Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026
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Lord Whitehead
That the Grand Committee do consider the Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026.
Relevant document: 54th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, these draft regulations were laid before the House on 23 February and consist of an extremely short SI—six lines altogether—and a very slight amendment of a date from 25 April 2026 to 25 October 2026. I am sure noble Lords will be eager to know why that change of date is being undertaken. On 1 April, typical household energy bills reduced by more than £100, thanks to action this Government took following the Budget. Energy bills are lower than they were in March because of the choices made by the Chancellor last year. They will remain capped at this level until July.
I want to be clear what lies behind the reduction in energy bills from 1 April. First, we have taken the considered decision to bring the energy company obligation scheme to a close, removing its costs from bills and instead funding future energy efficiency home upgrades via public investment in the warm homes plan. Secondly, we are moving 75% of the cost of the renewables obligation scheme attributable to domestic energy supply to the Exchequer. These principled reforms shift the balance from levies on bills to public spending. These regulations support that reduction in energy bills by ensuring that the Government retain the necessary power for the renewables obligation cost transfer.
The renewables obligation scheme exists to incentivise UK renewable energy generation through a system of tradeable certificates. The scheme closed to new applications in 2017, but existing sites can continue to receive support until the scheme ends in 2037. The scheme has been instrumental in taking a nascent renewable energy sector to where it is today, with the scheme supporting around 30% of total UK electricity generation. The core of the renewables obligation scheme is a process in which electricity suppliers purchase certificates from renewable generators. This process continues unchanged.
However, previously, suppliers ultimately recovered the cost of complying with their renewable obligations from customers via energy bills. Ofgem considered these costs when setting the quarterly price cap for domestic consumers in Great Britain. From 1 April, the Government are instead providing grant funding to electricity suppliers to cover 75% of the cost of these obligations attributable to domestic energy supply in GB. We have given a legal direction to electricity suppliers, requiring them to pass these savings on to domestic consumers. Ofgem has also reflected the reduced cost in the lower price cap from 1 April. At the Budget, we committed to keep these costs off bills until 31 March 2029.
I hope noble Lords will agree that these are good things to do concerning energy price costs and the reduction of customers’ bills. But, of course, there must be a legislative basis for those changes. The legislative basis for the grant funding that enables the energy bill reductions I have mentioned is currently set to expire on 25 April this year. These regulations, as I have mentioned, extend this time limit to ensure that the removal of costs from electricity bills can continue. We can extend the time limit on the legislation—the Energy Prices Act 2022—by only six months at a time. The extension in these regulations is until 25 October, when the Bill is in effect re-sunsetted.
I therefore expect to return to the House in October to seek a further extension on that sunset clause, but I assure noble Lords that the department is working on primary legislation to provide a more permanent solution, which will be taken forward when parliamentary time allows.
The position is slightly different in Northern Ireland, where energy costs are a transferred matter for the Executive, and the Northern Ireland renewables obligation forms a smaller cost on electricity bills. The department has been supporting colleagues in Northern Ireland as they develop an offer comparable to the policy in Great Britain. Following a request from the Minister for the Economy in Northern Ireland, we laid separate regulations in March to support their delivery, which I hope to bring before your Lordships shortly.
In concluding, I thank the Secondary Legislation Scrutiny Committee for noting these regulations as of interest in the context of events in the Middle East, which the department continues to closely monitor.
Energy company obligation costs and 75% of renewables obligation costs have been removed from average domestic energy bills and will stay off bills for at least the next three years. Whatever challenges lie ahead, the Government will prioritise supporting working people with the cost of living. These regulations are ultimately a simple time-limit extension to underpin the removal of these renewables obligation costs from bills. I beg to move.
Lord Ashcombe (Con)
My Lords, the Energy Prices Act 2022 was brought forward in circumstances that were, by any measure, extraordinary. It was a moment of acute global volatility, when Governments across Europe were forced to act at speed to shield households and businesses from unprecedented shocks. Those conditions justified exceptional paths but, as we move further away from that crisis moment, it is right to ask whether repeated extensions of emergency measures remain the most appropriate long-term course.
Energy security today is defined not only by the balance of supply and demand over the year but by the system’s resilience at moments of stress. The Government’s own modelling makes clear that peak day gas demand remains high, even as overall annual consumption gradually declines. It is those peaks, on the coldest days, typically when the wind does not blow and the sun does not shine, and the tightest margins that test the system most severely.
In 2024, gas provided 36% of the UK’s energy needs. It is used not only in generating electricity but, importantly, in domestic and industrial heating. Domestic gas production remains a critical component of the UK energy system. In 2024, the UK continental shelf provided 43% of the UK supply, imports of liquid natural gas provided 14% and the balance was imported from Norway. It is more reliable than imported alternatives, which can always be diverted elsewhere—even the Norwegian imports—as Europe becomes ever hungrier for the same molecules. Domestic gas goes into the extensive UK network at significantly lower carbon-emissions intensity—some three times lower—than liquid natural gas, which predominantly comes from the United States, and it is far less exposed to geopolitical risk or global bidding cycles. LNG will remain an important source of flexibility, but it cannot substitute for domestic supply, particularly given the UK’s very limited gas storage capacity.
Maintaining a stable level of domestic production also sustains the essential infrastructure on which the whole system depends: the pipelines, terminals and onshore hubs that provide flexibility, resilience, affordability and, critically at this current time, jobs. Once the infrastructure and experience are lost, they will not easily be rebuilt.
More broadly, there is a strong case for moving from crisis area interventions towards stable, rule-based arrangements. Such an approach would continue to protect consumers when prices spike, while giving investors the confidence needed to support the system in more normal times. That balance between consumer protection and long-term stability is essential if we are to secure an orderly transition and a resilient energy system for the years ahead.
With these points in mind, I would like to pose four questions to the Minister. First, can he outline a clear pathway from the continued use of emergency powers under the Energy Prices Act towards a permanent, price-responsive framework that supports investment and resilience? Secondly, how do the Government intend to ensure that critical gas infrastructure remains viable if domestic production continues to decline? Thirdly, what assessment has been made of the risks associated with greater reliance on LNG imports, particularly in light of the UK’s limited gas storage and exposure to global market volatility? Finally, have the Government considered the carbon implications of increased LNG reliance, given its significantly higher life-cycle emissions compared with UK gas produced here?
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I thank the Minister for bringing forward this statutory instrument, which introduces a minor amendment to the Energy Prices Act 2022 by extending the Secretary of State’s power to grant renewables obligation certificate funding by six months.
His Majesty’s Opposition do not oppose this instrument in principle. It is right that the Government’s efforts should be focused on the controllable—namely, policy costs. Indeed, it is welcome that the renewables obligation to Exchequer policy demonstrates the Government’s understanding that their choices have a direct impact on people’s bills; that is why the scheme is being advertised as proof of the £150 that the Government promised to take off energy bills.
However, reducing energy bills by shifting the costs from household bills on to general taxation is a rather disingenuous way of achieving government policy. Whether it is the Government or energy suppliers who pay the upfront fee to Ofgem, the cost of ROCs will still be borne by the public and the cost of renewables will continue to apply. Every time the sun shines, solar farms will receive one or two ROCs per megawatt hour, earning them up to double the wholesale price. Every time the wind blows, offshore wind farms will get almost three times the wholesale price, or £240 per megawatt hour. When these farms are forced to turn off due to insufficient grid capacity, they are in receipt of high-constraint payments of more than £200 per megawatt hour.
The renewables obligation deal will last for another 11 years. These costs are going nowhere, and nobody but the British public is going to fund them. The only result of the RO is to Exchequer policy, and this instrument will mean that the public are made less conscious of what they are funding. Absorbing costs into general government spending may make the cost of the renewables programme more discrete, but it will not save the public purse any money.
The upshot of this is that the renewable transition must be underpinned by a cheaper and more reliable source of energy. The immediate way of achieving this is through oil and gas, which we already manage by importing LNG from Norway and the Middle East. I completely agree with the substance and sentiment of my noble friend Lord Ashcombe’s contribution to this short debate. I am aware that this is not the topic of today’s debate, so I will brief, but the intermittent nature of renewables and our current capacity issues mean that we still need to rely on oil and gas. Even during the current war and the subsequent international spike in oil and gas prices, those prices are still cheaper than subsidised renewables. We have the opportunity to divorce ourselves from the vicissitudes of international affairs by exploiting our North Sea reserves, yet the Secretary of State remains as dogmatic as ever. He seemed to toy with the idea of domestic production over the Easter break but, as we sit here today, production at Jackdaw is still yet to commence.
This is in the Government’s control. If they really are committed to reducing energy bills, then, along with subsidising renewables in the long term, they should allow us to produce our own oil and gas in the short term. I hope that the Minister will at least agree with that sentiment; I look forward to his response, in particular to the four intelligent questions posed by my noble friend Lord Ashcombe.
Lord Whitehead (Lab)
My Lords, I thank noble Lords for their valuable contributions to this debate. I will try to respond to their concerns—including those of the noble Lord, Lord Ashcombe, who went a bit beyond this particular SI but nevertheless made important points and asked questions that deserve a response.
The noble Lord’s first concern was about whether I can outline a pathway towards permanent legislation here. I agree with him that permanent legislation is always better than re-sunsetting an original sunset clause from previous legislation, as he mentioned. Of course, the Energy Prices Act 2022 was put in place at a time of high crisis as far as energy bills were concerned—not completely dissimilar issues to the ones we face today, but rather more concerned with gas than with oil and fuel generally. Nevertheless, it is a piece of legislation that was designed at least in part to be sunsetted. In essence, what we are doing in this present crisis is re-sunsetting an Act that was originally intended to be sunsetted in the first place. It is quite right that we should bring that sunset request back to the House when we are making it.
Nevertheless, it is a much better idea to have legislation that properly fits the bill in the long term, which is the Government’s intention right now. I mentioned that we will probably want to come back one more time with a sunset extension, in order to make sure that these changes work properly in the long term, but, after that, there should be legislation in place to make a permanent arrangement that is properly workable for the future. Of course, the phrase “when legislative time permits” has a variety of interpretations attached to it, but it is basically a question of finding out to which bit of legislation you can attach this permanent version of a sunset clause. It might be the EIB, but there may be other legislation—we will have to see as we go forward. However, I can give an absolute commitment that we are dedicated to making sure that this happens in the not-too-distant future in order to regularise the circumstances over the longer term.
The noble Lord asked what we are doing to make sure that critical gas infrastructure remains viable. This is a subset of the understanding that, although the use of gas is declining substantially in Great Britain and will continue to do so, the overhead costs and infrastructure issues will remain. It is essential, therefore, that we make sure that the infrastructure is as viable as it can be in the long term and that the whole system does not fall down because we have a lower amount of gas going into and out of it. The Government are actively involved in undertaking that.
By the way, I might add that the increasing amount of biomethane and biogas going into the system—at present, it is about 7% of the total system—will go some way towards assisting the viability of long-term infrastructure. It is certainly this Government’s intention to increase, where possible, the amount of biomethane and biogas going into the system. That gives some indication of where we are on LNG imports, which, as the noble Lord mentioned, have a higher carbon footprint than natural gas, which in turn has a much higher footprint than biogas. At the moment, about 14% of our gas supplies are coming in via LNG. One of the advantages of an increased amount of biogas in the system is that it directly removes the need for LNG to come into the system. All other things considered, something like a 2% increase in biomethane going into the system would be the equivalent of turning around six LNG tankers and them not coming to UK shores at all.
On energy imports in general, the UK has a diverse supply. The noble Lord mentioned the substantial element of supply played by the Norwegian gas fields, some of which are landable only in the UK and not in Norway itself. There is also the continuing supply from the North Sea. I have mentioned LNG, which comes from diverse sources; at the moment, only 1% comes from sources in the Middle East, so that issue will not overturn the security of the gas system in the near future. I hope that I have given fair thought to the noble Lord’s valuable contribution.
I turn to the supportive and helpful contribution of the noble Earl, Lord Russell. He is right to add that this is the right thing to do right now, bearing in mind that we very much want to make sure that, in a time of such volatility, domestic and commercial bills are pressed downwards as far as is possible. The two measures I have mentioned rearrange the ways in which bills are charged to some extent, but they nevertheless have the real effect of bringing those bills down considerably. He is quite right to seek an assurance that that is not just a temporary fix for the time being but will be put on a more permanent basis; we are looking to secure legislation to make sure that that happens.
The noble Earl rightly mentioned information sharing on these measures and other measures that are likely coming forward to push down bills. He should be aware of the Utilities Act 2000 (Amendment of Section 105) Order, which has enabled the sharing of more detailed data than DESNZ currently holds between the department and Ofgem. The aim of that order is to ensure that more detailed data is properly safeguarded and is used for the intended purposes, not others. I hope that the noble Earl can be reassured on that basis.
I turn to the valuable contribution of the noble Baroness, Lady Bloomfield. It is true that these measures shift the burden of the legislation from particular consumers to more general taxation purposes. That is a fair thing to do, in terms of generally sharing the burden of increased electricity prices, but I accept that the Government are very much involved in making sure that, by changing the way the electricity market works, prices are much lower over a longer period of time.