction of technical standards, which will protect consumers from being supplied by inefficient networks. The regulator’s compliance activity in relation to new and existing heat networks will include work on any standards mandated in authorisation conditions under this power.
I therefore submit that the intentions behind the noble Lords’ amendments are already provided for in the Bill, so I hope that they do not press them.
Lord Whitty (Lab)
My Lords, I thank the Minister for that reply. I will clearly want to look at these clauses and the Schedule once all these amendments have been agreed and adopted. I am still not absolutely convinced that all aspects of consumer protection will be covered by this and by Ofgem’s role, but I welcome the Minister’s reassurance.
The key issue is whether all interventions will treat the consumers of district or decentralised heating the same as they would consumers of other forms of energy supply. That also applies to the Government. The Minister referred to the price cap, but the price subsidies or support that we agreed the other week has not found its way to consumers of district heating. That may be a matter of time or it may be that the entity that supplies the heat is obliged to pass that on, but that is not clear at the moment. Things like that need to be tightened up before the final version of the Bill is agreed. I therefore look forward to seeing what the clauses look like following the Minister’s amendments to see whether any further amendments are needed to meet my concerns in this respect. In the meantime, I withdraw my amendment.
Lord Callanan
“(2A) The provision made in Schedule 15 is without prejudice to the generality of subsection (1).”Member’s explanatory statement
This amendment makes it clear that the breadth of the power under Clause 168 is not affected by the detailed provisions made by Schedule 15.
Lord Callanan
Member’s explanatory statement
This amendment omits a definition that is no longer needed as a consequence of the amendments in the name of Lord Callanan at page 292, line 6 and at page 303, line 35.
Lord Callanan
Member’s explanatory statement
This amendment limits any requirement on a Regulator of heat networks to keep under review the carrying on of activities connected with heat networks to those activities carried on in the part or parts of the United Kingdom for which that Regulator is responsible.
Lord Callanan
Member’s explanatory statement
This amendment ensures consistency with the reference to costs in the amendments in the name of Lord Callanan to Clause 170.
Lord Callanan
“(ba) regulations under section 168 which create an offence or provide for an increase in the penalty for an existing offence;”Member’s explanatory statement
This amendment provides that regulations made by the Department for the Economy in Northern Ireland that create an offence, or provide for an increased penalty for an existing offence, may not be made unless a draft has been laid before and approved by a resolution of the Northern Ireland Assembly.
Lord Callanan
Member’s explanatory statement
This amendment (together with the amendment in the name of Lord Callanan at page 142, line 37) clarifies the heat network-related costs that can be charged to holders of gas or electricity licences in England, Wales and Scotland.
Lord Callanan (Con)
Let me first remind the Committee of the broader ambitions of this section of the Bill, which covers heat network zoning, which is a key policy to deliver the scale of expansion of heat networks that will be required to meet net zero. This process brings together local stakeholders and industry, to identify and designate areas where heat networks are expected to be the lowest-cost solution for decarbonising heating. The clauses will enable the Government’s commitment to introduce zoning by 2025.
Amendments 162YYYA, 162YYYB, 162YYYC, 162YYYD, 162YYYE, 162YYYF, 162YYYG and 165A—who gives these numbers to amendments?—are in my name. They will permit regulations to allow the heat network zones authority, which I will refer to as the authority, to directly designate zone co-ordinators and heat network zones in cases where these functions have not been performed by the relevant responsible bodies. This will deliver a more efficient process for establishing heat network zones.
More specifically, Amendment 162YYYA permits regulations to enable the authority to designate a person as zone co-ordinator. This may be necessary in scenarios where, despite directing it to do so using the powers in Clause 176(4), a local authority does not establish a zone co-ordinator. This could prevent the heat network opportunity that has been identified from being realised. Similarly, Amendments 162YYYB to 162YYYG provide for areas to be designated as heat network zones by the authority, in addition to zone co-ordinators as already provided for in Clause 177(1)(b). They also ensure that this expanded role for the authority is reflected elsewhere in Clause 177. This mirrors existing powers for identifying areas as heat network zones and reviewing areas designated as such. The authority or zone co-ordinators may undertake each of these activities. These amendments will therefore ensure that the authority may designate zones directly, avoiding unnecessary delays to the rollout of heat networks.
Amendment 165A concerns low-carbon heat sources. A range of heat sources could potentially be used by heat networks, including heat from thermal power stations, industrial processes or cooling and refrigeration. Clause 180 gives the Secretary of State powers to require heat sources in zones to connect to a heat network. This amendment will allow regulations to ensure that heat sources that are required to connect do not abuse their monopoly position and charge disproportionate prices for the heat that they provide. Equally, it will allow the regulations to ensure that the requirement to connect does not unduly disadvantage heat sources themselves. This will help to support fair pricing, which will give investors greater security and confidence and help to accelerate the delivery of large-scale heat networks in zones.
I now turn to Amendment 162YYYZA in the names of the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake of Leeds, regarding designating GEMA as the heat network zones authority. The authority will be a national body responsible for zoning functions that require national-level standardisation or are most efficiently or effectively carried out at a national level. This approach will allow for national standards and consistent rules to apply in the initial identification of a potential heat network zone.
In terms of who could fulfil the authority role, Clause 176(3) is explicit that the Secretary of State may but need not be designated as the authority. The clause as drafted therefore already provides that regulations may appoint GEMA as the authority. We will be specifying the authority’s functions and responsibilities in the regulations; this will therefore be the subject of further consultation.
The authority will fulfil a different function from the heat network regulator, which, as set out in Clause 166, we propose will be fulfilled by GEMA in relation to Great Britain. This role will cover all heat networks, both within and outside heat network zones. We do not envisage a separate regulator for heat network zones in England. We will be specifying the authority’s functions and responsibilities in the appropriate regulations; we intend for the body to undertake functions on behalf of the Secretary of State and be accountable to the Secretary of State.
Detailed considerations regarding roles and responsibilities in zones will of course be subject to further consultation as we continue to develop our policy proposals. Consultation on these issues will take place in due course. Appointing the authority in regulations will allow for amendment should this be required as and when its functions change over time as the networks become more developed in the UK. I hope that this has helped to clarify our proposed approach and the scope of the powers already provided.
I thank the noble Lord, Lord Teverson, for his thoughtful Amendments 163 and 164, which would make the provision of the zoning methodology mandatory and require the methodology to include certain details. As always, we want legislation to be flexible and future-proofed. In this context, this means that the regulations can adapt to developments in the heat network market. The Government are clear that a national methodology for identifying zones will be necessary to enable a robust and transparent approach that increases overall efficiency and drives consistency. To this end, a pilot to support the development of the methodology is under way in 28 English cities and towns. The outputs from the pilot will help to inform policy design and future consultation on the methodology and its contents. Accepting these amendments now would, in effect, tie the Government’s hands at this stage to the potential cost of industry, stakeholders and, ultimately, consumers.
Next, I turn to Amendments 165 and 166, also from the noble Lord, Lord Teverson, which concern interactions between the national methodology and the co-ordination and delivery of heat networks at a local level. Accepting Amendment 165 would mean that the methodology was no longer nationally determined and would have to vary according to each local authority’s requirements. A national methodology will minimise the duplication of effort at the local level and instead ensure that local input is applied at the most appropriate stage: the refinement and designation of the zones themselves.
Heat network zoning will support local net-zero goals by unlocking the lowest-cost pathway to heat decarbonisation in built-up areas. As we expect that zoning co-ordinators will work with the local authority, their work will be brought into local net-zero plans. Therefore, Amendment 166 risks creating unnecessary bureaucracy at a local level, reducing zoning co-ordinators’ capacity to focus on the effective delivery of zones.
The final amendment in this group, Amendment 167 tabled by the noble Lord, Lord Ravensdale, would extend the Bill’s heat network zoning provisions to individual heat pumps. As noble Lords will be aware, various factors, including building density and availability of heat sources, mean that certain localised areas are particularly suited to heat networks. This is why we are introducing a framework to identify where heat networks can provide the lowest-cost low-carbon heating solution.
The noble Lord’s amendment would apply zoning to heat pumps. Our strategic approach, set out in the heat and buildings strategy, is to work with the grain of the market and our policy levers are aligned to natural trigger points to create optionality for consumers regarding their various heating options. For clarity, such trigger points include appliance replacement and change of tenancy or property ownership, among many others of course. An approach where more technologies are zoned risks removing choice for consumers and could cause early appliance scrappage and additional disruption.
I thank noble Lords for this debate and for their amendments. I ask them not to press their amendments.
Lord Teverson (LD)
Could I ask the Minister for some clarification? I apologise if I have not got my head around this. What is a zone: a council estate, a county, a region or a combined authority? I am trying to get from the Minister a mental picture of what a zone could be and what determines that boundary.
Lord Callanan (Con)
No specific boundary is set out in the proposals. It can vary from authority to authority. It is very unlikely to be a whole region; it is much more likely to be an inner-city area, an industrial estate or something like that. It will very much depend on the local circumstances and what heating sources are available. Crucially, it will depend on local support, which is why local authorities are crucial to this process. Many local authorities around the country are already in discussions and are very keen to get on with these zoning proposals, presumably including Leeds. Although I know that the noble Baroness, Lady Blake, does not speak for Leeds any more, I know that it is one of the pioneers in this area.
Lord Ravensdale (CB)
I thank the Minister for his response. He set out the reasons why district heating is particularly well suited to a zoning approach. Could he expand a little on why, for example, heat pumps or urgent retrofits are not suitable for zoning in the same way?
Lord Callanan (Con)
They could be, but we do not want to designate a particular technology because it will vary from area to area and locality to locality. It is to be expected that heat pumps will play a part in heat network zoning. That would be the case but we do not want to be particularly specific.
Lord Lennie (Lab)
I thank the Minister and the noble Lords, Lord Teverson and Lord Ravensdale, for their contributions. I will assume that their questions have at least been addressed, if not fully answered. We might come back to them later; we shall see. On Amendment 162YYYZA, which would designate GEMA, the Minister said that there will be further consultation on who will ultimately become the designated body for network zones. Once that decision is made, will we hear about it? Will whoever has been designated that role be regulated or will it just be announced?
Lord Callanan (Con)
It will be set in the appropriate regulations. The bottom line is that we have not made a final decision at this stage.
Lord Callanan
“(b) to designate a person as a zone coordinator where a local authority (or local authorities) fail to comply with a requirement imposed by virtue of paragraph (a).”Member's explanatory statement
This amendment enables the Heat Networks Zones Authority to designate a zone coordinator where a local authority (or authorities) fail to comply with a requirement to make such a designation.
Lord Callanan
Member's explanatory statement
This amendment enables zones regulations to provide for areas to be designated as heat network zones by the Heat Network Zones Authority as well as by zone coordinators.
Lord Callanan
“(ga) make provision about the terms on which thermal energy is supplied to a district heat network in pursuance of regulations made by virtue of paragraph (f) or (g) (including in particular provision about the amount that may be charged);”Member's explanatory statement
This amendment enables regulations to make provision about the terms on which thermal energy is supplied to a district heat network where the supply is enabled by a requirement imposed on a person by a zone coordinator or where the thermal energy is generated by machinery or other equipment of specified types.
Baroness Blake of Leeds (Lab)
I shall speak to the amendments in the names of my noble friend Lord Lennie and myself. Before I get to that point, though, I want to stress that the contributions made in this debate have been so strong that I cannot see how the Government can continue not to take this aspect of the debate with the seriousness it deserves, because at the end of the day we have very serious obligations and commitments to make. We are not going to achieve what we have set out to do if we do not focus on delivery, and the importance of how we take our communities and people with us on that journey. I really do not think that has been stressed enough.
The noble Lord, Lord Ravensdale, put it very well when he stressed the importance of involving local authorities in setting up local area energy plans, particularly something that has to be repeated again and again when we talk about this: the bringing-in of powers that need to go down to local authorities and then into the communities. The important aspect of this is that the resources must be there to accompany those powers. Frankly, we are in a situation where local authorities across the country have lost over 60% of their budgets. This needs to be taken into account when we consider how local areas can contribute to the important work that needs to be done in this space. The noble Baroness, Lady Boycott, expressed it exceptionally well by highlighting the current contradictions in government policies that are holding us back in so much of what we need to do.
Going through the debate, I commend the contributions that have been made from our partners coming in. They have brought such important evidence as to what we could be doing, and about the huge potential that could be unleashed if the Government were able to put the necessary measures in place.
In this group, we have focused specifically on setting up a community electricity export guarantee programme. Our amendments relate to community energy and would bring in new clauses between Parts 7 and 8 and Parts 12 and 13. We have done this because, as we have heard, community energy covers aspects of collective action to reduce, purchase, manage and generate electricity. Projects obviously have an emphasis on local engagement and local leadership and control. I firmly believe that that action can often tackle challenging issues around energy with communities, which are well placed to understand their local areas, and bring people together with common purpose. As we have heard, it often takes only a couple of experienced and committed people at a local level to unlock some of the issues we have faced that have been holding us back, and to advise government on what needs to be changed and done to bring this forward.
I do not know whether others picked up a significant amount of interest in the different media outlets over the weekend about community energy projects and initiatives that are being brought forward. We have heard that those projects are significant and cover a whole range of different aspects and ways of coming forward. I do not want to go over all the contributions that have been made, but I hope that we are all looking for some very specific measures and some movement from the Government that we can take forward to Report to examine how we can make the difference that we need.
Running all the way through this is the cruel impact of energy bills on our communities and local people. The response communitywide is because people have to work across so many different areas. That key element of behaviour change is absolutely essential if we are to bring the necessary partners together.
Our amendments would require the Secretary of State, within six months, to
“require licensed energy suppliers with more than 150,000 customers (‘eligible licensed suppliers’) to purchase electricity exports from sites generating low carbon electricity with a capacity below 5MW, including community energy groups … Licensed energy suppliers with fewer than 150,000 customers may also offer to purchase electricity exports from exporting sites … including community owned energy groups”.
Eligible licensed suppliers must
“offer a minimum export price set annually by OFGEM”,
offer a minimum five-year contract and allow
“the exporting site to end the contract after no more than 1 year.”
These steps are important to make sure that the benefits come to community energy projects and that they have a guaranteed stable market to operate in.
A community smart export guarantee is supported by Community Energy England. It would increase investor certainty, especially for larger-scale ground-mounted projects where most of the energy is exported. I am interested to hear what consideration the Government have given to such a scheme and whether we can look forward to progress to ensure that we can deliver.
Lord Callanan (Con)
I thank all noble Lords who contributed to this important debate. Let me start with Amendment 168, moved by the noble Lord, Lord Ravensdale. It seeks to ensure that guidance is published for local authorities regarding local area energy planning. Although the amendment is well-intentioned, in my view, it is not necessary. The Government already have work under way to consider the role of local area energy planning in delivering net zero and supporting efficient network planning, including heat network zoning policy. Through the Government’s Local Net Zero Forum, we are working with local authority representative bodies to discuss the roles and responsibilities of local government, and how we will work with local government to reach our targets.
I am sure the noble Lord agrees that local authorities are already well placed to undertake local area energy planning given their established relationships with many key stakeholders. Guidance to help develop local area energy plans was already published earlier this year and the Government directly supported this activity through the £104 million “prospering from the energy revolution” programme. This included co-funding for the development of guidance for local areas developing local energy plans and the subsequent delivery of those plans. This has so far seen plans produced for Peterborough, Pembrokeshire, Stafford, Cannock Chase and Lichfield. Given that this activity is already under way, I hope the noble Lord agrees that his amendment is unnecessary and will therefore feel able to withdraw it.
I thank the noble Baronesses, Lady Young, Lady Boycott and Lady Blake, and the noble Lords, Lord Teverson and Lord Lennie, for Amendments 238 and 242G, which seek to enable community renewable generation schemes to sell electricity generated to local consumers. I also thank the noble Baroness, Lady Meacher, for her contribution. The Government believe that community groups have a role to play in our efforts to eliminate our contribution to climate change. However, it is our view that encouraging or introducing obligations on licensed electricity suppliers to mandate them to offer local tariffs would be a disproportionate intervention in the market. Local tariffs are better left as commercial decisions for suppliers.
There are already examples of suppliers offering local tariffs through the market. Octopus Energy offers customers in Market Weighton, Caerphilly and Halifax a tariff with discounted prices at times when electricity is generated locally. Any new obligation in this area is likely to be complex and burdensome, particularly if it interferes with suppliers’ existing services and processes already used to serve their customers.
It is therefore more appropriate to allow market-led solutions to continue to develop, rather than us trying to make commercial decisions on behalf of suppliers. As we set out in the British energy security strategy, the Government are developing local partnerships in England that will enable supportive communities to host new onshore wind infrastructure, for example, in return for benefits including lower energy bills. The Government are separately considering wider retail market reforms that deliver a fair deal for consumers, ensuring that the energy market is resilient and investable over the long term.
As I am sure noble Lords are aware, the Government are undertaking a comprehensive review of electricity market arrangements in Great Britain, which considers options that encourage generation and demand to consider location. It also asks how markets can better value the role of small-scale, distributed, renewable electricity. The department is currently looking at the responses to the review of electricity markets consultation, which closed in October.
Amendments 237 and 242F would enable community renewable generation schemes to receive a guaranteed minimum price for the electricity that they export to the grid. Small-scale, low-carbon electricity generation should be brought forward through competitive, market-based solutions, which will help to encourage innovation and investment. We introduced the smart export guarantee in 2020 to provide exactly that: small-scale, low-carbon electricity generators with the right to be paid for the renewable electricity that they export to the grid. It ensures that these generators, which would otherwise struggle to find a way to sell electricity, can have guaranteed access to the market and a choice of options following the closure of the feed-in tariffs scheme.
To enable the SEG to be truly market-based and encourage innovation, however, suppliers must be in a position to set both the tariff levels and structure for themselves. We should allow the small-scale export market to develop with minimum intervention and not introduce a support scheme that specifies minimum prices or contract lengths for generators.
I say without much optimism that I hope noble Lords are reassured that the Government recognise the role that community-owned and locally owned renewable energy schemes can play in supporting the UK’s national net-zero targets. I hope that noble Lords will feel able to withdraw or not press their amendments.
Baroness Bennett of Manor Castle (GP)
Before the Minister sits down, can he tell me—either now or in writing later—what is the Government’s estimate of the amount of local community energy generation that would be arrived at by 2030 under the market-led approach?
Lord Callanan (Con)
I am happy to give the noble Baroness a detailed answer in writing but we do not see any particular limit on it. It is what the market will develop. The problem with the noble Baroness’s amendment is that she is seeking, in effect, to get every other customer to subsidise a relatively uncompetitive form of energy production. If community energy schemes are low-carbon and competitive, they will be able to take their place in the generation mix. Many of these community energy schemes are already supported and will continue to be.
Baroness Young of Old Scone (Lab)
I wonder whether, in writing to the noble Baroness, the Minister could also write to us on a couple of other things, including the number of schemes that have gone through the two mechanisms that were introduced subsequent to the feed-in tariff changes. This would let us see how trends are operating in the market situation that he is describing at the moment; my perception is that it is not producing growth in the uptake of community schemes. The Government must be clear: are they keen on community schemes, seeing them as a real attribute, or are they keen on only commercially competitive ones? If it is the latter, I am almost certain that we will not see many come forward.
Lord Callanan (Con)
We are keen on these schemes but, as always, the question comes down to cost. How much we are prepared to subsidise an essentially uncompetitive scheme that is leveraged on the bills of everyone else who is not benefiting from these schemes? That is the fundamental question. I am of course happy to write with the clarification that the noble Baroness asks for.
Baroness Bennett of Manor Castle (GP)
I am sorry but I really have to come back on that. Does the Minister acknowledge that there are advantages to these schemes other than on cost? They include, for example, insulation, bringing communities together and increasing acceptance and understanding of net zero, as many noble Lords have outlined.
Lord Callanan (Con)
If the noble Baroness is asking me whether I think that there is an advantage to insulation schemes, the answer is of course yes. I am not sure what her question is, but insulation is a great thing.
Baroness Meacher (CB)
Finally, if the Minister can bear it, can he tell us in writing whether he feels that these small community schemes could in fact deliver 10% or so of the UK’s electricity energy; and what estimate he has made of the feasibility of reducing all these technical regulatory constraints, which cost so much at the very beginning? He will understand that, if you are going to make a profit, you have to invest up front. Small schemes are unlikely to be able to make that initial investment but it may well be a tremendous bonus to the country in the longer term if the Government were able to help them reduce all these costs at the outset. It would be helpful to have all that set out in a letter if the Minister is able to do so.
Lord Callanan (Con)
I am of course happy to set out to noble Lords the details of our position in writing. We want to reduce bureaucracy as much as possible but we have an overriding need to ensure the stability of the energy system. Certain technical requirements need to be met by these schemes. We want to encourage them as much as we possibly can, but that comes with limits. We will certainly write with as many details as we can provide.
Lord Lucas (Con)
My Lords, my noble friend has been very helpful, but I am none the less fairly disappointed by the replies he has been able to give. To illustrate, I live in Eastbourne and, if you stand on the hills above Eastbourne—Britain’s sunniest town—and look down at hundreds of acres of industrial and retail estates and car parks, about the only solar panel you will see is on the local college’s eco training hub. That is because the ownership and commercial benefits of these areas are extremely complicated. No one is in a position to get a cost-effective, reasonable-scale scheme going on their own; it needs something that will work as a whole.
A decent feed-in tariff need not be subsidised—it can be below market rate—but there needs to be something so that there is a base on which you can build. My noble friend’s department was kind enough to send a representative to our recent solar summit. One of the main things that came out of a gathering of local businesses, energy suppliers and so on was the need for a basis on which local collaboration can be built, not to create something that requires a subsidy to produce electricity at a greater cost than would otherwise be the case, but to enable a very complicated situation to come together and be supported into commerciality, allowing local virtuous circles of electricity generation and consumption to emerge. That is not happening in our system at the moment, which is ridiculous. Something needs to happen to enable us to move from 200 hectares of white roof to 200 hectares of black roof, and to get the benefits of that.
Lord Callanan (Con)
As I said, a number of suppliers already offer competitive tariffs in the market. They will provide long-term certainty on pricing. There are many examples of industrial units that have already put solar panels on. Obviously, the most cost-effective way is for them to use that power themselves and export any surplus power to the grid using the smart export tariff guarantees. I will answer that question again: the Government are supportive of community energy schemes. We want to see more of them, but we think that is best delivered through the market framework. I will happily provide noble Lords with more detail in writing.
Lord Teverson (LD)
Can I remind the Minister that it is government policy to decarbonise the electricity system within 12 years and one week? That is no time at all. I am absolutely a defender and promoter of market forces, but in some places they just do not act quickly enough. We have a very short period of time in which we must decarbonise the electricity system. I cannot see why the Minister would not be in favour of ease of movement into this market. As the noble Lord, Lord Lucas, said, it does not necessarily require subsidy. To use a Borisonian term, it would unleash the real will of communities in this country to help in that target of decarbonisation by 2035. I cannot see why the Government do not grasp this and make the most of it.
Lord Callanan (Con)
As I said, we are supportive of proposals. We accept the target for decarbonising electricity production and we are moving ahead full-scale with our sails erected—which is no doubt a Borisonian term—towards that goal. Community energy will play probably a small role, but it will play a role. Obviously, larger-scale generators will supply the majority of the nation’s electricity.
Lord Ravensdale (CB)
My Lords, I thank all noble Lords for participating in this very informative debate. I was very encouraged by what the Minister had to say in response to my Amendment 168 and the work already ongoing in government. I come back to the fragmented nature of local area energy plans: some local authorities have the resources and others perhaps do not. I look forward to fleshing out the detail on that as we go towards Report.
The noble Lord, Lord Teverson, and the noble Baroness, Lady Blake, put it really well. The key theme running through all this is the participation of local authorities and local groups in our energy transition and about defining the part they have to play. We have these big, top-down targets—50 gigawatts of offshore wind by 2030 and 24 gigawatts of nuclear by 2050, as well as heating targets—which are all of course very necessary. But we need that bottom-up view and a better definition of the role of local authorities and local groups in supporting this huge engineering challenge, and I say that as an engineer. It is about stitching together all that local data to better inform how we respond nationally. I look forward to further discussions leading up to Report but, with that, I beg leave to withdraw my amendment.
Lord Lennie (Lab)
My Lords, I thank noble Lords who have spoken in this debate so far. We on the Labour Benches certainly welcome Amendment 192 in the names of the noble Baronesses, Lady Sheehan and Lady Hayman, and others, which would create a requirement to publish a national energy demand reduction strategy. It seems an obvious point to make.
We received some information from Energy UK. It says that, although we cannot deal with the current crisis in this Bill, it can ensure that long-term strategies are put in place to tackle the energy efficiency of the UK’s housing stock. This powerful point was made by the noble Lord, Lord Foster. If we do not have targets to measure it against, we cannot really manage it; we just have—I do not quite know what—a sort of wish list, I suppose. We support the targets suggested by the noble Lord, Lord Foster.
The Bill outlines its intention to create powers to remove the European energy performance of buildings directive, or EPBD, requirements in the UK. Those requirements are not perfect, but they have been in place in the supply chain, effectively delivering energy efficiency measures and low-carbon technologies. How will the Government safeguard against the potential for the UK to roll back on energy performance of buildings regulations when we remove the European energy performance of buildings regulations? We risk falling behind the rest of Europe, if we have not done so already, in this space.
We also need to see the detail regarding how the Government will safeguard against the potential for the UK to fall behind the rest of Europe. We need clarification on what measures the Government will take to ensure that all buildings are fit for the future, given the lack of measures in the Bill to reform planning and building regulations. The latter requirement could also be backed by the introduction of a net-zero test, as previously set out, but what measures will the Government take to ensure that all buildings are fit for the future, given the lack of measures in the Bill to reform planning and building regulations or set specific targets for delivery?
Finally, in relation to what the noble Lord, Lord Foster, said about the 19 million homes requiring energy efficiency measures to be put in place pretty quickly, I recommend to the Government Labour’s warm homes plan, which will deliver fully costed upgrades to 19 million homes, cutting bills and creating thousands of good jobs for the future.
Lord Callanan (Con)
I thank everyone who has contributed to this debate on energy efficiency, which is very much a matter dear to my heart. Noble Lords may have noticed that I was delighted to launch the Government’s £18 million “It all adds up” energy saving campaign on Saturday—it is almost as if it was designed especially for this debate—with advice that could help UK households cut hundreds of pounds off their bills. The campaign features tips on simple, low or no-cost actions that households can take to immediately cut energy use and save money while ensuring that people are able to stay safe and warm this winter.
We know that warmer homes and buildings are key to reducing bills and will create jobs along the way. That is why the Government are committed to driving improvements in energy efficiency, with a new ambition to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030. Existing plans that we already have in place are expected to deliver around half of this new ambition. To go further, we will need to work together as a country to reduce waste and improve the way we use energy. As has been referenced in this debate, a new energy efficiency task force is being established to lead this national effort.
First, Amendment 192, in the names of the noble Baronesses, Lady Hayman and Lady Sheehan, and the noble Lord, Lord Whitty, requires the Secretary of State to publish a national energy demand reduction strategy to provide for the delivery of low-carbon heat and energy efficiency targets for all UK homes and buildings. Again, while I understand the reasoning behind this amendment, we do not consider it necessary to ensure that our commitments to improve the energy performance of buildings and our net-zero targets are met.
We already have a heat and buildings strategy which sets out the actions the Government need to take to increase the energy efficiency of buildings in the near term and provides a clear long-term framework to enable industry to invest and deliver the transition to low-carbon heating. Just having another strategy document does not make the policy decisions that are required any less difficult. As I have already mentioned, the Government are launching the energy efficiency task force with the key objectives of developing a long-term strategy to drive improvements in energy efficiency and reduce national energy demand.
As I have repeated many times in the House, we are investing £6.6 billion over this Parliament on clean heat and improving energy efficiency in buildings, reducing our reliance on fossil fuel heating. As I think the noble Lord, Lord Ravensdale, referenced, the Autumn Statement also recently announced a further £6 billion of funding to become available from 2025. In the context of spending reductions and a difficult economic environment, I was delighted to see that announcement from the Chancellor. The Government also recently announced—and we are now consulting on—a further energy efficiency support scheme through ECO+. The scheme will be worth about £1 billion and shall deliver an average household saving of around £310 per year through a broad mix of affordable insulation measures, including loft insulation, cavity wall insulation, draught-proofing and heating controls.
Amendment 197, in the name of the noble Lord, Lord Foster, requires the Secretary of State to set an average energy performance certificate target for mortgage lenders of EPC C by the end of 2030. It also gives the Government the power to make regulations that relate to the disclosure of energy performance information on properties in their portfolio. I have met with many of the lenders, and I agree that they have an important role to play in improving the energy efficiency of the UK’s housing stock. However, as we highlighted in our consultation on improving home energy performance through lenders, the Government are concerned that the amendment may have unintended consequences for the mortgage and housing market. I am sure that this is not the noble Lord’s intention, but there is a danger of disincentivising mortgage lenders from lending to energy-inefficient properties. We would then end up with a load of unmortgageable homes in the UK, which I do not think anybody wants to see.
It is imperative that mortgage lenders are not disincentivised from lending to any particular group while home owners are under unprecedented financial pressure. The Government are using the feedback from the consultation to refine the policy and will publish a response once the policy matters have been resolved.
The noble Lords, Lord Ravensdale and Lord Foster, and the noble Baroness, Lady Young, all mentioned the importance of skills. If anything, that is key to this area, probably even more so than the availability of funding. We understand that scale-up requires consistent long-term deployment streams via government funding and regulation, which is what we are attempting to do, so that companies working in these markets can make the investments needed and individuals can choose to upskill.
To grow the installer supply chain, we are investing in skills and training. In 2021, the Government invested £6 million in the BEIS skills training competition, resulting in almost 7,000 training opportunities being provided across heat pump installation and wider retrofit skills. In fact, we have another training competition out for bids at the moment.
Amendment 212 in this group from the noble Lord, Lord Foster, would require the Secretary of State to collect and publish a list of those public buildings that hold display energy certificates, commonly referred to as DECs, and those that do not. I really do not believe that it would be cost effective for the Government to identify and inspect all public buildings that require a DEC, nor to record this information. The energy performance of buildings report published in 2020 cited an estimated DEC compliance of about 83%. We currently publish DEC data as part of our register. I hope noble Lords agree that this demonstrates that the existing system, which we intend to continue and keep under review, is working well in respect of DEC compliance.
Finally, Amendments 198A and 198B from the noble Lord, Lord Foster, would require the Secretary of State to ensure that all households achieve an energy performance certificate band C by 2035, with specified exemptions, and require regulations relating to energy performance in existing premises. The Government remain committed to our aspiration of improving as many homes as possible to reach EPC band C by 2035 where practical, cost effective and affordable. That is why, as I mentioned, we are investing £12 billion during this Parliament into the various Help to Heat schemes, some of which the noble Lord referenced, to make sure that homes are warmer and cheaper to heat, including £1.5 billion to upgrade around 130,000 social housing and low-income properties in England. However, we need to retain flexibility to choose the best approach, rather than being restricted to the regulatory requirement.
Regarding existing premises, the Government have consulted on raising the minimum energy-efficiency standards for the domestic and non-domestic private rented sectors. We are in the process of considering our responses to both consultations. However, it is important to stress that improving existing buildings is a complicated issue and requires striking a balance between improving standards and minimising impacts on the housing market, and, for the private rented sector specifically, ensuring that the final policy is fair to both landlords and tenants. That is a particular dilemma that we face with the PRS regulations.
Similarly, regarding the social rented sector, the Government have committed to consult within six months of the Social Housing (Regulation) Bill receiving Royal Assent. By prescribing specific targets without any opportunity for landlords to offer views, the proposed amendment would be at odds with this commitment.
I thank all noble Lords who contributed during this debate, but given what I have set out and the Government’s long-term commitment to drive improvements in energy efficiency, I hope that they will not press their amendments.
Lord Foster of Bath (LD)
Before the Minister sits down, could he clarify whether the Government believe that the 2017 Clean Growth Strategy, which talks about achieving EPC band C by 2035 for all homes where this is feasible, affordable and cost-effective, is a target or now just an aspiration? Could he be clear on the language? He used “aspiration” a minute ago. In the documentation, and in every letter he has written to me and in every answer, it has been described as a “target”. I just want to be clear.
Lord Callanan (Con)
I think we are getting into semantics here. I am not sure there is a huge difference between them. My point is that it is not helpful to embed it in primary legislation. It is a target; it is an aspiration; it is something we are working towards that we want to try to deliver, but it is a complicated area with a lot of difficult policy choices and potentially a huge amount of expenditure.
Lord Foster of Bath (LD)
In the light of that, if “aspiration” and “target” are the same and the Minister is not therefore resiling from the 2017 document, could he tell me why the noble Lord, Lord Greenhalgh, and, more recently, the Secretary of State for Environment, Food and Rural Affairs have argued that there is merit in putting environmental targets into legislation? I do not understand where the problem comes. The Minister says the Government need flexibility in the way this is delivered. I do not disagree with that. I am sure that new technology will come along that will perhaps help to do this more efficiently, effectively and quickly. I hope that is the case, but the way in which a target is achieved is totally different from having that target. The industry has been absolutely clear that it is very keen to see a statutory target to give it the confidence it needs.
Lord Callanan (Con)
I disagree with the noble Lord. I have had many discussions with businesses and companies in this area, and we are providing the policy certainty they need. It is clear what direction the country is going in. We have listened to a lot of the feedback, have set out longer delivery programmes for the various schemes that we fund directly and are giving the certainty that people need. It does not make any difference to the industry, in terms of the policy landscape, to enshrine a target in primary legislation as opposed to it being an aspiration, a target or whatever other language the noble Lord prefers.
Lord Ravensdale (CB)
My Lords, I have listened to everything the Minister said in response and, as I said earlier, it is great that the Government are moving strongly on this and all these matters, particularly skills and many other areas. However, there is still a need for a joined-up strategy and for some of these targets to be in statute. We have learned from the green homes grant, for which one of the issues was the lack of the long-term thinking that a strategy would provide.
The real issue here, as noble Lords have powerfully articulated, is that we have picked all the low-hanging fruit—the decarbonisation of our electricity system, and vehicle and transport electrification—and now we have to move much higher up the tree to more difficult matters, such as the decarbonisation of heat. The noble Lord, Lord Foster, powerfully articulated the challenges in that area. We will have many more discussions on this leading to Report but, with that, I beg leave to withdraw the amendment.
Lord Callanan
“Part 9AEnergy Savings Opportunity SchemesEnergy savings opportunity schemes(1) The Secretary of State may by regulations (“ESOS regulations”) make provision for the establishment and operation of one or more energy savings opportunity schemes.(2) An “energy savings opportunity scheme” is a scheme under which obligations are imposed on undertakings to which the scheme applies for one or more of the ESOS purposes.(3) The ESOS purposes are—(a) enabling or requiring the energy consumption for which an undertaking is responsible, or the greenhouse gas emissions resulting from that consumption, to be assessed, audited, reported and published;(b) enabling or requiring possible energy savings or emissions reductions to be identified and recommended;(c) enabling or requiring the costs and benefits of possible energy savings or emissions reductions to be assessed;(d) encouraging or requiring undertakings to produce plans or set targets for achieving energy savings or emissions reductions;(e) encouraging or requiring undertakings to take action for the purpose of achieving energy savings or emissions reductions;(f) encouraging or requiring undertakings to achieve energy savings or emissions reductions.(4) An energy saving is a reduction in the energy consumption for which an undertaking is responsible.(5) An emissions reduction is a reduction in the greenhouse gas emissions that result from the energy consumption for which an undertaking is responsible (whether or not that consumption is also reduced).(6) ESOS regulations may make provision about determining—(a) the energy consumption for which an undertaking is responsible;(b) the greenhouse gas emissions resulting from that consumption.(7) ESOS regulations may—(a) impose requirements on any person;(b) confer functions on any person;(c) provide for a person to exercise discretion in dealing with any matter.(8) The provision made by this Part is without prejudice to the generality of subsection (1).(9) For the purposes of this Part—(a) the scheme established by the Energy Savings Opportunity Scheme Regulations 2014 (S.I. 2014/1643) is to be treated as having been established by provision made under subsection (1);(b) a reference to a scheme administrator includes a reference to a compliance body within the meaning given by those Regulations.”Member's explanatory statement
This new Clause is the first Clause in a new Part 9A of the Bill (also containing the 12 other new Clauses inserted after Clause 201 by amendments in the name of Lord Callanan) making provision about Energy Savings Opportunity Schemes. The new Clause gives the Secretary of State the power to make regulations about Energy Savings Opportunity Schemes.
Lord Callanan (Con)
My Lords, for the benefit of the noble Lord, Lord Teverson, I have some more government amendments for his delectation. I will also speak to Amendments 200 to 211, 243 and 244, 246 and 247, which all stand in my name.
Amendment 199 introduces a new Part 9A to the Bill which relates to the existing energy savings opportunity scheme, commonly referred to as ESOS. I committed at Second Reading to table these new clauses regarding improvements to ESOS. For those noble Lords who do not know, ESOS is a mandatory energy audit scheme for large organisations, covering their buildings, transport and industrial processes. ESOS provides businesses with cost-effective recommendations on energy efficiency measures. The existing scheme is estimated to lead to £1.6 billion of net benefits to the UK, with the majority of these benefits applying to participating businesses as a result of reduced energy costs.
The power in the amendment would replace the repealed power in the European Communities Act 1972 under which the UK established ESOS in 2014. Without this, ESOS is a frozen scheme and cannot be updated. The changes are aimed at encouraging businesses to take action on recommendations to increase their energy and carbon savings.
Lord Teverson (LD)
Can the Minister clarify: did he say that this Bill revokes that EU legislation? Is that what he just said?
Lord Callanan (Con)
The power in the amendment would replace the repealed power in the European Communities Act 1972, which I presume was repealed after Brexit, or rather the end of the implementation period.
The changes are aimed at encouraging businesses to take action on recommendations to increase their energy and carbon savings. The benefits to existing participating businesses are estimated to be savings of £1.12 billion from 2023 to 2037 through reduced energy bills. The savings would of course help to support businesses to keep the costs of their products and services affordable for consumers.
Amendments 200 to 202 outline some of the details of the ESOS regime and associated powers to make regulations. They include provisions regarding which undertakings ESOS should apply to; provisions regarding when, how and by whom an ESOS assessment should be carried out; and ESOS assessor functions and requirements.
Amendment 203 enables regulations to introduce a requirement for ESOS participants to publish an ESOS action plan covering intended actions to reduce energy use or greenhouse gas emissions. This requirement aims to increase participants’ engagement with ESOS and stimulate greater uptake of energy efficiency measures. Amendment 204 enables regulations to impose requirements for ESOS participants to take actions that directly or indirectly support the reduction of energy use or greenhouse gas emissions.
Amendments 205 to 207, 209 and 210 concern the administration and enforcement of the scheme. They enable regulations to make provisions about the appointment of scheme administrators and their functions, including compliance monitoring and enforcement, provisions on penalties and offences, and rights of appeal. These amendments also enable the Secretary of State to provide financial assistance and to give directions to a scheme administrator, with which it must comply.
Amendment 208 concerns procedures for making regulations. It requires the Secretary of State to consult appropriate persons considered likely to be affected by the regulations and, where provisions relate to devolved matters, the respective devolved Administrations. It describes where affirmative procedure would be required, for example if extending ESOS to smaller businesses, mandating action by ESOS participants or creating offences.
Amendments 211 and 243 define certain terms used in the ESOS provisions, explain where provisions fall within devolved competence and set out the extent of the ESOS provisions to be England and Wales, Scotland and Northern Ireland. Amendments 244 and 246 clarify when the amendments will come into force. Amendment 247 inserts into the Title of the Bill a reference to the new clauses on ESOS, introduced by Amendments 199 to 211. With that, I beg to move Amendment 199 in my name.
Baroness Bennett of Manor Castle (GP)
My Lords, given the hour I will ask one very simple and direct question on government Amendment 210, which is about financial assistance. The second part of it says:
“‘Financial assistance’ means grants, loans, guarantees or indemnities, or any other kind of financial assistance”.
Can the Minister give us any indication of what the Government’s intentions are here? That is a very broad range and we know, for example, how wrong loans have gone in the past and how schemes based on loans have really not worked out. Given what interest rates are now, that is obviously a challenge. To tackle the kind of issues I raised earlier about the most disadvantaged areas having particular problems with the quality of housing, do the Government intend to look towards grant-type schemes?
Lord Callanan (Con)
The clause enables the Secretary of State to provide financial assistance to scheme administrators and ESOS participants. It does not, of course, compel us to do so but we are taking a power to have that option. If we decide to provide financial assistance, I will inform the House accordingly.
Lord Teverson (LD)
My Lords, there was a reason for my question. I absolutely agree that the Minister warned us that we would have these amendments coming down the track, and on ESOS I welcome that fact because it has been a very good scheme. Although companies occasionally bitch about it, as he says, it has caused actual change.
As the Minister will know, being a former MEP and so on, the ESOS scheme at the moment is based on the energy efficiency directive of 2012, which was updated in 2018. It came into force in the UK in 2014 and, as the Government’s website says:
“Government established ESOS to implement Article 8 (4 to 6) of the EU Energy Efficiency Directive (2012/27/EU).”
The reason I asked him for a clarification on his opening statement is that nowhere in his amendments could I see anything that repealed the existing directive or regulations that related to the energy efficiency directive.
Is this a sort of parallel scheme to the one that still exists, or is it still based on the original EU directive? If it is still based or relies upon the original EU directive, what happens if ever the retained EU law revocation Bill becomes a statute? Does all this fall away because it still relies on that EU legislation? If it is a parallel scheme, when does the existing one stop under the EU directive and this one actually start? That is what I am trying to understand. The Minister may well have explained this—forgive me if he has—but I do not get a flavour for what the big difference is between this one and the existing one. What would he see as the big positive change?
My last question is a more general one. I have not counted the non-government amendments that have come forward, yet—despite having on this side, and even part of that side, combined brains the size of a planet, excluding mine—the Government have not seen one amendment worthy of thinking, “Yes, that could be useful and might be something that could improve the Bill.” I just ask the Minister before the end of the year—and I wish him and the Bill team a very enjoyable Christmas and break—why has none of the brainpower on this side has been worth taking notice of in terms of the Bill going forward?
Baroness Blake of Leeds (Lab)
I shall be very brief. There are many aspects of this that are to be welcomed, but I am just intrigued. The Minister mentioned the section on finances. I am concerned about the capacity of the lead assessors and professional bodies to do this work, with particular reference to the intention to expand the scheme to, I think he said, small and medium-sized enterprises. I understood that it was medium-sized: I do not know quite where the definition lies, which would also be interesting. That is a major expansion, and I wonder whether an assessment has been made of how many additional businesses we could be talking about, and how the work is going to be done in those circumstances.
Lord Callanan (Con)
Let me respond first to the final point of the noble Lord, Lord Teverson. He and I know each other well; I have taken a number of Bills through this House, and I think that if he talks to the Official Opposition as well, he will find that I have a reasonable record of listening carefully throughout Committee on Bills and, where I can, within the confines of government policy—he will know how the process works within government—I try to take on board, where possible, the concerns of the Committee. On some Bills, that does mean accepting opposition or Back-Bench amendments directly, and I have done so on a number of occasions.
I am not giving any commitments on some of the amendments we have been debating in this Committee but, as always, I will take careful note of comments, discuss them with the Bill officials and other departments where it is required to do so and, if there are matters on which we can move, then of course we will do so. We will seek to discuss these matters before Report and, as always, I am listening to comments that noble Lords are making and trying to assess the will of the Committee.
ESOS is an important scheme that was originally implemented on the back of the energy efficiency directive, but there were specific parts of it that were UK legislation. We did not directly copy the energy efficiency directive and we will seek to do the same with the new scheme as well. The BEIS Select Committee made recommendations on energy efficiency, including that ESOS should require reports to be made public and should mandate participants to take action to reduce energy review. There was also a post-implementation review of ESOS in 2020, which found that it was largely achieving its original aims and that businesses were unlikely to carry out energy audits unless mandated to do so, but that the scheme could be helpful in producing that. I think that covers most of the points that were discussed and I thank noble Lords for their attention.
Baroness Blake of Leeds (Lab)
The Minister did not respond to my question about the capacity and extent of extending the scheme.
Lord Callanan (Con)
It is not our intention to extend it to small businesses at the moment. We are obviously always concerned about the impact on small businesses in particular but, if these amendments are accepted, we would have the regulation-making powers to extend it to businesses of different sizes. I think it is very unlikely that we would ever extend it to small businesses but that would be the subject of secondary legislation, which would, of course, be debated in the House.
Baroness Blake of Leeds (Lab)
I raised that because I may have misheard what the Minister said in referencing small businesses. I understood that this extended to medium-sized businesses but, even so, that is a significant increase. Have the Government taken on board the additional workload and whether the capacity will be there, assuming that the work is taken on?
Lord Callanan (Con)
We are not proposing to extend it to medium-sized businesses at this stage. We would want to work with stakeholders on the detail of any potential future implementation, which would be subject to a further consultation and, ultimately, a cost-benefit analysis. This is a complicated area and there are a number of different views. We have had a couple of consultations on this. With these amendments, we are taking the powers to implement the scheme. Of course, the regulations would be subject to further debate in the House.
Lord Teverson (LD)
I just want to check something with the Minister. Are we saying that, if the retained EU law Bill became an Act, with its sunset clause of 2023, this scheme would still remain in force and there would be no legal ambiguity about it? Also, I believe that the next deadline for reporting is December 2023. Can I check that this still holds?
Lord Callanan (Con)
The noble Lord is asking for commitments on a different piece of legislation. When that Bill arrives in the House, we will no doubt have a full discussion on it. My understanding is that it is at Report stage in the House of Commons now. The sunset date is still set at 2023 although there are powers in that Bill to exempt particular pieces of legislation and Ministers have the option of extending the sunset date for pieces of retained law that it is not possible to update or review in the short time available. I am sure that we will have a long, involved discussion on the retained EU law Bill when it arrives in the House and that I will get déjà vu from the Brexit withdrawal Act, with many of the same people no doubt making many of the same points they made during that time.
Lord Callanan
“Application of energy savings opportunity schemes(1) ESOS regulations may provide for—(a) an energy savings opportunity scheme to apply to specified descriptions of undertakings;(b) specified descriptions of undertakings to be excluded from the application of the scheme.(2) ESOS regulations may make provision about circumstances in which—(a) two or more participants are to be treated for the purposes of the regulations as if they were a single participant;(b) an obligation imposed under the regulations on one participant is to be treated as if it had been imposed on a different participant.(3) The provisions of this Part relating to energy consumption apply to energy consumed by assets located, or activities carried on—(a) wholly or partly in the United Kingdom;(b) wholly or partly in an offshore area;(c) where subsection (4) applies, elsewhere.(4) ESOS regulations may make provision about circumstances in which the energy consumption for which a participant is, for the purposes of the regulations, responsible may include energy consumed by—(a) assets located elsewhere than in the United Kingdom or an offshore area, or(b) activities carried on elsewhere than in the United Kingdom or an offshore area.(5) The provisions of this Part relating to greenhouse gas emissions apply to the emissions resulting from energy consumption to which this Part applies whether such emissions occur in the United Kingdom, in an offshore area or elsewhere.(6) ESOS regulations may make provision about the attribution of energy consumption to participants, including in particular provision about the treatment for the purposes of the regulations of—(a) a participant’s consumption of energy generated by that participant;(b) energy consumption by a person over whom a participant has control or influence;(c) energy consumption shared between a participant and one or more other participants or other persons;(d) energy consumed by assets held on trust by or for a participant.(7) In this section, “offshore area” means—(a) waters landward of the seaward limit of the territorial sea adjacent to the United Kingdom,(b) any designated area within the meaning of section 1(7) of the Continental Shelf Act 1964, and(c) any area for the time being designated under section 41(3) of the Marine and Coastal Access Act 2009,and includes the places above those areas and the bed and subsoil of the sea within those areas.”Member's explanatory statement
This new Clause makes provision about the application of regulations made under the first of the new Clauses in the name of Lord Callanan inserted after Clause 201.