Energy Bill [Lords]
The Committee consisted of the following Members:
Alison Groves, Committee Clerk
† attended the Committee
‘(1) For the purposes of requiring energy suppliers to assist in combating fuel poverty by the reduction of home heating costs and to meet carbon dioxide reduction targets the Secretary of State must within twelve months of the passing of this Act make regulations establishing a scheme requiring energy suppliers to install specified energy efficiency measures in residential properties.
(2) Regulations made pursuant to this section must specify:
(a) the energy measures to be included;
(b) that priority for installation of those measures shall be given to the homes of persons living in fuel poverty;
(c) the carbon dioxide reduction target to be achieved as a result of those measures; and
(d) such other matters that are in the opinion of the Secretary of State required for the setting up and operation of the scheme.
(3) In this section:
“fuel poverty” has the same meaning as in the Warm Homes and Energy Conservation Act 2000.
“energy suppliers” means any person licensed to supply electricity pursuant to the Electricity Act 1989 and any person licensed to supply gas pursuant to the Gas Act 1986.’.
‘(1) The Secretary of State must, within six months of this Bill receiving Royal Assent, report to Parliament with proposals on the ways in which the Energy Company Obligation could be supplemented by—
(a) auction revenues from the European Union Emissions Trading System,
(b) revenues from the Carbon Floor Price, and
(c) such other funds as considered appropriate by the Secretary of State.’.
This New Clause requires the Secretary of State to produce a report on the potential for using public funds to supplement the Energy Company Obligation.
Dr Alan Whitehead (Southampton, Test) (Lab): Someone has mentioned to me that before the break they heard me state that I wished to peel an otter. I assure hon. Members that I have no intention of doing that; I would not wish to get into trouble with animal rights lobbies. I was talking about piling Pelion on Ossa, which is what I was about to do. The carbon emissions reduction target is popularly supposed to have stayed outside the definition of imputed taxation; while that might have been an indication that its successor, the energy company obligation, will also stay outside it, that is not the case. CERT has never been looked at by the Office for National Statistics; indeed, I understand that CERT has just been referred to the ONS classification committee for precisely that purpose, so it is conceivable that if the ONS classification committee decides that CERT is indeed imputed taxation, it could come within a framework before CERT runs out at the end of 2012.
With regard to the upcoming potential range of funding for ECO, not only do we not know what the extent of the funding might be; we may well find that the funding, for reasons outside the control of the Department of Energy and Climate Change, is seriously circumscribed for the future. That is why it is doubly important that we are clear about what the overall priority for ECO is.
That relates to hard-to-treat homes. Then there is a reference to the ECO subsidy and measures providing affordable warmth to the vulnerable. That makes clear the idea that there could be two purposes for ECO—indeed, one might say two and a half purposes, inasmuch as it is certainly true that a disproportionate number of those hard-to-treat homes will be homes in which people who are vulnerable and fuel-poor live.
However, without a target arrangement as far as ECO is concerned, bearing in mind the limitations that there may well be on its budget, it is more than possible that the diagram in the document will end up with most of the second circle of ECO subsidy, or perhaps all of it, being taken up by the next most cost-effective measures, particularly as the document itself, as I have previously mentioned, states:
“The Committee on Climate Change recommended in their 2009 Report, ‘Meeting Carbon Budgets—the need for a step change’, that 2.3 million solid wall homes will need to have taken up solid wall insulation by 2022 in order for the UK to be on track to achieve carbon budgets.”
It may well be, as my hon. Friend the Member for Liverpool, Wavertree, has illustrated, that most of the homes that could be insulated by 2022 could be solid wall homes in which people in fuel poverty live. She referred to 1.9 million homes falling into that category. Even that figure is way outside what looks like the current funding envelope for the ECO. If we do the mathematics on the cost per home to install solid wall insulation, even that measure would require, according to the report from the Committee on Climate Change, far more funding than we think is likely for ECO in that period. That should be revisited.
The absolutely essential campaign on homes that are hard to treat and do not have cavity walls may need other forms of assistance behind it, in addition to ECO,
Fundamentally, that aim runs over the question of the golden rule. If we had the provision in the Bill, it would give important clarification on where the ECO is going. It would also be an enormous help for those people who are already preparing to get under way; it would allow them to anticipate what the ECO will do. I spoke at a conference yesterday, and the lack of clarity about what the ECO will do was a widespread concern among those in the practical business of thinking about how to go along with green deal proposals, what role the green deal may play in that, and the extent to which the green deal will work in tandem with ECO where people are vulnerable and fuel-poor. The new clause has an enormous amount to commend it. I hope that the Minister will at least feel able to clarify, for all our sakes, where the ECO is going, and to accept it as an addition to the Bill.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op): I am grateful for the opportunity to make a few remarks about the ECO in relation to new clause 23 and clause 64. We have heard from members of the Committee—and, I think, from the Minister in an earlier sitting—about the split between the two areas that the ECO is intended to address. Various people have talked about Venn diagrams and how big the crossover part in the middle is. It is well understood that there is a degree of crossover; some hard-to-heat homes are inhabited by people who are fuel-poor.
On a number of occasions, including on Second Reading, I have raised the point, with regard to the development of the green deal, about hard-to-heat homes in my constituency and the constituencies of many others. In the part of the world that I represent, there are a lot of stone-built properties with high ceilings and big, draughty windows. Often, they are tenement properties; people who are familiar with Glasgow and Edinburgh will know of them. I just place on record that I do not represent Glasgow, in case any of my constituents read this contribution. Rutherglen is very different from Glasgow, although it is next to it. The properties are very similar, and were built by the same people at around the same time. They are hard to heat; they do not have lofts and often do not have walls suitable for cavity-wall insulation. However, a lot of them are social housing. Even those that are not are flats rather than large houses, and the occupiers are fuel-poor. That is where priority should be aimed.
I understand the point made earlier in response to the hon. Member for Brighton, Pavilion: this is a 10-year programme. We are talking about a possible £20 billion over 10 years. However, how we start is important. If the amount is in the order of £2 billion a year, we should start with people in fuel poverty, some of whom will be in hard-to-heat homes. That will give a degree of certainty, to refer to what my hon. Friend the Member
I also want to make a point referred to in the TV documentary mentioned by a number of hon. Members. This is not the direct responsibility of the Ministers here or of the policy that we are discussing, but dealing with fuel poverty can have a huge positive impact on other areas of public policy where there might be public spending implications, such as health and social care. There is a benefit for public policy and the Government in putting that initial focus on people who are fuel-poor.
I have a couple of points to make about the ECO, on which I have received representations from a Scottish perspective that may not have come to the attention of Ministers and their officials. I grew up in south-east England and have lived in Scotland for eight or nine years, and for the past year I have had the bizarre existence, as many of us have, of being in both one place and another. I cannot remember the quote that the Minister gave earlier to describe being in two places. Even at this time of year, I know the difference in climate between central London and the west of Scotland. Only a couple of weeks ago, we had to have our heating on at home during the day, which people in this part of the world probably did not.
Tom Greatrex: I will let the Minister explain to my wife and young children that they should be putting on more clothes. I will say that he told me that, and she will come and have a word. I will see whether the Minister survives that experience.
The serious point is that there is a difference, as is shown in studies. I appreciate that some of the studies are hard to quantify exactly, but there is an appreciable difference in the amount of money people spend on their fuel bills in the west of Scotland and the west of England. Some studies from before the recent price increases put that at about £120 a year. There is a significant difference, partly due to the climate and partly due to the styles of property.
If the ECO is to work to a UK-wide home heating cost reduction target, WWF Scotland and others are concerned about parts of the country where there will be differences. I am not sure whether the Minister has had an opportunity to address that. He will probably tell me that it will be part of what is looked at in more detail in the autumn. It would be useful to get an indication of what will happen in geographical areas—not just Scotland—where there are significant differences that will need to be addressed if the ECO is to be the successful antidote to the market mechanism that the Minister has talked about in the green deal. I would be grateful for the Minister’s comments.
The Minister of State, Department of Energy and Climate Change (Gregory Barker): It is a pleasure to see you back in the Chair, Mr Crausby. In the last sitting, the hon. Members for Ogmore, for Liverpool, Wavertree,
I will take new clause 23 first and its emphasis on fuel-poor households. As I said in my introduction, the ECO will be introduced alongside the green deal in 2012 and will both address the needs of the fuel-poor and support households in hard-to-treat homes, saving carbon in the process. The hon. Member for Southampton, Test, referred to the diagram in the ECO document. I must point out that the even share between green deal finance and ECO subsidy, with the most cost-effective measures sitting evenly in between, is purely for illustrative purposes. It is in no way meant to be an accurate, to-scale model of the distribution of finances we anticipate.
Gregory Barker: The hon. Gentleman makes a good point. There is another point that has not come up in Committee. There has been an assumption that money is spent either in a prosperous, able-to-pay household or in a fuel-poor household. We are trying to be creative in looking at the ECO. It is entirely possible that we could end up subsidising the advancement of new technologies, but not at the point at which they are put into the household. Energy company partners could work on helping, either at the design or testing stage, to bring forward or scale up products that will have more than one application. For example, there has been little advancement in product design and economics in recent years on solid wall insulation or similar products, particularly for older properties which could be inhabited either by the fuel-poor—they often are—or people who are significantly wealthier. Working with the industry to identify how we can drive innovation and bring down costs in the product development stream is another possible avenue. It does not have to be a binary choice between subsidising a product at the point of installation in a wealthy person’s home or in the home of someone who is fuel-poor.
Gregory Barker: That is exactly what I mean. In terms of product development, a move to subsidise either the roll-out or the scaling-up is entirely feasible. I am not saying that we will do that, but we are considering it. What is the best way to leverage up the subsidy? Is it to use it at the very end of the supply chain, at the point at which it is being installed in a home, or might a more discreet intervention earlier on in product development result in bringing to market cheaper, more effective products? We are keeping the door open on that. We should not just think that we have to pay full whack at the end of the supply chain process.
Caroline Lucas (Brighton, Pavilion) (Green): I am grateful to the hon. Member for Liverpool, Wavertree for getting that point clarified. While the Minister was speaking, I thought to myself, “He cannot possibly mean that there’s yet another call on this very small pot of money.” Of course, it is helpful to promote innovation, but the idea that the already hard-pressed pot of money, which, until now, most of us thought would be used primarily to help the fuel-poor immediately, will go on subsiding the industry to come up with more innovate products is deeply worrying.
Gregory Barker: Don’t get me wrong; I am not saying that the money will be an alternative source of research funding, but there is a point at which it could subsidise products with more than one application. By subsidising products that go into fuel-poor homes at scale, we would help to bring down the price of products that could then be installed in other properties. I am not saying that there will be a different type of funding, because we have budgets for research and development, but we should not believe that it will be a binary choice. The economic impact of helping to scale-up products that will go to the fuel-poor will have a knock-on economic effect on the availability of products.
The whole point of the green deal, creating a market framework and using the ECO is to inject investment and scale. We want to use a new framework to drive private sector investment into product development and create larger-scale investment that will bring down the cost of a whole suite of products. While the focus obviously remains on in-home applications, the cascading effect of that will be much wider than the simple binary choice between expensive products going into home A or cheap products going into home B.
Huw Irranca-Davies (Ogmore) (Lab): The Minister talks about driving investment into product development. That sounds very much like innovation, research and bringing forward new products. I wish to press him a little further, because that is a new departure for the Committee and its understanding of the ECO. How would the ECO money find its way to the private sector to develop such products, if not to incentivise new products and research, innovation and technology?
Gregory Barker: In general terms, subsidising at scale a new range of products—such as solid wall insulation or window treatment—designed to treat fuel-poor homes will give rise to support for a range of products that can perhaps be fitted in a complete development. When that learning is captured and the product is developed and manufactured at scale, or there is a large order, benefits will accrue throughout the supply chain.
Huw Irranca-Davies: The Minister’s clarification is helpful. As other members of the Committee have made product placements, I will, too. Rockwool in my consistency generates hundreds of jobs and provides a good wall insulation product. According to the Minister, it could bring forward a new product specifically for households that might benefit from the ECO. It could make a claim on the ECO pot of money to develop it and bring it to market.
Gregory Barker: Obviously, we are talking in broad terms. It would not work with a small number of homes, but Rockwool could work on a project where it is retrofitting a large number of fuel-poor homes. If it were identified that it would be useful to work with a particular product for a type of property that was common across a large number of fuel-poor households, that intervention could be subsidised. The knock-on effect would mean that the scale, the learning and the product development would not be lost, but benefit the wider product development and range, and continue to bear down on the cost of the products. Many solid wall products, in particular, have not come down in price as quickly as we would like, because of a chicken-and-egg situation. However, once we start to invest in them at scale and see orders come forward, albeit specifically in response to dealing with problems of the fuel-poor, the benefits will accrue right across the sector.
Caroline Lucas: Would not that scheme run better if it were driven by demand rather than supply? If the Minister wants to stimulate innovation, surely the way to do it is to ensure that a lot of ECO money goes to the many houses needing solid wall insulation. Once there is demand, that will drive innovation and get costs down. It seems perverse to do it the other way round, if that is also at the expense of giving scarce resources to those homes more directly.
Gregory Barker: Let me make it clear that we are not giving direct support for research and development; that is not the role of the ECO. However, the ECO could support specific measures in homes. Projects could identify the need for specific measures at scale purchase either through a green deal provider acting across a range of similar properties, or through a local authority that, as a green deal provider, signs up to improve many similar properties as part of a co-operative—in other words, has a sufficient volume of similar homes with similar problems to find it worth while to work with a supplier on a specific contract for specific insulation products.
Doing that would incentivise the supplier—for example, the company in the constituency of the hon. Member for Ogmore—to invest in that product; to come forward with a cheaper production price; to invest in research and development and in product development, and to create something which, in relation to product specification and price, better fits the needs of the fuel-poor. However, the resulting learning and economies of scale will benefit everyone else in the supply chain who might benefit from such an intervention, regardless of whether they are fuel-poor. The ECO will have the ripple effect of driving market development which, in turn, will help those—not necessarily the fuel-poor but those with hard-to-treat homes—who could benefit indirectly from such treatments.
Huw Irranca-Davies: It may be only me, but that seems to be a slightly new departure in the use of the ECO. There might be great logic to it, but I am still struggling to understand whether there is a direct draw for companies, which may be good or bad, on the limited pot of money for the ECO. Will the Minister write to all the members of the Committee at the weekend to outline his thinking? It might be a fantastic innovation, but we are worried about the draw on what he has described as a very limited pot of money.
Gregory Barker: I am happy to do that. To be clear, I am not talking about using the ECO for supply-side subsidies, so that is not a departure; I am simply saying that the Committee should think more widely than the binary choice about whether the ECO will subsidise only the fuel-poor and not hard-to-treat homes, which are part of the same insulation product economy.
We are talking about driving market demand but, wherever it comes from, that demand will impact positively on the whole supply chain. The ECO will bring scale to a sector that, to date, lacks investment commensurate with the size of the challenge, and it will drive down costs. The opportunity for co-operatives and local community groups, in particular, to use their purchasing power smartly, rather than just on an individual house-by-house basis, will have a more punchy effect in driving innovation and bringing down costs.
Luciana Berger: I appreciate and accept that those matters are not mutually exclusive, as do some of my hon. Friends. However, we want the ECO to reach fuel-poor households. We accept that millions of people are both fuel-poor and live in homes that are hard to treat, but the ECO should not go to people who live in homes that are hard to treat but who are able to pay. Will the Minister directly address that point? Does he believe that people in the able-to-pay sector should benefit from the ECO simply because they have hard-to-treat properties?
Gregory Barker: The bottom line is, does the hon. Lady think that we should not aim to bring the whole housing stock up to the standard that is needed to meet our climate change obligations? That is the flip side of what she has said.
Tom Greatrex: I am not sure that that is what my hon. Friend the Member for Liverpool, Wavertree meant and it is certainly not what I meant in my contribution, which was about priority and where we start. As the Minister said, the programme might last 10 years, and £20 billion might be spent over that time frame, during which we might be able to improve some hard-to-treat properties in which the inhabitants are not fuel-poor. However, many people are fuel-poor and some of them live in hard-to-treat homes. Surely they should be the priority.
Gregory Barker: That argument is rather more nuanced than the one that the hon. Member for Liverpool, Wavertree advanced. We must be clear that a very specific climate change carbon agenda is at the heart of the green deal and the ECO; it is not simply a fuel poverty measure. Those two are not mutually exclusive, but we will not take a doctrinaire view of the ECO that might have the effect of hamstringing our ability to meet our carbon targets. Undoubtedly, we must be pragmatic in how we roll out the scheme. We are concerned about meeting a fuel poverty agenda, but we are equally concerned to drive down carbon emissions.
We know what will happen if we simply leave it to people voluntarily to choose to lower their carbon emissions: many will not do it. That is the experience from the insulation measures. We must do the whole
Ian Lavery (Wansbeck) (Lab): To suggest that the view of the Opposition is doctrinaire is absolute nonsense. We are suggesting that we focus on fuel poverty. An estimated 44,000 people a year die as a result of cold properties. Does the Minister not agree that we should prioritise those homes through the ECO before we put any more finances into properties in which people are living comfortably?
Gregory Barker: I am sorry, but that is being doctrinaire. We know about fuel poverty, because it increased by 2 million people during the past four years under the previous Government. We know that the matter is extremely serious, which is why we will have a strong focus on it. Unlike the carbon emissions reduction target programme that we inherited from the previous Government, the scheme will not be vague or woolly; it will have a strong fuel poverty focus, hence the diagram—[ Interruption. ]
Gregory Barker: No, I shall finish if I may. For the first time, the fuel poverty and climate change agendas are being brought and meshed together. I do not see those as mutually exclusive, but I return to the point that we have an imperative to meet our climate change targets. Reducing carbon emissions from the built environment is not something that we can put off until we have defeated fuel poverty. We will manage the programme pragmatically and we will focus on fuel poverty, but there is an important climate change element to it. We are not talking about insulating Blenheim palace or ridiculously large homes at a disproportionate cost.
Gregory Barker: No, additional criteria that will be introduced in secondary legislation will apply to properties of people who want to spend more than £10,000—there will be a permeable ceiling. We have spoken generally to give the consumer some context of the scale of interventions in the average household. We have said that they should have an entitlement, or an expectation, of a reasonable spend of up to £10,000. We fully accept that there will be exceptions to that rule—either larger homes that have larger heating bills, which means that it makes sense that they can afford a bigger intervention, or homes with a need to spend more. That may be through the paid-for-through-savings model, if a household is able to pay for it, or it may be from the ECO. However, we will have to be pragmatic and ensure that we do not ignore climate change.
Caroline Lucas: The Minister has said in the past that he is a reasonable person, and he is. I therefore find it hard to understand why he appears to be saying that if we are tackling fuel poverty, somehow we are not tackling climate change. To me, the two things come together beautifully, and they could do so with the ECO. For example, if we have two properties that are both hard to treat, in one of which there is a fuel-poor family and in the other an able-to-pay family, the environment does not care which one we insulate first. As long as the emissions come down, it does not matter what position the family inside is in. However, if we as politicians say, “Let us combine the environmental and social agendas by prioritising properties that have the fuel-poor in them,” surely that is a gain for both the environment and the social side.
Gregory Barker: That is exactly what we are doing. The hon. Lady articulates our point entirely. However, there may be cases where it makes good sense to offer some form of subsidy, through the ECO, to the average home owner who is not fuel-poor, but who lives in an older or difficult-to-treat building. Someone on average earnings, or even on below-average earnings, but who does not meet the narrow definition of “fuel-poor”, should be entitled to some additional help to treat their home to bring it up to a standard that will help us meet our climate change targets. That is what the ECO is designed to do. It is not just about eliminating fuel poverty.
We must remember that when dealing with the fuel-poor, in some cases, the consumption of energy can go up. The rebound effect of the fuel-poor is disproportionately larger than that of a typical household. Often, what we are talking about in dealing with fuel poverty is installing heating systems and raising the warmth of the home. Obviously, we are looking to do that in a much more efficient thermal envelope, but we are not necessarily talking about making the same level of carbon savings as we would in another household.
Caroline Lucas: An able-to-pay household may take the savings off its bill to jet off to the Caribbean three times a year. The idea that insulating a fuel-poor household that would benefit from thermal comfort would be worse for the environment than whatever an able-to-pay family might do with the money saved from its fuel bills, which may go on iPads, widgets, aviation and all kinds of carbon-intensive things, does not seem to be backed up with any evidence.
Gregory Barker: I do not suggest that there is hard evidence, because the situation will change. However, general economic analysis suggests that the rebound effect is typically about 15% in an average family, and up to 40% for the fuel-poor. I gave evidence to the House of Lords European Union Sub-Committee on the EU energy efficiency framework to that effect. Those figures are generally accepted. Any general theory is of course open to all sorts of exceptions, but I do not think that I am saying something controversial.
I am not talking about people who can fly off to the Caribbean three times a year, but about average families—people who simply do not fall into the category of fuel-poor, or our typical constituents, who certainly do not fly to the Caribbean three times of year. Many
Huw Irranca-Davies: In what has been a broadly consensual meeting of minds, I think there is a real point of difference here. How will the Minister respond to the concerns not only of the Committee, but of that troublesome priest, Consumer Focus? It states:
“other than those in hard to treat housing, since this will reduce its ability to tackle fuel poverty. The proportion of resources going to able to pay consumers in hard to treat homes must not undermine the ‘ring-fenced’ element for low income consumers”.
How will the Minister respond to that with a pot of money that he has repeatedly described as being finite and restricted? We need to make it go further, and he is arguing against the very spirit of that.
Gregory Barker: Not at all. I would be entirely in agreement. We will come forward in secondary legislation with a sensible and pragmatic approach, but we will not exclude ordinary, hard-working, average-earning families from support to help them improve their homes simply because they do not fall into the quite narrow definition of fuel-poor. If that is what the hon. Member for Ogmore is saying, we are in agreement with that.
It is important to remember that, alongside poverty objectives, the ECO is designed to maximise access to the green deal, and the more green deal finance we can leverage in, the better it is for us all. The ECO is a further measure, not an either/or. It is designed to trigger investment in homes, and a small element of the ECO in an able-to-pay household will quite often trigger further investments that would not otherwise be made. It is a way of leveraging in additional finance.
The hon. Gentleman and the hon. Member for Liverpool, Wavertree are painting an unnecessary division between the fuel-poor and ordinary, hard-working families. Such families may not meet the definition of fuel poverty, but they would nevertheless struggle to afford the currently relatively high cost of interventions on an average British semi-detached, terraced or small family house, because they could not fund that entirely through the pay-as-you-save model. It is important that the green deal is seen to be offering something extra to those homes.
Other models that the Opposition have mentioned, such as Germany, where a different type of subsidy for loans is used, have been subsidising average families. We are not discussing subsidies for the super-rich. We are trying to make the measures available, practical, simple and straightforward for ordinary working families. We need to get beyond simply shoving some lagging in the loft. We are discussing a comprehensive retrofit programme,
Huw Irranca-Davies: Could I suggest to the Minister that hard-working, low-income families in my constituency would perfectly accept and support the principle that the bulk of the ECO is directed towards people who are living in real fuel poverty?
Gregory Barker: The hon. Gentleman is changing his words again. We have gone from “only fuel-poor” to “the bulk of”. If he is simply saying “the bulk of”—I am not quite sure how that is defined—we are really not far away at all. That is pretty much where we came into the conversation. The shift—it is important that we flesh such things out—is that he and his colleagues have previously said that 100% of the ECO should go to those in fuel poverty. That is the point I am contesting.
Dr Whitehead: What I attempted to make clear in my earlier contribution, which I hope the Minister will take on board, is that it is inevitable that the ECO will be rationed for the reasons the Minister gave and that I put forward in my comments. If the ECO were not rationed, it would be perfectly reasonable to say that the bulk of the money in an ECO programme should go to the fuel-poor and for the Minister to make the point about action on fuel poverty being linked to action on climate change and improvements to people’s property generally.
However, because we know that the ECO will be fundamentally rationed over the next period, the issue is how to prioritise what is the best outcome for the ECO overall. The best outcome would be to combine action on fuel poverty and action on climate change. It would not be the best outcome if the ECO were not rationed because the sort of circumstances that the Minister describes would rightly come into play, and everyone who would benefit from having their home uprated would have an ECO. However, I am afraid that that will not be the case. I am sure that the Minister is working very hard to ensure that the ECO is as large as it can be, but we know that it will be rationed. That is the fundamental point being made here.
Gregory Barker: Obviously, when we introduce secondary legislation, having engaged widely with stakeholders on a genuinely complex area, we will endeavour to steer our way through these issues. I am being drawn here, but I am trying to be clear about the matter. Opposition Members seem to be suggesting—although this seems to change in their interventions—that the ECO should be exclusively for the fuel-poor. I know that the hon. Member for Southampton, Test is not saying that, but other hon. Members have said in interventions that it should be exclusively for the fuel poor or “not for the able to pay,” which I think is what the hon. Member for Liverpool, Wavertree said. If it is not for the able to pay, that is the same thing as being exclusively for the fuel-poor. That is not semantics; it is just the basis of what she said.
I agree with the hon. Member for Southampton, Test. Our focus must be on trying to do as much as we can for the fuel-poor. I would be hesitant to put a figure on that, but it could be anywhere from 51% to 100%. The bottom line is that in order to meet our climate change targets, we have to tackle solid wall insulation. The reality is that the able-to-pay customer will not, at this point in time, shell out for solid wall insulation in large numbers. We know that because we have undertaken a great deal of research. The hon. Gentleman is an expert, so he will know exactly what we do. There is a market failure there. If we ignore that and focus exclusively on the fuel-poor—the bottom element in society—we will not meet our climate change targets. We are perhaps not as far apart on the matter as we thought we were at the beginning. I must make it clear that we have twin objectives, not one.
Caroline Lucas: This has been an important debate. It would be dangerous to conclude from our discussions that we would prefer not to use the ECO exclusively in fuel-poor households because we are afraid that those households will heat their homes more fully to be more comfortable and they will therefore generate more climate change emissions. We cannot tackle climate change by keeping the fuel-poor in fuel poverty. If this scheme is not the right way to deal with that matter because, as we are discussing, households may use more energy as a result of insulating their homes better, we need to look at a range of other tools to tackle climate change. I am deeply worried that the tenor of the argument seems to suggest that because we are worried that emissions will rise, we will not do as much as we could for fuel-poor households.
Gregory Barker: That is a travesty of what I said. I absolutely did not say that. The hon. Lady sought to draw me on the impact of the rebound effect. That is not the purpose of our policy. Let me make it absolutely clear. The purpose of our policy is to tackle fuel poverty, and we will make a much better job of it than previous Governments have been able to. However, to tackle fuel poverty and our climate change objectives, we must tackle solid wall insulation, and that is relevant only partly to the fuel-poor.
Large swathes of normal, average housing in typical constituencies are occupied by people who by no stretch of the imagination are those that the hon. Lady is trying to caricature as taking three holidays a year in the Caribbean. They may be teachers, nurses, public sector workers, and people who work in supermarkets. They may not be fuel-poor, and they might be insulted if it were suggested that they were in a position to take three holidays a year. Some people who do not fall into fuel poverty will need help to make their homes fit the sort of standard that the hon. Lady and I know must be achieved if we are to transform the UK’s building stock to meet our climate change objectives. She cannot expect our climate change objective to be met by providing subsidy only to the fuel-poor. There is a grown-up, pragmatic balance to be struck, and I am confident that we will be able to do so through secondary legislation.
Graham Jones: I reject that dogma. I said earlier that 60% of the housing stock in Hyndburn is terraced. Will the Minister clarify what he means by solid wall insulation? It is a great problem in my constituency, where people move in and out of work. How does he expect the green deal and the ECO to work, given that 60% of housing stock in my constituency is terraced, and occupied by the sort of people he describes? Will he clarify that?
Gregory Barker: That is a helpful example. If several streets of similar terraced properties in the hon. Gentleman’s constituency needed solid wall insulation, it would make real sense to do the whole lot at once. That would be much more effective. The Opposition are suggesting—
Gregory Barker: The hon. Gentleman is not, but some Opposition Members are suggesting that we go down the street deciding who is fuel-poor. We would end up with a patchwork approach whereby hard-working families who are not unemployed and do not strictly fall into the fuel poverty trap would be denied the upgrade that those next door were being offered.
Graham Jones: I raised that point several sittings ago, and did not receive an answer. It is good to be fleshing out an answer now, but it has taken several sittings. I would like the Minister to continue, and to provide more details of how the provision will work.
Gregory Barker: Well, I was doing that when the hon. Gentleman interrupted me. I thank him for his encouragement. He has identified exactly how we anticipate the ECO blending into a community roll-out scheme so that it would benefit the fuel-poor, and also other families who live in similar houses. A family may live next door to people who are not working, who live next door to a single mother, who lives next door to a family with four working people, who live next door to a widow with a half-decent occupational pension. They may all live in a relatively non-affluent area and not take three holidays a year in the Caribbean, but only some would fit into the strict definition of fuel poverty. It would be sensible, particularly if there was a community group, to offer them the opportunity for subsidy. The ECO could play an important role in a community-based solution and blending in the cost.
Huw Irranca-Davies: I fully agree with the Minister. I shall describe a scheme to tackle fuel poverty that takes a spatial approach, area by area, that has economies of scale. It is called CESP—the community energy saving programme. It is already in place. In effect, the Minister is building on CESP and giving the ECO a spatial planning dimension. We fully support it, and nothing that we have said rules it out. However, we are against the finite pot that he continually stresses to the Committee should be disbursed to those who might be able to afford to do it themselves as and when he secures more money from the Treasury. Seeking carbon reductions and tackling fuel poverty together requires a degree of targeting, including in the spatial approach that he describes.
Gregory Barker: The hon. Gentleman is dancing around the subject. He says one thing in Committee and another on a blog. We are talking about allowing the ECO to be deployed in community-based schemes, so that whole streets and communities can be done; in that way, it will be most forcefully deployed.
People should not be picked out on fuel poverty alone. For example, Birmingham and Coventry city councils—I met the latter recently—aim to do their whole housing stock, but they can achieve that only by doing large groups of neighbourhoods together. That is exactly the sort of street-by-street roll-out that we want. However, it cannot be done if councils say, “Your neighbour’s getting solid wall insulation. We know that you only earn £2,000 a year more, but you don’t qualify for the fuel poverty definition so we can’t offer it to you.” It is about being inclusive and fair, and recognising that many hard-working families need help with insulation and not only the most fuel-poor. In the long run, it makes economic sense to cover the housing stock in that way; it is good economics as well as being fair.
Ian Lavery: I do not want to dance around the issue, but I ask the Minister to consider one simple factor. Are we not missing a golden opportunity as a Committee to help the 44,000 people who die every year, given that the ECO could perhaps prevent people from dying in future? Should we not be discussing that? Instead of just talking about the fuel-poor, should we not be looking to introduce legislation so that as well as the ECO meeting its objectives to target emission reductions it could save people’s lives?
Gregory Barker: I agree with the hon. Gentleman, but we should put it in context. Successive Governments have pledged in good faith to tackle fuel poverty. However, under the five years of the previous Administration the number suffering it increased by more than 2 million. It is simplistic to say that we could stop 44,000 people dying in cold homes. I agree with the hon. Gentleman that it pulls at the heartstrings, but the solution is rather more complex. If it was not, I dare say that the last Labour Government would have bequeathed us a rather better record on fuel poverty. It is not that they did not share the hon. Gentleman’s passion for helping those 44,000 people, but the reality is a lot more complex.
We are on the same page in wanting to tackle fuel poverty. We are coming forward with a programme that is designed to meet our climate change objectives and also to help with fuel poverty. It has the means to do so,
Caroline Lucas: I recognise that hard-working families need help, too. For the record, my reference to people taking Caribbean holidays was more or less in the same category as the Minister’s referring to people living in Blenheim palace: it was for illustrative purposes and should not have been taken too literally. My point, however, was whether there will be any indication in secondary legislation about how the Government plan to allocate money within the ECO. We have had a big discussion about that this afternoon. Will there be some notional figures that give us a sense of how much of that money will be directed to the fuel-poor, rather than being used in the other ways that the Minister has described? We are all driving at a real prioritisation for the fuel-poor, and we can debate that definition—whether it is 100%, 90% or 80%—but can we look forward to that information in secondary legislation?
Gregory Barker: Yes, absolutely. This will be a complex proposition to try to navigate our way through a range of different scenarios. It is not only a choice between a rich man in his castle and the fuel-poor. We can think of lots of different scenarios from our constituencies, let alone right across the country. We must work not only with stakeholders, but with other groups who have a legitimate viewpoint that they want to feed into the consultation, so that, at a later stage, we come up with a complex, detailed analysis and solution relating to how we will get through those difficult areas. We want to reach exactly the destination that the hon. Lady describes, but it will involve a pragmatic blending of climate objectives, carbon reduction objectives and objectives relating to the fuel-poor, while, at the same time, being clear that we have long-term goals to meet.
Luciana Berger: The Minister said that the Government will not put a premium on the fuel-poor, but he has previously said that the green deal and the ECO will be a game changer for fuel poverty. We will no longer have Warm Front, CERT or CESP; this will replace all those. In my estimation, 2 million of the 7 million solid-wall homes are households in fuel poverty. The whole ECO pot, if we get the £20 billion, would help only those 2 million households, and there would be nothing left. By National Energy Action’s estimates, there would still be 3.5 million homes in fuel poverty, if the ECO is solely targeted at homes that are both fuel-poor and hard to treat. That is why the amendment has been tabled and why we seek the Government’s support.
Gregory Barker: Let us be clear: I did not say that I would not put a premium on the fuel-poor—full stop. I said that I would not put a premium on the fuel-poor to the exclusion of every other category, particularly those who might be just outside the definition of fuel-poor. Our approach has to be pragmatic. I suggest that the hon. Lady does not try to parse my words to seek some
Gregory Barker: I know why, because the hon. Gentleman and other Labour Members were party to a Government that failed to tackle that problem. They could have proposed the green deal and the ECO in the previous Parliament, but they chose not to. They could have proposed large at-scale solutions, but they chose not to. They decided to rely on the Warm Front scheme. If we had carried on with that, it would have been 80 years before fuel poverty was eradicated. It was absolutely up to Labour Members during their 13 years in government to make game-changing proposals that would have anticipated dealing with fuel poverty, carbon emissions, and the housing stock at the same scale as the Bill intends. In the first year of our coalition Government, we are introducing that game-changing legislation. They had 13 years, but they failed to crack it.
I realise that we are all moving forward together now. We are not trying to fight old battles; we are trying to build a consensus. Let us not try to build artificial divides that suggest that the Government are not concerned about fuel poverty. We will be judged on fuel poverty on our record and not only on our rhetoric. We are doing our best in the Bill to tackle the twin objectives of ensuring that we meet the climate change imperative and doing something transformational for the fuel-poor, albeit within the context of also having to deal with the record deficit that we inherited.
I move on to new clause 39. The Government are of course focused on the importance of our energy efficiency goals, but the hon. Member for Brighton, Pavilion and my hon. Friend the Member for Richmond Park will not be surprised to hear me say that the Treasury is responsible for the allocation of public funds. A duty on the Secretary of State to report on potential uses of central Government revenues would conflict with the Treasury’s responsibilities. We also have 300 years of prejudice against hypothecation to contend with. My hon. Friend raised the excellent example of the landfill tax, and I urge him to remind the Chancellor of the Exchequer of that when he next has the chance to talk to him. My hon. Friend made those points well, but we cannot include them in the Bill—not if I want to keep my job, at any rate.
None the less, the Committee’s support for the prioritisation of energy and climate change is fully appreciated, and the Committee can be confident that those issues remain high on the Government’s wider
I will now outline the central purpose and effect of clause 64. It amends the Secretary of State’s existing powers and provides flexibility over how to design a future ECO. The new powers allow the Secretary of State to set out the basic structure of the scheme; for example, it might be focused on those who are most in need of assistance by requiring the companies concerned to provide support to specific groups of people, types of property or homes in specific areas, and by setting out what sorts of measures will be included and how they will be scored.
The clause also inserts a power for the Secretary of State to appoint a body other than Ofgem to be the administrator of the scheme. Indeed, the Secretary of State may appoint himself to be such an administrator. The future ECO is a key component of our overall strategy for domestic energy efficiency. The clause builds on existing legislation and the experience of existing schemes to enable us to create an obligation that ensures a step change in our approach to energy efficiency.
The Chair: We will not be voting on the new clauses at this point, but it would be useful to know whether the movers of new clause 23 and new clause 39 want to press those to a vote at the appropriate time.
This is essentially a two-for-one offer on the part of Labour Members, and we have already had a substantial debate about a number of aspects of the targeting of ECO, so I will not go over them in detail again but, on this amendment, I would like to divide the Committee if necessary. I have six propositions which are all that need to be said, and then I will sit down.
First, we need to deal with hard-to-treat homes if we are to achieve our climate change targets. Secondly, ECO can deal with hard-to-treat homes. Thirdly, ECO will inevitably be limited in scope and will not therefore treat all hard-to-treat homes in the first few
Luciana Berger: In the previous debate, I put on the record that we at no point have said that we should abandon our carbon emissions reduction target. If the Minister looked back in Hansard, he would see that I had said it was not mutually exclusive. However, while we support the amendment, I echo my earlier points.
Seven million homes in the UK have solid-wall insulation. It is estimated that 2 million of those are also households in fuel poverty. If the ECO pot is at the £20 billion mark, that money will help those 2 million homes and no others, leaving anything between 3 million and 4 million households in fuel poverty, at current estimates. Nothing else is on the table, and the Minister has said that ECO is the game-changer for fuel poverty, so the ECO pot and whatever is limited within it should at least be directed at those households experiencing fuel poverty, and we would therefore not need to have 44,000 excess winter deaths every year. That is where our resources should be targeted.
Gregory Barker: I am sorry to hear the hon. Lady say that, because she is therefore ruling out support for community-wide schemes for the same types of housing across the board. She would only provide ECO support to those on a defined, fuel-poor income basis, not on the basis of the housing lived in. She is trying to have her cake and eat it. We cannot define eligibility simply on the income of the household, irrespective of the type of poverty. If we are to roll a scheme out effectively and economically, to whole areas and street by street, we cannot exclude next-door neighbours because they might be just above the fuel-poor definition.
Luciana Berger: I refer to our debate, in which we said we were not being exclusive. We were talking about priorities, and that is the point. The priority for installing measures should be given to the homes of those living in fuel poverty, not given to them exclusively. Obviously, if the pot were bigger, we could treat all the homes in the UK.
Gregory Barker: Amendment 119 addresses an important element of what we want to achieve through the provisions in this part of the Bill. We recognise that in some circumstances additional or different support will be needed for specific groups of individuals—for example, and most obviously, vulnerable and low-income households, so that they can heat their homes to a more suitable level, avoiding the regular cold winter deaths with which
In the light of that, I assure the hon. Member for Southampton, Test and my hon. Friend the Member for Wells that the intentions of the amendment are fully met elsewhere in the Bill. I have indicated where those provisions are to be found, and I assure Opposition Members that we hold a similar position on the issue. On that basis, I urge the hon. Gentleman to withdraw his amendment.
Dr Whitehead: I am sorry, but I would like to press the amendment to a vote. The amendment states that the Secretary of State “may specify targets.” It would give a power to the Secretary of State, and I see no reason why it should not be incorporated into the legislation, even if other passages in the Bill point in that direction. The amendment would provide a specific, encapsulated version of how the Secretary of State may specify targets. Even at this point, I ask whether the Minister is prepared to include the amendment in the Bill. It would incorporate a large number of concerns that have been aired by Opposition Members, justifiably and extensively debated, and largely agreed on by all parties. It would be a pleasant, cordial and friendly gesture for the Minister to incorporate the amendment into the Bill, and many hon. Members would be happier about what the Bill means in an overall sense. It would be a good deed in not such a good world and on not such a good day.
Gregory Barker: The hon. Gentleman makes an incredibly persuasive and charming case, and I am all in favour of generous, pleasant, cordial and amicable gestures in the Committee Room. However, I am also mindful that we are absolutely confident—I have just been reassured by my officials—that we have already accounted for the amendment in clause 66. I am also mindful that we have an obligation not to unduly amend this Bill, which started in the other place. There is a balance to be struck, and the more we amend the Bill, the more likely it is to be delayed on its return to the upper House. We cannot afford to amend the Bill unnecessarily and risk delaying Royal Assent until after the summer recess. I have to be frugal with the amendments that I offer, and cautious about any changes that we make. Where there is demonstrably a case that the measure is already covered in the Bill, I have to resist the hon. Gentleman’s charms and say that we cannot support his amendment.
Power of Secretary of State to require information: carbon emissions reduction targets and home-heating cost-reduction targets
‘(ba) to assess whether these obligations are, among other things, being discharged transparently, cost-effectively, and consistently throughout the time period of the obligation and achieving value for money;
(bb) to assess whether these obligations are targeting priority groups and properties consistently and achieving value for money.’.
‘(6A) No later than one year after this section comes into force and in every subsequent calendar year, the Secretary of State will be required, by means of the information obtained by virtue of this section, to report to Parliament on the operation, costs and effect of a carbon emissions reduction order or home-heating cost reduction order.’.
Dr Whitehead: The amendment follows on from amendment 119 and would ensure that the measures were being discharged transparently and cost-effectively, and would insert a provision for assessing whether those obligations were targeting priority groups and properties, in order to achieve value for money. It would ensure that the Secretary of State’s targeting arrangements were undertaken in a positive way, but since, regrettably, members of the Committee did not agree to amendment 119, I imagine that amendment 120 is fairly redundant.
Luciana Berger: I wish to speak to amendment 167, the aim of which is to ensure transparency of the energy company obligation and its costs, because they are passed on to the consumer. As it stands, clause 69 requires specific information from energy companies in order for the Secretary of State to assess the effectiveness of the ECO, but it does not require information on costs to be reported, which is the essence of the amendment. Last week, the Telegraph reported, as did much of the press:
“Scottish Power became the first of the six major suppliers to disclose a new round of price rises. It told five million customers that gas and electricity bills would go up by 19 per cent and 10 per cent respectively.”
With these rising prices, it is essential that we have a guaranteed transparency in revealing what proportion of rising prices on our gas and electricity bills is attributable to the ECO. Without that information on costs, it is not possible to assess exactly what costs are being placed on customers’ bills and whether they are achieving value for money. The Department of Energy and Climate Change report from May 2011, “Extra help where it is needed: a new Energy Company Obligation”, states explicitly:
“A key criticism of CERT has been the relatively poor transparency over costs and delivery. We are keen to improve this under the ECO, but this will require better and more frequent provision of data on a wider set of issues. We have included powers in the Energy Bill that would allow more detailed data provision requirements to be placed on suppliers to this end. In the meantime, we are looking closely at precisely what sorts of information would be helpful and of interest in terms of allowing better scrutiny of the scheme, and to what extent it might be practical and sensible to collect it. For example, we are exploring the scope for collecting some form of data that would allow us to better understand the cost the scheme is incurring suppliers to deliver, and to who and where the benefits are being delivered.”
Consumer research by Which? in November found that 87% of consumers would like to see in their bill details of those costs that are not directly related to their energy consumption, including costs of environmental and climate change programmes. Fifty-one per cent. said they wanted to see a detailed breakdown.
Under the current supplier obligation, the carbon emissions reduction target, energy companies promote energy efficiency measures and consumers receive free or subsidised installation, and energy companies recover that subsidy from bills; but there is no mechanism to report on those costs, and therefore only estimates are available. However, the costs are significant. DECC estimated in June last year that, assuming suppliers pass all their costs on to consumers in their energy bills, the average annual supplier cost per consumer bill will be £50 under the CERT extension, compared with £41 now.
Considering those anticipated expenses, it is urgent that consumers should be able to understand how costs are allocated on their fuel bills, particularly with reference to the ECO. It is therefore essential that the ECO should be transparent to customers and that its impact should be maximised. Why is the disclosure of costs not currently included in clause 66? Is the omission of that mandate in clause 66 an attempt to protect the fuel
Gregory Barker: I will not delay the Committee by discussing amendment 120 any further. On amendment 167, I remind the hon. Member for Liverpool, Wavertree that the Government have already committed themselves to including annual reporting requirements in the Bill. As amended by new clause 6, the Bill requires the Secretary of State to report each year to Parliament on what has been achieved by our energy efficiency schemes—not just the ECO but the wider green deal. That is in stark contrast to the total lack of transparency in CERT, where we had about 300 million light bulbs.
We are committed to reporting on the progress and effectiveness of the ECO and the wider green deal. I agree with the hon. Lady that information on cost-effectiveness is an important component, and that is why we have taken powers in the Bill to ensure that there will be better reporting of the ECO than before.
As to timing, amendment 167 would require the Secretary of State to publish his first report on the ECO no later than one year after the Bill comes into force. The Bill, all being well, is likely to be given Royal Assent later this summer, so that would mean publishing the first report in summer 2012, before the ECO has even begun. I am afraid there is therefore a timing fault in the amendment as well. We do not need it, because the Secretary of State is committed in the Bill to an annual report to Parliament that will encompass all the issues.
Gregory Barker: The disclosure of costs is not specifically included, but cost-effectiveness will be very much part of the Secretary of State’s report to Parliament, and I am sure that parliamentary colleagues will take the opportunity to press on cost-effectiveness and on costs within that. I am sure that if we sat here long enough there would be other issues that we could think of, which should also be included, but which do not necessarily need to be specified in the Bill to ensure that the Secretary of State—whoever that may be in the decades to come—will come to Parliament and report to the House.
Caroline Lucas: I was a little disappointed that the Minister did not spend a little longer on amendment 120, which deals with targeting priority groups. I know that we have had a big discussion about that but if the Minister finds it hard to target everything on a category called “fuel-poor”, would he consider widening that to low-income and vulnerable households and making them a target priority group which the ECO should be used exclusively for?
Gregory Barker: There will be plenty of opportunity to look at the definitions of this. We include hard-working families, the squeezed middle as well as the fuel-poor when we come to the secondary legislation. That will be
‘(6A) In sections 28 to 30F and section 38 of the 1986 Act (enforcement of relevant requirements etc) a reference to a “relevant requirement” is to be treated as including a reference to a requirement imposed on a gas transporter or gas supplier under this section.
(6B) In sections 25 to 28 of the 1989 Act (enforcement of relevant requirements etc) a reference to a “relevant requirement” is to be treated as including a reference to a requirement imposed on an electricity distributor or electricity supplier under this section.’.
Gregory Barker: This is a minor technical amendment, which will ensure that an obligation imposed on an energy company by virtue of section 103B of the Utilities Act 2000, with which I am sure we are all familiar, is to be regarded as “relevant requirements” of the licence under which that energy company operates. The authority has powers to enforce “relevant requirements” and therefore if it is decided that the authority should administer the ECO it will be able to enforce an obligation imposed under section 103B by relying on its existing powers to enforce “relevant requirements”.
‘Energy Performance of Buildings (Certificates and Inspections) Regulations 2007
13 The Energy Performance of Buildings (Certificates and Inspections) Regulations 2007 are amended in accordance with paragraphs 14 to 22.
14 In paragraph (2) of Regulation 5 for “make available” substitute “provide”.
15 Regulation 5A is repealed and replaced with a new Regulation 5A as follows—
“Providing energy information on marketing
5A (1) Subject to Regulation 7, this regulation applies where—
(a) a property is to be sold or rented,
(b) marketing materials are prepared for the purposes of marketing the property to persons who may be interested in buying or renting the property,
(c) those marketing materials are made available publicly or to any person who may be interested in buying or renting the property by the relevant person or by another person on his behalf.
(2) The marketing material must include the asset rating of the building expressed in the way required by Regulation 11(1)(a).
(3) In this regulation “marketing materials” means any written or photographic materials whether electronic or physical, used for the marketing of a property for sale or rent.”.
16 Regulation 6 is amended as follows—
(a) in paragraph (1)(a) remove the word “residential”,
(b) in paragraph (1)(a) after “to be sold”, insert “or rented”,
(c) in paragraph (1)(b) after “in buying”, insert “or renting”,
(d) in paragraph (2) for “once a valid energy performance certificate has been obtained for the buildings the person” substitute “The person”.
17 Regulation 11 is amended as follows—
(a) in paragraph (1)(d) after sub-paragraph (vii), insert—
(i) whether the property is subject to a green deal plan under part 1 of the Energy Bill 2011”,
(b) in paragraph (3)(a) for “10 years” substitute “one year”.
18 In paragraph (2) of Regulation 38 remove the words “5A(3), 5A(4)”.
19 In paragraph (1) of Regulation 40 remove the words “5A(3), 5A(4)”.
20 Regulation 42 is amended as follows—
(a) in paragraph (1)(a) remove the words “he is not a person to whom the duty under Section 5A(2) applies”,
(b) in paragraph (1)(b) for “make available” substitute “provide”,
(c) remove paragraph (1A) of Regulation 42.
21 In paragraph (1)(a) of Regulation 43 remove the words “5A(3), 5A(4)”.
22 In paragraph (1)(a) of Regulation 50 for “make available” substitute “provide”’.
‘(1) A valid energy performance certificate prepared in accordance with the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 (S.I. 2007/991) (for the purposes of this section “the Regulations”) must be provided free of charge to every prospective buyer or tenant at the earliest opportunity in accordance with Regulation 4 of the Regulations as amended by this Act.
(2) All materials used for the marketing of a property for either rent or sale shall include the asset rating of the building expressed in the way required by Regulation 11(a) of the Regulations.
(3) All written particulars about a building prepared for the purpose of providing information about the building to persons who may be interested in buying or renting the building must include a copy of a valid energy performance certificate for the building prepared in accordance with the Regulations.
(4) An energy performance certificate is only valid if it was issued no more than one year before the date on which it is made available.’.
Provides for energy ratings to be part of marketing materials for both rental and sale properties; for EPCs to be provided rather than simply made available; and for EPCs to have a life of one year.
‘(1) This section applies where—
(a) a property, or a lease of a property, is to be sold; or
(b) a property is to be let out—
(i) under a tenancy or licence agreement; and
(ii) on the basis that the prospective tenant or licensee is to be liable for paying the energy bills for the property.
(2) The seller or prospective landlord or licensor must—
(a) obtain a valid energy performance certificate in accordance with energy performance regulations made under the Building Act 1984 or any succeeding energy performance legislation; and
(b) provide this certificate free of charge to any prospective buyer, tenant or licensee at the specified time.
(3) An obligation under subsection (2) may be discharged by an agent.
(4) For the purposes of subsection (2), a person becomes a prospective buyer, tenant or licensee in relation to a property when the person—
(a) requests any information about the property from the seller, prospective landlord or licensor or an agent for the purpose of deciding whether to buy or let the property;
(b) makes a request to view the property for the purpose mentioned in paragraph (a); or
(c) makes an offer, whether oral or written, to buy or let the property.
(5) For the purposes of subsection (2), an energy performance certificate is only valid if—
(a) the certificate relates to a period that is no more than one year from the time that the certificate was issued; and
(b) the person required to provide the certificate has no reasonable grounds to suspect that the energy performance information on the certificate is no longer accurate.
(6) For the purposes of this section—
(a) an agent is a person acting on behalf of a seller or prospective landlord or licensor in the sale or letting out of a property;
(b) specified, in relation to time, means specified in regulations made by the Secretary of State.’.
Caroline Lucas: Amendment 132 and new clause 31 seek to address the role of energy performance certificates in the house-buying process. I am sure hon. Members will agree that it is vital to encourage awareness of energy efficiency, particularly when people are moving house, which is often the best opportunity that many of us have to make improvements, whether we are renting or buying.
Greater use of EPCs would allow buyers or tenants to make a more informed choice about the energy efficiency of the home they are considering moving into. EPCs are the primary means of doing that, and their effective delivery is crucial if households are to be made aware of the energy efficiency of their homes and the measures that they could use to improve them, which might be financed by the green deal or through the energy company obligation or directly by home owners or social or private landlords.
I do not believe that a simple transposition of the recently recast EU energy performance of buildings directive into UK law is sufficient. Such a move would, for example, only require a new EPC if the existing one was more than 10 years old when the house was put up for sale or rent. Instead, I believe legislation should be enacted now, so that EPCs can be implemented in a way that maximises their impact and effectiveness, increases awareness of energy efficiency with prospective tenants and home buyers, kick-starts the green deal and gives industry the confidence to invest in energy assessment measures.
Subsection (1) of new clause 31 seeks to ensure that the EPC is provided to prospective tenants and buyers rather than, as is currently the case, made available on request. That, in effect, means that many people never see an EPC. If enacted, the proposed new clause would mean that when a prospective tenant or buyer inquires for the details the EPC must be provided as part of the property’s particulars. The measure simply brings forward the requirement in the EU energy performance of buildings directive, which must be implemented by member states by July 2013. I am simply suggesting that we bring that forward a little.
Subsection (2) of new clause 31 would ensure that all materials produced to market a property, such as a website listing, window display and brochure, will include the asset rating of the property from the EPC—in other words, the A to G ratings. Such a change would mean that the energy efficiency of a property would be communicated to prospective buyers and tenants at the earliest possible opportunity. As things stand, the marketing materials do not have to detail the energy efficiency of a property at that early stage. I firmly believe that providing prospective tenants and buyers with information on energy when they are first considering renting or buying would make the efficiency of buildings a much greater part of their overall consideration.
The measure was, in fact, recommended by the Department for Communities and Local Government consultation on EPCs, which was launched in March 2010. The consultation argued that requiring EPC rating on adverts would ensure that prospective tenants and purchasers of domestic and non-domestic properties are provided with details of the EPC rating at the earliest possible stage. It would enable prospective tenants and purchasers to focus their search on properties above a certain band or rating, if they wished. It would allow landlords and vendors of properties with high levels of energy efficiency to highlight that feature in their advertisement. It would improve awareness of energy efficiency and the contributions that buildings can make to a decrease in carbon emissions, and it would improve compliance with the current requirements.
The summary of responses to that consultation records that the proposal was supported by 94% of the 140 respondents, which is pretty strong support. Despite that overwhelming support for the measure, the proposal was abandoned by the DCLG under the coalition Government, as it was deemed to be gold-plating that would not be pursued. I argue strongly that the proposed new clause is not about gold-plating. It is merely about bringing forward EU regulations so that they dovetail more neatly with the implementation of the green deal. I hope the Minister will concede that point.
Subsection (3) of new clause 31 would ensure that all written particulars for marketing a property for sale or rent would include a valid EPC. At the moment estate agents can provide details of a property that do not give any information on the energy efficiency of a building if the EPC has been commissioned but not delivered, or if the property is for rent. As I said earlier, including an EPC in a property’s written particulars means that the energy efficiency will become a key determinant in a decision on which home to rent or buy.
Finally, subsection (4) of new clause 31 would ensure that EPCs remain up to date by setting a realistic and workable validity period for the information provided in an EPC. As the EPC is to become a key tool in communicating energy efficiency in general and the green deal in particular, we should ensure that it is always relevant. An EPC with a lifespan of more than a year risks being out of date by the time it is being considered, to the detriment both of the property owner or letter and the property buyer or renter. Informed decisions cannot be made on inadequate information. The current validity period of 10 years is far too long in the new climate of energy efficiency improvements that the Government want to create. Nevertheless—this is important—the shorter validity period that the new clause envisages does not mean necessarily that the EPC must be replaced each year, which would be onerous, because a new EPC would be needed only if a property were to go on the market and if the EPC at the time was more than a year old.
I remind members of the Committee that the information contained in an EPC, particularly the all-important recommendation section, is time-sensitive, as technologies change rapidly. It should therefore be updated regularly. Even more rapidly changing are the costs of energy efficiency measures and the cost of energy itself, which clearly affect the payback period of a measure. The Government’s advice websites or telephone numbers on the EPC might also change regularly. The purpose of an EPC is to inform a tenant or purchaser about the costs of running a home and of improving it, so it is absolutely essential that such information is accurate and up to date.
A shorter validity period means that EPCs would be genuinely useful and not just a regulatory burden. There is a real risk that out-of-date or irrelevant information on EPCs might act as a barrier to households taking up the green deal, so I ask the Minister and the Committee to support new clause 31 as well as amendment 132 that would amend the current regulations.
Luciana Berger: I wish to speak to new clause 38, which shares many of the sentiments expressed by the hon. Member for Brighton, Pavilion about amendment 132 and new clause 31. Its aim is to ensure that up-to-date EPC information is available before sale or rent of a property. At present, an EPC is not always made available in advance of the purchase or tenancy agreement of a property and, under current regulations, it is an offence to disclose information derived from an EPC about a building to someone who is not connected legitimately to the decision to purchase or rent the property. That can prevent consumers from comparing homes of similar design in similar areas on the basis of energy efficiency and further prevent energy performance companies from contacting home owners to offer them deals regarding the improvement of their homes. Under current
The Government envisage that moving home will be a key trigger point for the green deal take-up, so the EPC has a crucial role to play in encouraging energy efficiency. It signals to the potential owners or tenants that their energy bills will be lower and it could be an influencing factor in the decision to buy, adding value to a property. However, as procedure currently stands, many people do not see the EPC until they are in the property. I know from experience of buying a new build in Liverpool last year that I did not see the EPC until I had moved into the property.
The new clause would inform the private rented sector tenants of matters to avoid their renting hard-to-heat properties. Communicating energy efficiency to prospective buyers and tenants is therefore an important part of kick-starting the green deal, improving awareness and encouraging energy efficiency behaviour change. If the EPC is to provide accurate information to the tenant or home buyer about the cost of heating the home and the potential for improving it, such information must be up to date and relevant. Making EPCs more visible in the marketing of properties is also important when communicating to potential buyers or renters, and could enable tenants and purchasers to focus their home search around the energy efficiency rating. That would also provide an incentive to landlords and sellers to improve their properties.
The Business Council for Sustainable Energy put forward the recommendation in its submission in response to the call for evidence seeking views on how to improve the energy performance of buildings in support of the green deal, issued by the Department of Energy and Climate Change and the Department for Communities and Local Government in December 2010, that legislation should include strong enforcement
As I have said, that prevents comparisons from being made between the performances of houses that are of a similar design in the same area, and means that properties with high energy efficiency might not command the price differential that they deserve.
Although he contended that a one-year period might be “slightly onerous”, he intimated that the Government are minded to move closer to that rather than to keep the 10-year status quo, and that they will be looking to move to a “much more progressive regime” this autumn.
To conclude, we agree with the Minister’s view that the current lifespan of EPCs prevents accurate evaluation of a property’s under-performance. More frequent EPC evaluations would bring us closer to ensuring that certificates accurately inform consumers. However, the accuracy of evaluations and frequency of assessments are relevant only if EPCs are readily accessible to all relevant parties before sale or rent, so the proposal seeks to ensure an increased availability of EPC data. I hope that the Minister will support its aim.
Graham Jones: I echo the comments made by the hon. Member for Brighton, Pavilion and those in the very good speech made by my hon. Friend the Member for Liverpool, Wavertree. My hon. Friend reiterated some excellent points that were made in previous discussions, from which I shall draw out the key matters.
We often think about newspaper advertising for properties, but online advertising will be far bigger than that. It is online advertising that I want the Minister to address, because in future its scale will dwarf that of any printed advertising, or even that of high street displays in letting agents. It is clearly the future. Current evidence suggests that online advertising for sales and rentals is way ahead of any other type.
I appreciate that he is taking this good step forward. He mentions the right of access and safeguards, of course. I urge him to take on board the comments of the previous two speakers and the value of online advertising. As my hon. Friend the Member for Liverpool, Wavertree said, we have an opportunity to push green deal and consumer choice, and to allow people to choose energy-efficient properties. The Minister’s letter stated:
They will not be limited in searches. Will others with an interest in promoting energy efficiency include vertical internet search engines, which make up the bulk of internet advertising? They must account for 99.9% of online advertising and that is where the market is. If, as the hon. Member for Brighton, Pavilion said, consumers are given choice, will the Minister allow access to the database at a commercial rate, so that we can push the green deal and energy efficiency?
Gregory Barker: The amendments provide that when a property or the lease of a property is to be sold, or a property is to be let under a tenancy or licence agreement, the seller, prospective landlord or licensor, or their agent, must provide an EPC free of charge to the prospective buyer, tenant or licensee. It is worth remembering that EPCs, and specifically their 10-year lifespans, were introduced under the previous Government—in 2007, I believe. The hon. Member for Liverpool, Wavertree is absolutely
Tom Greatrex: Before the Minister moves on to the marketing of property, he has mentioned the opportunity to improve EPCs, and I wonder whether he has had any discussions with his counterpart Ministers in Scotland on EPCs. I am sure he is aware that the methodology of EPCs in Scotland is slightly different from that in England and Wales, and there have been concerns about whether Scottish assessors are able to produce whole-house surveys that fully address the energy efficiency of a property. In the context of his comments about improving EPCs, is that something that he has discussed? If he has not, will his officials be able to take that up?
Gregory Barker: I have not personally had any discussions with Scottish Ministers on that issue, but my officials are fully engaged and have a good working relationship with the Scottish Executive. I hope to be in Edinburgh before the end of the month, speaking on a range of green issues, and I hope to have the opportunity to meet Ministers from the Scottish Administration. If the hon. Gentleman believes it to be helpful, the matter is certainly something that I will raise with them.
Obviously, the specific requirement in the amendment is that the validity of an EPC would be reduced from the current period of 10 years to one year and that the person providing the EPC must not have reasonable grounds to believe that the information that it contains is no longer accurate. Otherwise, the landlord or seller of a building shall be liable for a penalty charge for failing to produce an EPC, even if it can be demonstrated that the duty to obtain such a document does not apply to them.
While I am sympathetic towards the intent behind the amendment, the Government do not support it at this point. That is not because we do not support the intention, but because it is already a statutory requirement that an EPC is made available free of charge at the earliest opportunity to a prospective buyer or tenant. We intend laying regulations to come into force in the autumn that will strengthen that requirement and require the seller or landlord, or their agent, to attach a copy of the EPC to all written particulars about any building that is being offered for sale or rent.
I hope that I can assure the hon. Member for Hyndburn that his points about the internet are well made and understood and that from July 2013 it will be a requirement that all property adverts, including those on the internet, carry an EPC rating. As part of the implementation of the recast of the energy performance of buildings directive, we will also be introducing a requirement that details of a property’s energy efficiency rating are included in marketing material. It would not be appropriate, therefore, to take powers in primary legislation to introduce that requirement when there is already scope to do so through secondary legislation.
As I said at the beginning, the system that we inherited from the previous Government means that EPCs are currently valid for 10 years. I fully agree with the hon. Member for Brighton, Pavilion that that is not fit for
We will make some changes to the content and format of energy performance certificates before the green deal is rolled out. In future, if improvement works are funded through the green deal, there will be an obligation to produce an updated energy performance certificate to capture the impact of those works on the energy efficiency of the property. One change will be to ensure that the certificate covers information about any green deal finance that has been taken out to improve the property, including the total amount borrowed, the repayments and when the loan is due to expire.
Although there will not be such an obligation if a householder or a landlord does not use green deal finance, it would be logical for them to obtain an updated EPC that reflected the benefit of that work. That would be likely to improve the marketability of the property and to make it more desirable to prospective buyers or tenants, but it is not necessary to introduce a statutory obligation to cover such circumstances.
Finally, on balance, it is not right to remove the current defence available to sellers or landlords, under which they are not liable for a penalty charge for failing to obtain an energy performance certificate if they demonstrate that the duty to do so does not apply to them. Such a situation may occur in limited circumstances—for example, where it can be demonstrated that an estate agent has contractually agreed to take on that responsibility, as it would not be appropriate for the Government to interfere with the business agreement between a seller or a landlord and their agent. With those reassurances, I hope that the hon. Lady and I are largely on the same page and that, although more detail has to be decided, she will withdraw her amendment.
Caroline Lucas: I thank the Minister for his comments. It is reassuring to know that we are going in the same direction, although, as ever, I want to get there a bit faster. In the light of what he has said, I beg to ask leave to withdraw the amendment.
‘(3A) In subsection (3)(g) after “consumers”, insert “(including adherence to an independent Code of Practice for Installation)”.’.
‘(1) The Secretary of State must, following consultation with energy consumers and other interested parties, prepare and publish a strategy to assist suppliers to deliver the intended benefits of smart meters to consumers, including in particular low income and vulnerable consumers. In preparing the strategy the Secretary of State must set out how the smart meter rollout will—
(a) deliver to consumers and taxpayers the benefits identified in the Government’s Impact Assessment;
(b) contribute to the carbon targets specified in the Climate Change Act 2008;
(c) contribute to the elimination of fuel poverty as specified in the Warm Homes and Energy Conservation Act 2000; and
(d) contribute to wider Government policy goals in particular, digital access, healthy living and water affordability.’.
‘(1) It is the duty of the Secretary of State to report to Parliament or an appropriate parliamentary committee on the progress of smart meter rollout every year starting from six months after the coming into force of the Act. The report should cover progress on the delivery of smart meters to domestic and micro-businesses, including—
(a) progress against the smart metering impact assessments;
(b) the number of smart meters installed in the United Kingdom including any national or regional trend;
(c) the estimated benefits to consumers, taxpayers and industry of the smart meter rollout, with particular reference to low income and vulnerable consumers;
(d) estimated effects on the levels of fuel poverty;
(e) the estimated energy and carbon reduction from the smart meter rollout;
(f) the degree to which interoperability of smart meters has been achieved;
(g) customer satisfaction indicators, including levels of complaint; and
(h) security of smart meters and smart grids including in relation to privacy and commercial confidentiality.’.
Huw Irranca-Davies: Amendment 168 in effect tries, in the nicest possible way, to bind the hands of the Minister to produce a code of practice. Over the past few months, there has been considerable discussion among consumer groups and others about having a code of practice, and the Minister has been sympathetic towards putting one in place.
The two new clauses relate to a smart metering strategy. This is not directly related, but the scale of the roll-out of smart meters reminds me of the scale of the digital roll-out and the amount of planning and preparation
New clause 37 asks for an annual report on the smart meter roll-out. We know that that is time-limited and will happen quite rapidly over a short period of years. We are asking for an annual report to Parliament, in which we would like the Minister to deal with a number of issues, such as progress on the smart meter, an impact assessment, the number of smart meters installed and national and regional trends, as detailed in new clause 37.
As the Minister will be aware, smart metering is already a fact of life. Many companies have already decided to go in early and pre-emptively to install their own smart meters. I confess that I am one of the early adopters; I do not know whether the Minister is as well.
Huw Irranca-Davies: I am not going to say which one. I already have a smart meter, and it is very good; it has changed our behaviour. We have a typical house, with two adults and three children. We never quite know where the children are in the house and what they are up to at any moment, particularly with electricity.
Huw Irranca-Davies: The Minister says from a sedentary position that I should. Well, now we do, thanks to the smart meter. We can see where energy demand is escalating and see the blips and traffic light systems going on to warn us that we are consuming more than we should. A shout then goes down the corridor: “What on earth are you playing at? Who has the wi-fi and the Wii on?” I am sure that that is familiar to families up and down the land.
There are already many different types and standards of smart meters out there, and it is entirely laudable that many of the larger energy companies have decided to launch their own initiatives. However, there are also fears about that path too, particularly when the most recent estimate indicates that something like 170,000 smart meters have already been installed in Britain. I do not have the up-to-date figures, but I am sure that the Minister can give them to us.
British Gas, which is owned by Centrica, has one of the most ambitious programmes. It is reported to be installing up to 1,000 smart meters a day, with the target of 2 million to be installed by the end of 2012. Before the Government have a firm grip on the smart meter roll-out, we will see 2 million from British Gas. Also, E.ON has said that it is likely to have 1 million meters installed by March 2014, and 100,000 meters by the end of this year. Significant numbers of smart meters will have been installed before the official start date of the Government roll-out. As I said, while it is great to have some technology on the market and have some feedback from it, there are dangers with it, which I will come to.
The Energy Retail Association has, commendably, already developed a code of practice for the installation of smart meters, but it is voluntary. One of the key concerns regarding the code is that it does not exclude sales activity during installation, when the supplier is in customers’ homes. Widespread problems with doorstep selling practices have already been acknowledged, including, regrettably, from energy companies. We want to protect consumers against the risk of some suppliers, or individual operators for suppliers that have been told not to, going for the hard sell when inside people’s homes. That is why we need a mandatory code of practice.
There is precedent to validate consumers’ concerns. The 2008 Ofgem probe into the energy retail market found that more than 40% of consumers switched to a worse deal as a result of high-pressure doorstep selling. We have seen prices rising over the last winter and currently, and one way that the Secretary of State recommends people to avoid that is to switch suppliers. However, we know that slightly less than half of all consumers switch to a worse deal as a result of high-pressure doorstep selling. The study that was carried out by Consumer Focus in May 2009 on supplier sales practice found that 34% of consumers described their experience of doorstep sales as “intimidating” and 68% ranked their customer experience as the lowest score possible.
Ofgem launched a spring package of measures to deal with what it terms early movers on the roll-out. The document covers issues of interoperability, which I will come to, remote disconnection and leaving stranded assets—leaving behind a redundant, inoperable smart meter when a consumer switches suppliers—and customers’ ability to switch supplier. The document also covers marketing, as I have just mentioned, but states that
“Ofgem is not persuaded that there are urgent issues that need addressing. Furthermore, Ofgem already has powers under existing consumer protection legislation and through the marketing licence condition to tackle certain forms of behaviour should it arise.”
Not only do we know that elements of marketing mis-selling are going on in a different area of energy, but it is clear from customer feedback that Ofgem is not applying whatever powers it has to deal with them. The document continues:
“In particular, the marketing licence condition now requires suppliers to take all reasonable steps to ensure that their marketing activity in respect of new domestic supply contracts is conducted in a fair, transparent, appropriate and professional manner…At this stage, Ofgem does not propose to introduce any new requirements to deal with sales and marketing as part of the Spring Package.”
I am not persuaded by Ofgem’s argument, because the feedback from consumer organisations and individual consumers shows consistently that they are worried about doorstep and high-pressure selling. We still need to address things such as the sale of tariffs at the point of installation, the marketing of products and clarifying the difference between good, sensible advice and marketing.
I now turn away from the code of practice, but I hope that the Minister is sympathetic and sees the need for it. He may well say that the Government will bring one forward subsequently, but amendment 168 proposes that he commit to doing so in the Bill. I realise that I am tying the Minister’s hands, but I think that I am tying them to something that he intends to do anyway. In new clauses 36 and 37 we are trying to develop a robust approach to the smart meter roll-out and to ensure
I want to voice our concerns and explain why we need a strategy and a duty to report to Parliament. The impact assessment that DECC produced for the roll-out estimates that the cost is likely to be about £10 billion, although I am sure that the Minister will give me an updated figure if that has changed. The consumer benefits of about £4.6 billion that are indentified in the impact assessment are expected to come from customers being able to use up-to-date information on their gas and electricity consumption to reduce their energy use and to save money on their energy bills.
The impact assessment estimates that the roll-out will cost approximately £10 billion, but it is worth stressing that the net benefit for Britain plc should be positive at £15.8 billion, which includes consumer benefits from reduced consumption. If that does not happen; if something goes wrong with the roll-out; and if, with the best will and the best intentions, it does not all go as planned, the business case that this is predicated on—the cost analysis—might be considerably weakened, and customers might end up worse off. I will explain why. First, DECC estimates that customers will reduce their energy consumption by on average 0.3% to 0.4% a year or an estimated £23 a year for a dual fuel customer by 2020. It is expected that costs will be passed on to consumers across the whole customer base, so if costs spiral, consumers will foot the bill.
The benefits of smart meters are intended to derive from reductions in energy use. It is not just smart meters, but smart consumers. The Minister will know, because we are at the vanguard of this, that there are other parts of the world where they have tried versions of smart meters, but not to the extent we are talking about rolling out right across the country. We do not know exactly what savings there will be. While there is good primary evidence to suggest that there is an immediate response from consumers as they learn to understand the technology, to use it and to reduce their demand, we have no similar longitudinal studies to show that that is sustained and that households do not simply slip backwards as they become used to the idea of paying a little bit more. Yes, they have the traffic lights system but they get used to it and they do not work quite as hard to manage their energy down and deal with carbon reductions.
The full effect on bills and carbon reduction is slightly open to debate, especially after that initial period. Will the Minister explain how we will persuade, cajole or motivate people so that they not only take the initiative seriously at the start but continue with it long term? That is to do with changing hearts and minds. It is not simply having a technological device in the home. Perhaps I could point him towards one of the developments that we used quite extensively and successfully at DEFRA during my term as a Minister. It was known within the civil service as the four Es model. He might not be familiar with it at DECC, although I should be surprised because DECC grew out of the old DEFRA family.
That model aims to combine factors of encouraging, motivating and enabling people to make easy decisions to make the change possible. It not only explains to people why they should do it, it makes it easy for them
“Customer engagement with smart metering will have a significant impact on the overall costs of the programme and the consumer’s opportunity to benefit. In places such as the Netherlands and California where there has been a consumer backlash against smart metering as a result of health concerns and privacy issues, this has resulted in a considerable increase in costs.”
I should like to hear the Minister’s thoughts on the hearts and minds aspect, the engaging and motivating and putting the Government’s argument out there. Then there is the impact on low-income households. The Government’s impact assessment has been criticised in some quarters for its lack of focus on the impacts on low-income and vulnerable customers. I am sure that the Minister and his team will have been working to respond to those criticisms. DECC has stated that it will review the impact of roll-out on different consumer groups, including vulnerable customers, in 2014. As I have said, it is estimated that by that time 4 million meters will have been installed, a significant number of which are likely to be in low-income or vulnerable households. Has there been a thorough assessment of the impact of the roll-out on low-income households? Where will the costs lie, initially and in the long term?
We have had great debate in a different context about prepayment meters. What we want to avoid is another cost being added on for low-income households because they joined up with the Minister in his drive to get smart meters out there, and to save energy and drive carbon down. We do not want those households penalised for that. Perhaps the Minister’s assessment would be useful.
The Government’s impact assessment highlights the potential additional costs from an accelerated early roll-out, but the early roll-out also carries the potential of missing cost savings. I would therefore be interested in what discussions the Minister has had to revisit an earlier one that the hon. Member for Brighton, Pavilion and I engaged in with the Minister of State, the hon. Member for Bexhill and Battle, on the issue of water metering.
At what point will there be synchronicity, as to display functions and so on, between smart meters that engage with energy and electricity, and those for water? I suggest we need a strategy, even it is not immediate or in the early stages, to deal with the issue and explain how,
It is essential that the programme, with the coherence strategy, should be designed and monitored with a view to the impacts on energy and carbon reduction; the benefits for and impacts on consumers—especially those on low incomes, and vulnerable customers; the effect on fuel poverty levels; the contribution to wider policy goals in Government—that is where the strategy really plays in; the resolution of interoperability issues between devices and different energy companies and retailers; and, of course, security concerns.
I want to make a few comments on interoperability and the ability to switch. Switching has been a live issue in the past few weeks. At some point we shall be talking about switching with meters in place, provided in one way or another by a particular energy company. Of course, technology could be incompatible between the meters of different energy companies.
If customers must change their meter to change supplier, it will not only be harder to switch, but pretty inconvenient, and unnecessarily costly. The meter costs would surely be passed on to the consumer somehow. In its spring package, which I quoted earlier, Ofgem said:
“and full technical and commercial interoperability being introduced, smart prepayment presents a particular challenge as these meters cannot be used in dumb prepayment mode. Without a communications link there is no ready way to top up the meter as there will no longer be any physical device…In order to encourage suppliers to find a solution to this issue and to protect consumers in the meantime we are proposing that suppliers should not be allowed to install smart meters for use in prepayment mode unless they could be used in prepayment mode by an incoming supplier.
Full interoperability is not expected to be in place until at least 2014, when the data communications company is operational. In the meantime, if a customer wishes to switch supplier, their smart meter will only operate in dumb mode after they switch. They will not be able to switch from a smart deal to another smart deal, without having their meter changed. I speak from experience, having made one change myself.
Luciana Berger: Forgive me if I make points that my hon. Friend wishes to mention later. Does he share my concerns that some of the current smart meter roll-out uses technology that cannot be accessed across the UK? I refer to General Packet Radio Service, which cannot be used in some homes if they have basements or are in certain areas. There are also concerns that that technology might become obsolete. If every household that could access GPRS had a smart meter with that technology there would be issues about the capacity of the system.
Huw Irranca-Davies: My hon. Friend makes a good point, of which I know the Minister is aware and concerned about. It is not just the technology of the device, it is the platform on which it rests. We are waiting to see that resolved. It again argues the case strongly for a strategy and a report. If we, with the Minister’s wise team of officials, devise this in the correct way, we will be able, on the basis of the amendments, to hear each year how that is going. Alternatively, we could hear each year that there have been problems, because the Minister with his wise counsel has selected an innovative platform that seemed to be the bee’s knees but has not quite lived up to it. We know that happens in Government. I am not pointing the finger at the coalition; we know that happens. However, with something like this which is on the scale of digital roll-out, to come back and report to Parliament on annual basis on how that strategy is performing is necessary as well as desirable.
With regard to tariff complexity, a key benefit of the smart meter programme comes from consumers reducing their energy consumption and taking advantage of tariffs that would reduce their consumption, particularly at peak times. That requires smart consumers as well; I have made that point repeatedly. It is no good just having the device there if one is not going to use the information to one’s advantage. Smart meters offer the potential for a new range of tariffs, for example, multiple rate time of use tariffs, so that they can help reduce demand at peak times and lower the cost for consumers. From a personal perspective, that is what we are already doing in our house. The wonderful device we have flashes when there is peak demand or when that is anticipated. It flashes to warn against putting on the kettle or other devices, and to wait for another time.
“Ofgem is aware of the wider concerns about tariff complexity and the importance of consumers being able to exercise effective choice. As part of the Probe remedies the marketing licence condition was strengthened to require suppliers to provide a written estimate of the annual charges based on the consumer’s annual energy use. Where suppliers are making claims about the savings to be gained from a time-of-use tariff we would expect this to be based on the consumer’s consumption pattern in different periods.”
Again, the strategy for Parliament would be extremely useful in putting forward the Minister’s joined-up thinking, as the years go by with the roll-out, of how tariff systems would work, in favour of consumers. The systems should not confuse them with complexity, but enable them to pick simply, under the E of enabling, easy choices of how to reduce bills and carbon take.
I have already mentioned remote disconnection. Concerns have also been raised about load limiting, restricting the amount of electricity and gas used by a household when low on credit. There is a worry of remote disconnection that could arise from that. We cannot have a situation where smart meters, rather than enable the consumer, allow disconnection, without notice or discussion, because there is intelligent monitoring of a household. That would be the worst sort of use, so I look forward to hearing the Minister’s response and whether he sees that those considerations will form part
In conclusion, I will refer to Consumer Focus’s three key asks. First, it requests new protections to safeguard customers in a smart world as soon as possible, including measures related to smart meters, as I have mentioned, as well as switching, sales and marketing, and data protection—I will not go into that issue in detail, but the Minister will know that there are worries over effective encryption and decryption, not only within the home, but when that information leaves the home and is communicated down two-way lines to suppliers. Consumer Focus also asks for protections relating to remote functionality and for vulnerable and low-income consumers.
Secondly, it asks for a strategy to be put in place, as we are asking now, to deliver the consumer benefits of smart metering. That should include governance of the scheme, its reporting, and a national engagement plan, which I have referred to. If the Minister does not like the previous Government’s four Es, by all means, rebrand it, but we need a strategy that will engage and motivate people, and not simply leave it up to them or companies to drive it forward. As part of that second point about a strategy, Consumer Focus also suggests that the Government should report back annually to Parliament on the costs and benefits achieved for consumers and Britain plc, as proposed by one of our new clauses.
Finally, Consumer Focus recommends that extra help must be provided for low-income and vulnerable consumers, because all consumers should be able to access the benefits of smart metering, especially when all customers will pay for it. That suggestion is absolutely right, and it is one of the points that we were seized with during the digital roll-out. We have to focus precisely on people who might have the most difficulty making sense and use of a new technology within their homes, or on people who might be able to make sense of it if they had a little support. That does not always have to be from the Government; it could come from within their community, which fits ideally into the big society.
Therefore, our three asks are for a code of practice, the reporting function to Parliament, and that a strategy is put in place. I think that the Minister would be sympathetic to all those suggestions—but perhaps not. However, if he is sympathetic, in the cordial spirit of my speaking to the new clauses and amendments, I hope that he will accept them on to the face of the Bill.
The Chair: Order. I bring it to the Committee’s attention that the same rules apply here as in the House. It is not in order for Ministers or Members to pass between the sight line of the Chair and whoever has the floor. I would appreciate your future co-operation.
Dr Whitehead: Some while ago, Spike Milligan had a product called “Snibbo”, which he regularly advertised on his television programme. If someone put it on their dog, it would cure its fleas. People could lubricate their rusty bicycle chain with it. It was a suitable spread for toast on a cold winter evening, and broken vases could be glued back together with it. I mention that, because it appears to be the way that smart meters have been discussed recently. It is said that they are the all-in solution to the question of how we use our electricity
As my hon. Friend mentioned, a couple of Californian counties held a moratorium on the roll-out of smart meters on the grounds that they were a public health hazard and an intrusion into people’s houses. There was a substantial campaign by citizens’ groups and stickers were put on people’s front doors saying, “Smart meters not required here. Do not install a smart meter in my property. Go away.”
That is how some of the debate on smart meters is beginning to shape up in certain parts of our country, and which has been the case abroad. It is imperative that smart meters are rolled-out in the most efficient, effective and speedy way, and I am completely sold on the idea that they will indeed revolutionise how our energy is supplied and works. Among other things, they will make a substantial contribution to the battle against global warming and how we can manage our electricity in a much smarter way overall.
Dr Whitehead: That is precisely the issue to which I am alluding. Several people might not want a smart meter installed in their home for either actual or perceived views about the security of the data that might be supplied through the meter, and the extent to which it would be possible remotely to undertake actions that
We want a strategy to enable us to be sure that people are not undertaking some disruption in order to have a dumb meter in their homes rather than a smart meter, which perhaps would need to be ripped out and replaced after a few years. Indeed, we can already see that the early roll-out of smart meters by some utilities is clearly designed to capture the market for interoperability. Whether that will prove to be the case over time remains to be seen.
We need to have a clear strategy about what can be delivered on consumer benefits. We need to know how to answer all the questions relating to the privacy, commercial confidentiality and security of smart meters, in terms of how they perform a national function, as far as that smart use of energy information is concerned, so that they do not end up being only as good as mobile phone coverage. All those issues are part and parcel of a successful roll-out of smart meters, such that they work in the best possible way for this country.
It is common sense that we should have not only a strategy to address that when roll-out takes place, but post-legislative scrutiny of the roll-out in action, as well as an annual report to address the degree of success or to flash up warning signs, just like the smart meter flashes up a warning sign when my hon. Friend the Member for Ogmore should not put his kettle on. We should have warning signs if the roll-out is being pursued in a way that is inimical to its ultimate success.
The measures in new clauses 36 and 37 should be an integral part of a smart meter roll-out, so I hope that the Minister will welcome them. They would underline and underpin what would be an ambitious and hopefully successful programme of smart meter roll-out, which has to be carried out in the full knowledge that it will not be without problems that will need to be addressed.
Charles Hendry: It is a huge pleasure to serve under your chairmanship, Mr Crausby, and to make my first speech in this Committee after almost two weeks. I hope that I shall prove that I am not here just for decoration. I am the living embodiment of the squeezed middle, about which we have heard so much today.
I am grateful to the hon. Member for Ogmore for the way in which he has taken us through these issues, and I am grateful to the hon. Member for Southampton, Test for expressing his concerns. We have had a good discussion about some of the general challenges of smart metering. I want to respond to those and, specifically, to the issues that have been raised.
Charles Hendry: As now, there is no compulsion on people to have smart meters. I hope that the process will be such a success that people will say, “I have seen what it has done for the hon. Member for Ogmore, and I want that in my house.” We should be doing this because people want to buy into it. A great deal of our effort is
I thought that we got a fascinating insight into the home of the shadow Minister and life in Ogmore—the children running wild with no idea of where they are, and more gadgets than one finds in a branch of Currys, by the sound of it. When the lights are on and all the family are home, they can probably be seen from Mars.
The hon. Gentleman rightly recognised that the Government have got a grip of this issue. We have put a great deal of effort into ensuring that we can move forward more quickly, and the way of doing that is to get early agreement on the key stages that have to be sorted out. I am worried that the longer we talk about intra-operability and what the key criteria and functionality should be, the more the companies will hold back from putting in place smart metering in the early part of the phase.
I am encouraged that companies such as E.ON are joining Centrica by saying that they want to see a big roll-out of the smart metering programme, and that they have committed to putting in place a million over the next few years. They can do that only because we are saying that they will have clarity by early next year about what the functionality of smart meters should be. They are aware that there is a risk that if we set a functionality that the current smart meters do not address, they would have to be removed at some point. We want to give the companies clarity as soon as we can—to some extent this addresses the issue raised by the hon. Member for Liverpool, Wavertree—on what the functions should be, and we will then know that the companies are there for the longer term. Consumers can then switch when they want to, and they will not need the smart meter to be taken out or to go back into dumb mode. That is the key to enabling the process to go forward at the speed to which we aspire.
Although there are advantages to some of the companies going out early, and not least so that the Minister is able to see how particular technologies work, will he assure the Committee that standards will not be determined by the early innovators? That process will be a good learning experience, but will his mind be set by what best meets the criteria he wants for the consumer and the criteria that will drive down carbon emissions and bills?
Charles Hendry: I do not think I have ever been called arm candy—on the sexy MP website I came just below the Speaker’s dog—but I am grateful for the shadow Minister’s kind comments—[ Interruption. ] It is rude to laugh at one’s own jokes, but I have just realised what the Speaker’s dog looks like.
The hon. Gentleman raises a critical point. We will not be doing this on the basis of what business tells us is commercially convenient. We will be putting in place a regime that works for the longer term and that will, therefore, pass the test of time. We do not wish simply to rule out things that the companies are doing—we can learn a huge amount from the work that is happening now—but we have to get smart meters right.
The hon. Gentleman also referred to the point that we have to ensure that smart meters are future proofed. New things will come along—for example water metering can be tied into this—so we should not make decisions now that will close down future options.
On the connectivity mechanisms to which the hon. Member for Liverpool, Wavertree referred, we want to ensure that a wide range of technologies is used so that all parts of the country are covered and we do not close down options that might be more useful or better in some parts of the country. We do not want our decisions to require unnecessary, significant investment in the telecoms infrastructure. The decisions we are making now will make this right for the longer term.
We can also learn from what has been done in other places. Sweden, Ontario and Italy have each had a full roll-out. Holland has had a sizeable roll-out during which it has experienced significant problems. We should learn as much from what people have got right as we do from what they have got wrong.
The hon. Member for Ogmore is completely right to say that smart meters do not bring about change themselves. People have to buy into them and be active participants in the process if they are going to achieve these benefits. If they simply choose to keep to their existing consumption patterns, they will not derive the benefit of switching to better tariffs, so the consumer engagement process will be critical. The impact assessment states that £100 million will be spent on the consumer engagement programme, a lot of which will come from industry. Having seen the way in which Centrica, E.ON and some of the smaller companies are taking this forward, it is encouraging that they are emphasising how consumers can get the best out of their smart metering investment.
The other thing we can look to is how technology can deal with some of the problems. Through smart metering and the development of smart grids over time, it will be possible for people to say, “When the price of electricity drops below a certain variable tariff, charge up my immersion heater; and when it goes above a certain level, switch off my fridge and freezer.” The smart meter will be able to make those decisions. Rather than us all wanting our hot water at the same time and wanting our immersion heaters on when we come home from work, we will be able to spread those things that can be spread in the most sensible way.
Ian Lavery: On tariffs and price sensitivity, does the Minister agree with reports that at times of peak demand the price of electricity could be up to nine times higher than during off-peak periods? That would adversely affect people with ill health who are not able to change their lifestyle pattern. Such people need electricity at certain times, so will the Minister please give that consideration?
Charles Hendry: The hon. Gentleman raises an important point, which is easily resolved. There will be competition between the tariffs, and there will be no requirement for people to go on to those that involve that sort of penal charge at times of high demand. Companies will offer tariffs, and people who are out all day might say that, as none of them is back until after 6 pm, they do not mind buying into a tariff that requires them to buy electricity
Huw Irranca-Davies: Has the Minister given any thought to whether any consumers will simply be unable to avail themselves of better tariffs—for example because of continuing medical or other needs? In the water industry, it is usual to devise social tariffs to avoid the problem of vulnerable consumers being penalised by their inability to switch to more attractive tariffs. Will he apply such thinking to tariffs for smart meters?
Charles Hendry: There is every reason why tariffs should work in that way. In addition, we and Ofgem are carrying out work to improve liquidity so that more companies offer their services and act as a broker. The Co-op is coming in and other high street retailers are looking to do so as well. They will be able to offer a range of tariffs in response to such circumstances. Specialist niche providers, whom we have seen and given extra support to this week, can also offer specialist tariffs. All such issues can be resolved in that way.
The final issue about fuel poverty relates to prepayment meters, which the hon. Member for Ogmore raised. One of the most encouraging things about the position is that in Northern Ireland, where about half the homes have smart meters, people on prepayment meters are on a better tariff than those who are not. There are challenges to do with prepayment meters, but they can bring very real benefits.
You might have thought that I had already done so, Mr Crausby, but I turn now to new clauses 36 and 37 and amendment 168, the purpose of which was set out by the hon. Member for Ogmore. When similar proposals to the new clauses were debated in another place, the Government explained the approach that we have followed, including extensive consultation to ensure that our plans for the roll-out of smart meters will achieve the benefits sought for in the programme. We explained our view that new requirements would be counter-productive, and we also stated our commitment to transparency about progress and levels of benefit.
The Government are clear that we are accountable for the successful delivery of the programme, and because of that we have brought more of the programme work that was being done by Ofgem into DECC. The benefits of the programme are set out in the impact assessment, and there is a difference of perhaps more than £7 billion between the costs and the ensuing benefits. However, a provision in primary legislation to consult on and to publish a new strategy is not required, and that would cut across what the Government have already done. There has sometimes been a tendency to over-consult in the development of energy policy. At a time when we are engaging constructively with the industry, consumer groups and trade unions, it would be a mistake to require a further period of consultation, as that would only delay the time when installers can have certainty.
Yesterday, I had an extremely useful meeting with the union Unite, which included a discussion about smart metering. It is concerned that until there is clarity in the interim phase, people involved in installing meters might be laid off because companies might scale back the roll-out. If we were to announce now that the Bill will not come into force for some weeks and that there will then be a further period of consultation, all we would do would be to roll back the date when people could start to install with clarity and certainty. As a consequence, the time period about which Unite is understandably concerned would grow, and more people who can be actively involved in this process could lose their jobs.
Huw Irranca-Davies: Perhaps I may suggest a way forward. I appreciate the Minister’s concerns that we would inadvertently put a hiatus into the process, which would be the last thing that we would want. When we looked at the same issue with respect to avoiding a pause in progress with the digital action plan, that was exactly what we did. Rather than going for a complete consultation and a strategy, we brought together the excellent work that had already been done, as well as examining some areas that may not have been covered before. That was pulled together into an action plan that was published and then discussed within Parliament. May I suggest that to the Minister as an alternative? If he were willing to do that, it could cover the issues to which new clause 36 relates about carbon targets and the elimination of fuel poverty, as well as wider governmental goals.
Charles Hendry: I hope that I can persuade the hon. Gentleman that that is not necessary. We have had an immensely lengthy consultation. We have published one of the longest documents that I have ever seen. We consulted on it and then gave our feedback on the documentation. There has been positive engagement from industry, consumer groups and the unions on how that process is being moved forward. We are aware of all the areas in which there are remaining doubts for the consumer groups, the unions and the industry itself. We are now working on getting consensus on those areas. The sort of consultation that he is talking about—even the non-consultation consultation—cannot add to the work that has happened.
I will take the hon. Gentleman through that a bit further. In March, we published a detailed set of decisions and plans for further work. That represents our strategy to achieve the full range of benefits, and it followed a full and thorough consultation with consumer groups, industry and other parties. We published our prospectus in July last year. To re-consult on that now, or to go further in the way for which he is calling, would only slow down the process. Everything that we have been trying to do is to give people early clarity about what will be necessary.
The plans that were published in March set out the work that is now under way as part of the foundation stage of the programme. That includes developing and implementing a consumer engagement strategy. The development of a code of practice on installation will ensure that energy suppliers provide information to consumers to enable them to benefit from their smart meters. That code of practice will be binding. It will be a licence condition, and it will not be something that they can opt in or out of.
There will be an absolute requirement for those installing smart meters to adhere to that code of practice, which was initially being taken forward by industry and consumer groups. I specifically asked for the trade unions to be involved in that process so that it would be as comprehensive as possible. To suggest that there needs to be a separate independent code of practice, which, by definition, suggests that the one that has been done by consensus between the different groups is somehow inadequate, would make it more difficult to take things forward.
Charles Hendry: At the moment, it is in development as a voluntary code of practice. We have made it clear to the industry that that will be a licence condition. There will be a need to sign up to the code of practice as it is consolidated and finalised, and the major companies are clear that they want to do this. If there are new suppliers and new entrants into the market that want to cut corners, this is our way of ensuring that they still adhere to that code of practice. We are ensuring that the code of practice is fully robust and something that delivers what the hon. Gentleman wants to achieve.
Huw Irranca-Davies: I think that it will. I suspect that the Minister has devised a different approach through licences to make things mandatory that avoids the heavy duty of regulation—the one in, one out. In that case, why will he decline our proposals, because they give legs to what he is already intent on doing through a different way?
Charles Hendry: Because this was already happening, because we are already well through the process, and because of the word “independent” in amendment 168, which I find particular queer. We are getting agreement and consensus from industry, consumer groups, trade unions and others on what the code of practice should be. We had very useful discussions with Unite yesterday about how to protect consumers from being told “Your wiring isn’t up to scratch; you’ve got to spend thousands of pounds with my mate round the corner to get it put right,” and how to protect people from being taken advantage of at the point of sale.
That is all being done through our existing code of practice and by consensus. To suggest that there is a need for something independent, which I assume would mean independent of industry and suppliers, would remove something valuable and important from the equation.
Huw Irranca-Davies: May I try to help the Minister? I would be happy—I would be willing to withdraw the amendment on this basis—if he or I could return with an amendment that removed the word “independent” and added a form of words about including adherence to a code of practice for installation as part of the licence condition. That is exactly what the Minister says, but such an approach would make things as clear as day in primary legislation.
By going through the detail of the process, I hope that I can persuade the hon. Gentleman that what he is talking about is already going to happen. The industry already understands that there will be a binding code of practice to which it will have to adhere. I therefore hope that we can encourage the hon. Gentleman to withdraw the amendment.
I want to touch on the proposed annual report. There will be some requirement for an annual report, but I am concerned about setting out a requirement in the Bill as the hon. Gentleman proposes. That approach would give us no leeway for adaption. In addition, we want the roll-out to be finished well before the end of the decade, but new clause 37 would require the detailed work in question to be done for time immemorial at an annual cost of hundreds of thousands of pounds, even when the roll-out is complete. The only way round that obligation would be to remove it through a further Act of Parliament. The new clause would impose a significant obligation and would provide more detail than would be absolutely necessary.
Huw Irranca-Davies: In the spirit of trying to assist the Minister, I would be more than happy for he or I to return with a new clause with slightly different wording and including a sunset provision that could be reviewed once a year in a statutory instrument Committee.
Charles Hendry: It is intended that we shall require reporting to Parliament. Much of the information will be provided through the process of parliamentary questions and everything else. The list in the new clause is very prescriptive, but it is probably not exhaustive, so there would therefore be a need to amend it.
We believe that it is better that anything of this kind should be dealt with by secondary legislation and, more importantly, should be able to evolve over time to reflect what people believe is needed. The Government would in any case want to be doing much of the work in question, but flexibility would be better to enable us to take things forward in the best way.
I think that a dramatic change to the new clause’s wording would be necessary to make it acceptable to me. I urge the hon. Gentleman not to press it to a Division and perhaps to reflect on the position before Report. I believe that we have the powers to make an annual energy statement to Parliament that will undoubtedly deal with smart metering. There are other occasions on which we report to the House. There are many ways in which we can do so without binding us to a bureaucratic measure in legislation for time immemorial.
Huw Irranca-Davies: I thank the Minister for his lucid and extensive remarks on the amendment and new clauses. I shall take them one by one, as he did. I will withdraw the amendment on the code of practice, subject to the view of the other hon. Members who added their names to it, but I am not fully satisfied on that point, because there is an opportunity to enshrine in the Bill what the Minister is doing.
I do not want to put words into the Minister’s mouth, but as a former better regulation Minister, I suspect that he is trying to minimise the impact and burdens by not putting in something mandatory, for which he would have to account to the Secretary of State and the Cabinet Office, at least. However, the amendment would simply make real in primary legislation what the Minister has told me that he will do anyway through a licence condition, which will have exactly the same impact; it will be a minimal and absolutely necessary burden on those installing smart meters.
I will withdraw the amendment, but I suggest to the Minister that we may want to revisit the matter at some point, because I am not convinced that we do not need that provision in the Bill. The amendment would simply make clear what we all regard as good practice by putting in place a code of practice. The Minister has described the current voluntary code of practice, which is wonderful and which is coming together. From what the Minister has told me, however, that voluntary code of practice will in fact be mandatory, because it will be subject to licence conditions for installing smart meters, so I struggle to see the difference.
I turn to new clause 36 and the smart metering strategy. I take on board what the Minister has said about trying to avoid any delay or hiatus. I am concerned about the points that we have raised in new clause 36; often when we table new clauses and amendments we do not get the wording absolutely right, but we have deliberately included issues such as carbon targets, fuel poverty—a major source of debate in relation to various aspects of the Bill so far—and wider Government policy goals including healthy living, water affordability and digital access. I accept the Minister’s argument, however, so we will withdraw the new clause.
Charles Hendry: May I point out one practical difficulty? Smart meters are related to a particular property. We know the status of the people who are living there when the meter is installed, and therefore we might know whether they are in fuel poverty. We have no idea three years later whether those people are still there, and without going back to every single one of our 40 million homes to ascertain the status of the occupants, such information simply cannot be provided properly. We can have targets and we can work towards these things, but we cannot with certainty measure some of those outcomes. Although we understand the aspirations, the delivery might be fairly complicated.
Huw Irranca-Davies: I understand what the Minister is saying, and we are getting into the sort of detail that we might see in a strategy. I suggest that he considers drawing together the work that is currently going on into some coherent action plan, or whatever he wants to call it, which does not require any further consultation whatever. It would simply pull everything together so that the industry, the public, Committee members and both Houses of Parliament could see the coherent shape of the Minister’s vision for the roll-out of smart meters.
Charles Hendry: One of the things that I said to the industry was that I wanted to see early agreement on these issues; I wanted to see real progress made on determining the basic criteria, so that those who are starting to roll them out can do so with confidence. I said that if we could not make progress, I would put people in a room on a bank holiday Friday and we would not leave the room until they had finished. So far, it has not been necessary to do that, because we have made huge progress on agreeing across the industry, which has very different perspectives, the objectives, the functionality and the operability issues. The prospectus that we set out recently shows how much progress has been made, and there is a great deal of industry support for those conclusions.
Huw Irranca-Davies: I applaud the Minister’s approach; it is the darkened room with either a gun or a bottle of whisky. Both are quite effective, but I find that the whisky is normally more so. I take his reassurances, but new clause 37 causes me more difficulty. We will withdraw our request for a code of practice—with the proviso that I have given about the possibility of modifying the wording—and we will withdraw our request for the Minister to devise a strategy for the good reasons that he has articulated—everything is in place already. On that basis it seems straightforward that the Minister would want to bring forward a report once a year, although not on the Floor of the House, so that we could look at the progress of the roll-out. As he has said, in other countries and regions there have been good examples, and also some worrying examples of the technology and the way it has engaged, or failed to engage, the wider public.
On something so significant, on such a huge scale and with such a potential impact on so many different people, including the more socially disadvantaged who might have fears about the technology, it seems logical to have an annual report to Parliament in one form or another. We could build in, as I mentioned, some form of sunset clause, so that when the process has finished in four, five or six years’ time, we can happily say, “That is the end of it; we no longer need to monitor how the Minister is doing.” Would the Minister be willing to take that away this weekend and have a good look at it to see whether he could fashion something simple that removes the detail but gives both Houses certainty that there will be an annual report on this critical area of Government policy?
Charles Hendry: I hope I can give the hon. Gentleman that assurance. The Government are already obliged to report annually to Parliament on progress towards our legally binding carbon budgets. Those reports include a sector-by-sector account of the carbon savings that have been achieved. Smart metering, once under way, would be an integral part of that process. There is a legally binding obligation on the Government to report to Parliament, so to some extent the proposal would mean repeating an obligation. My concern is first about the open-ended nature, and secondly about being so specific about what would have to be reported on. The nature of these things should be that we can respond to pressure from Members of Parliament and from Select Committees to change and evolve the statements so that they are as helpful and constructive as possible. The structure, the intention and the will are there, and I
Huw Irranca-Davies: The Minister is making a good fist of trying to persuade me. Bearing in mind the length of our debate today, and the time, I will not press the new clause, but I ask him to try to clarify exactly how the duty to report on smart meters will be discharged. Perhaps, with the good will that he has already shown, he will write to all members of the Committee to explain precisely where that reporting function will be discharged. My strong feeling is that we are talking about such an important area of Government policy—it is on the scale of the digital roll-out—that it merits a separate report to Parliament. If he is convinced that there is another way of ensuring that, I simply ask him to write to us and explain exactly where that will be done—not where it may or can be done, but where it will be physically made real. If he can do so before Report, I will not press the new clause.
‘(6) Regulations under this section are subject to the negative procedure.’.—(Gregory Barker.)
‘(2A) The information to be provided about a tariff by virtue of subsection (2) with regards to the amount of the tariff must be guaranteed not to change for a period of 12 weeks.’.
‘(1) After consultation with electricity and gas retail sellers, and consumer groups, the Secretary of State shall introduce regulations that make it mandatory for electricity and gas through pipeline supply companies supplying to domestic properties to configure their tariffs so that the initial units of energy supplied are at a lower cost to the consumer than remaining units.
(2) The principles of the scheme shall be—
(a) that the number of lower priced initial units shall represent the average amount of energy required for a household of that size to keep warm, clean and fed to a modest but acceptable standard;
(b) the tariff price for the initial units shall be equal to the medium term marginal cost of the production of that energy;
(c) overall, the new combined tariff should be revenue neutral to the energy supply companies.
(3) The scheme and its tariffs will be assessed and audited by the Office of the Gas and Electricity Markets, who will also be responsible for the capture, analysis, and reporting of all information to the Secretary of State regarding the implementation and management of the scheme.’.
Luciana Berger: The aim of the amendment is to ensure that the proposals for the cheapest tariff information are not open to abuse, and that consumers are protected from unanticipated hikes in their energy bills. Currently, consumers are unable to anticipate increases in fuel costs in time to compare prices with other providers. The amendment would ensure that consumers have a fixed rate for long enough for them to conclude whether it is best to remain with their current provider or seek an alternative tariff.
The amendment would ensure that consumers have the flexibility, time and information to do just that. Providing the cheapest tariff information on bills is meaningless unless the price is guaranteed for a set period. If the price rises the following day and the price that was stated is no longer the cheapest option, the information will be useless to consumers. As the average time it takes to switch between energy providers is five to six weeks, we are asking for a tariff to remain at a set level for 12 weeks to ensure that consumers are provided with the flexibility needed to make informed decisions about how their energy is supplied.
Data from Which? reveal that two thirds of people feel that the price they pay for energy should be guaranteed not to increase for a set period. A Which? investigation last October found that the average household can choose between 89 different tariffs, and that more than a fifth of customers who switch their tariff end up paying more. As reported by the BBC, separate research by Ofgem in 2008 found that of those who switched their energy supplier, more than half did so in response to contact with a salesperson. It found that many who switched following doorstep sales ended up on a more expensive tariff, because they were misled and found it difficult to compare bills. Ofgem also said that customers were bamboozled by a complex system of tariffs, increasing from 180 to more than 300. Ofgem research also reveals that 70% of customers found the number of tariffs on offer confusing. It found that households that failed to compare different energy rates could be missing out on savings of up to £170 a year.
“Such a requirement would limit suppliers’ ability to react to changes in the market and may lead to a more conservative pricing strategy, risking higher prices for customers across the board—in other words, the law of unintended consequences, which we have been looking at in other areas.”
“We are sympathetic to what the noble Lord, Lord Whitty, intends. We have to give careful consideration to the amendment to make sure that the unintended consequences that I have just mentioned are not brought to bear. I therefore propose to him that we take away the amendment for further consideration, because we understand the principles behind it.”—[Official Report, House of Lords, 31 January 2011; Vol. 724, c. GC288-89.]
Despite what the Minister’s noble Friend said in the other place, we have not seen any reference to those considerations, so I ask the Minister to share with the Committee what consideration he has given to the amendment.
Simon Wright (Norwich South) (LD): As members of the Committee will be aware, the first block of units used by many energy consumers is often significantly more costly per unit than subsequent blocks. Energy therefore becomes cheaper per unit, the more it is used. That seems counter-intuitive, and goes against what we want to achieve in the Bill, which is to reduce energy use and tackle fuel poverty. The way in which blocks of energy are priced for consumers seems to be a back-to-front incentive and undermines those goals.
By charging the highest amount for the initial units, those who are trying the hardest to save energy—perhaps because they can least afford it—are paying on average more per unit than excessive energy users. The new clause would undo that position, so that when a reasonable amount of energy for the type of property in question was used, the cost would increase from a low initial unit cost. That provides a more sensible incentive to keep energy use down, and those with low and moderate energy use would see a drop in their bills. A tariff structure of that kind is used commonly in south-east Europe and the Flemish part of Belgium.
Consumers should be able to access a pricing structure for their energy that is revenue-neutral overall for the suppliers, but which seeks to reflect the ambition under the Bill of reducing energy use and tackling fuel poverty. While smart metering is not required for the rising block tariffs that I propose, it would help consumers monitor their energy use, so that they could avoid moving into higher-consumption-priced blocks. I accept that an issue could arise from the new clause for those who are fuel-poor or in circumstances—perhaps medical—in which a high level of thermal comfort becomes a necessity, and clearly we do not want to penalise those groups. However, I hope that the green deal will solve that issue by improving the insulation of homes, thereby enabling a system of rising block tariffs that is equitable for all. A system of dispensation might need to be introduced for low-income households with necessarily high energy needs, but I hope that the Minister will consider the new clause, and I look forward to his response.
Charles Hendry: I shall deal with first with amendment 166. The hon. Member for Liverpool, Wavertree, made the good point that it would not help consumers if information on their tariff went out of date quickly. Her amendment would require the Government to fix the length of time for which the supplier’s lowest tariff was available to a particular
The Bill will allow the Government to require suppliers to inform customers about their lowest tariff and how to switch to it. It is a feature of our competitive market that energy suppliers can react to changes in the market. The amendment would effectively stop suppliers making changes to the price of a tariff in respect of a particular customer for 12 weeks, which is not the intention of the Bill. Such a requirement would limit the ability of suppliers to react to changes in the market, and we remain of the view that that would lead to a more conservative pricing strategy overall, and that it risks higher prices for customers across the board.
The amendment could also lead to discrimination between customers of a particular supplier. Those consumers already on the tariff in question will be given 30 days’ advance notice of a price increase. That is a change that has been made since the Government came to power. It used to be the case that customers could be advised retrospectively of a change, and we believed that that was completely unacceptable. Customers who had been offered a tariff by their supplier would have that rate guaranteed for 12 weeks, which might give them eight weeks extra at the lower rate if prices increased. That would be evident discrimination between new customers and longer-standing ones.
I agree with the objective of the amendment tabled by the hon. Member for Liverpool, Wavertree, which is to ensure that the information that consumers receive is clear and credible, and that they fully understand cost implications when they decide to change tariffs. I remind her, however, that the information on the bill is a prompt; customers must contact their suppliers to switch, at which time they can discuss their energy needs and receive a personalised quote. Any changes to existing offers, or new offers, must be made clear at that point. In addition, suppliers are required to give 30 days’ notice of a price increase, so if customers call to inquire about a tariff that is shortly to change, suppliers will be obliged to make that clear. The customer will therefore be aware of the increase in advance, and can decide whether to go ahead with a switch.
The issue has required careful consideration, and having reflected further on it since it was raised in the other place, we remain of the view that the proposal would result in discrimination between different types of customer. Inevitably, the hon. Member for Liverpool, Wavertree—and all of us—would soon start to receive complaints from constituents, who would say, “I have been with this company for years and I was given only 30 days’ notice of a price change, whereas my next-door neighbours, who joined it two days before the price increase, enjoyed their tariff for another eight weeks.” It would be hard to defend that relationship, because there would be no equity in it. I hope, therefore, that on reflection, the hon. Lady will withdraw the amendment.
When I took on this brief in opposition, I had tremendous sympathy with the issues dealt with in new clause 30. The system seemed illogical on the grounds
The new clause would require the Government to mandate energy companies to use the inverted, or rising block, tariffs system. Under the present arrangements, suppliers are free to respond to consumer demand in their pricing systems. Many tariffs that are currently on offer charge the first unit of electricity and gas at a higher rate, and subsequent units at lower ones. Others take a time-of-use approach and charge less at certain periods—at night, for example—or offer a flat-rate tariff with a standing charge to cover fixed costs. Some suppliers are considering the potential for further alternative pricing structures, including other time-of-use and rising block tariffs.
If we were to mandate a rising block tariff, as the amendment suggests, we would, effectively, be putting price controls on suppliers. Competition would be affected, to the detriment of consumers, who would be denied the wide range of tariffs and opportunities that might appeal to them. Incentives to compete for low-consumption customers would be reduced, and services to such customers might suffer. The incentives for suppliers to sell more gas and electricity would be greater.
Most importantly, I remain concerned about the social impacts of a rising block tariff model. We want customers to reduce their consumption, but we do not want even more of the poorest consumers to cut their energy use to levels that put their health at risk. Evidence suggests that, on average, fuel-poor households have higher energy requirements than non-fuel-poor households. Therefore, many fuel-poor customers who spend more time at home, such as the elderly, those with disabilities, or those with large families, might receive higher fuel bills as a result of such a policy, which might actually increase fuel poverty.
Tessa Munt (Wells) (LD): The Minister will be aware of my extreme interest in the matter. It strikes me as crackers to have a system that allows people to be charged more for their first units. Our whole aim is surely to reduce the use of energy and thereby minimise the energy gap, with which we are threatened at every turn. Surely, the green deal will help precisely those fuel-poor households. As a Government, we should take a flier on this and try to persuade energy companies to act in the interests of keeping energy use down and ensuring that the fuel-poor households save money.
Charles Hendry: My hon. Friend makes a valid point. The green deal will help all households in time—not just the fuel-poor—and all households should be able to consume less energy. It will remain the case, however, that people who have to stay at home because of a disability or long-term illness or large families who are at home more will consume more electricity and gas than people who are out all day. The household with two working parents, where the children have left home, would benefit significantly from the proposal, but the household that the hon. Member for Rutherglen and Hamilton West referred to earlier, where they already
I can understand why a range of tariffs is desirable, so that those who can be encouraged actually opt in, but to mandate it would end up hurting most the people who we all believe can least afford to be hurt. We have seen campaigns about other Bills going through Parliament from organisations such as Macmillan Cancer Relief on behalf of those who are at home with terminal illnesses and who inevitably need to keep warm, because they cannot move so much. Again, unless one finds a way of compensating those households in particular, which is difficult, they will be hit by a policy that mandates it. For all the reasons about energy conservation and logic, I understand why it is desirable that people should move towards that sort of tariff, but mandating it has an unintended consequence that would end up hurting people who should not be negatively affected by the proposals. I hope, therefore, that my hon. Friend the Member for Wells will be prepared to reconsider the new clause.
My final point is that part of the way of dealing with the issue is to get new entrants into the market, to get the Co-op coming in as an energy supplier and to get others in that will shop around for the best deal and offer different tariffs. Getting greater liquidity into the sector must be one of our priorities, so that the consumer has more choice. I urge the hon. Lady to decide that mandating it is not the best way of taking the proposal forward for all households.
Tessa Munt: I have a close relationship with Good Energy, which works in my constituency, and my understanding is that it has frozen its prices over the past six months, at least, and possibly the past year. If there are good examples of companies, such as Good Energy, that can freeze their prices and if they were identified and advertised in some way, that sets a good example to other companies.
I also want to point out that a number of people suffer from fuel poverty in my constituency, because they have no option but to use domestic heating oil as there is no gas. I know that the Minister is aware of that, because I have raised it several times before.
Charles Hendry: I certainly accept what the hon. Lady says about Good Energy. There is a range of good companies in that area that are coming into the market, and we would be keen to facilitate that process and to enable them to grow more quickly and to provide more genuine competition. On that basis, I hope that the hon. Lady will reconsider her new clause. The off-gas-grid issues are separate, and that is why we asked the Office of Fair Trading to investigate. We will have its response by the autumn, so we will hopefully see a different pattern in place by next winter, because many of us have constituents who have been affected.
‘(2BA) In 2012 the report required under section (2A) shall be accompanied by proposals for a formal definition of distributed energy and include plans to develop a strategy setting out the role of distributed energy in energy policy, including in ensuring the security of energy supplies.’.
Subsections 2A and 2B commit the Government to producing an annual report on the electricity supply capacity. This amendment requires the Government to formally define distributed energy and to set out how distributed energy will be recognised in energy policy, including when considering the security of supplies.
‘(f) electricity generated from distributed energy sources’.
This amendment will ensure that the new assessment of what electricity supply capacity is required will take into account electricity generated from distributed energy sources. It does so by adding distributed energy to a list of other factors that have to be considered.
Caroline Lucas: The Bill is rightly focused on saving energy. However, I want to draw the Committee’s attention to the need also to ensure that the energy being used has as small an impact on the environment as possible. My proposed new clause 18 addresses the emissions from large-scale power plants, seeking to limit their emissions to no more than 300 grams of CO
2per kWh, but we will come to that later.
These amendments address the other end of the market, seeking to promote the use of small-scale power generation through distributed energy, which is sometimes also known as decentralised energy. In 2009, energy supply was responsible for just over a third of the UK’s carbon emissions, making it the UK’s single greatest contributor to climate change. At present, up to 6% of energy used to generate electricity from centrally burnt fossil fuels is wasted, with only 40% or so actually making it to the transmission network. If that were not bad enough, roughly a further 7% of that energy that does reach the grid is lost during transmission. In total, the energy wasted at the power station and on the wires is equal to the entire water and space heating demands of all the buildings in the UK—industrial, commercial,
Tessa Munt: While we are on the subject of transmission of electricity, I would draw the Committee’s attention to a point and ask the Minister to comment later. I suspect he knows what is coming. The best way we could minimise some of those transmission losses is by putting power cables underground. Nobody ever expects to find their water or gas going overhead. If we were to put power underground, it would reduce those transmission losses significantly.
All the efforts that we make to reduce the consumption of energy, important as they are, are severely compromised if we do not also revolutionise the way that we generate the energy that we need. Distributed energy systems produce power close to or at the point of use, significantly cutting inefficiencies. Instead of being passive consumers of energy, buildings can become constituent parts of local energy networks, through, for example, the installation of small and medium-sized renewable or local combined heat and power plants. A further advantage is that locally based energy generation can empower communities to take charge of their energy use and its cost.
Distributed energy has already proven that it can be a vehicle for tackling fuel poverty, with, for example, substantial interest in the feed-in tariff in the social housing sector, where schemes have eliminated or substantially reduced energy bills for social housing residents. As energy prices from the traditional fossil-fuel based suppliers continue to rise, a decentralised approach, dominated by renewables, can significantly help to insulate customers from price jumps.
Zac Goldsmith (Richmond Park) (Con): I strongly endorse the hon. Lady’s comments so far. I have a quick question. Are there any reliable estimates of the contribution that can be made nationally by distributed or decentralised energy?
Caroline Lucas: I am sure those figures do exist. I do not know them off the top of my head, but everything I have read suggests that a significant degree of energy could come from distributed sources. I will not put a figure on it because, if I do, it is the sort of figure that would be found to be wrong, but it could be significant.
Many people have been working tirelessly to roll out the energy revolution across the country, and it could start to be officially recognised if the Government were to adopt these two amendments. Members may be concerned that such a radical transformation of our energy system would be costly, but decentralising our energy sources, instead of replacing our huge and expensive energy network of cables, pylons and substations, could save money in the longer run.
Amendment 169, as Members can read in my explanatory statement, would ensure that distributed energy is formally defined for the first time and that
At present our electricity market is structured around two extremes: microgeneration and traditional, large-scale, centralised fossil fuel generation. The industry consensus is that in future we will need a greater range of generator size, and the coalition agreement reflects that view by committing the Government to encouraging the uptake of community-owned renewable energy schemes in which local people benefit from the power produced. That concept needs to be defined. Does it mean community ownership and management, community equity shares, community financing or simply that a community receives benefits from outside developers?
We must also decide what role distributed energy can play as part of our overall electricity supply. Amendments 169 and 170 are a modest but important step towards answering those important questions, and they open the door to greater recognition and consideration of distributed energy supply.
I do not know whether the two proposed mechanisms will lead to the uptake that the hon. Lady and I would like to see across the country. The Minister has been a champion of decentralised energy and he launched the main report, the name of which I forget.
I want the hon. Member for Brighton, Pavilion to join me in asking the Minister, irrespective of whether the amendments are the right amendments to advance the cause of decentralised energy, to tell the Committee what else exists in this package and will exist in subsequent packages to deliver the power to the people revolution that has been talked about by the Conservative party both in opposition and in government.
Caroline Lucas: I join the hon. Gentleman in supporting that report, which is a very good document, and if, as I expect, the Minister says that the amendments are not the right way to pursue this issue—perhaps he will accept the amendments, which would be marvellous—I join the hon. Member for Richmond Park in asking what clear pathway the Minister envisages for recognising the role that distributed energy can play in our overall energy supplies and how we can develop that policy in future.
The hon. Member for Brighton, Pavilion a moment ago mentioned the proportion of energy that comes from home-grown sources. Will the Minister confirm that such energy buffers the consumer from price increases? My particular interest is that only renewable energy can do that, because we will no longer be held hostage by power sources that come from outside. Even the most ardent advocate of nuclear power would admit that it does nothing to increase our energy security. Nuclear energy is reliant on uranium, which is mined abroad. I am not sure that Kazakhstan is the most secure of sources, and neither are Niger and Russia, which has caused chaos in the gas market. The price of fuel, if not from sources that are home-grown, is still susceptible to international instability, which will affect us. Fuel poverty affects everything. If we can sort out the price, that will be a help.
Caroline Lucas: I thank the hon. Lady for her intervention. I absolutely agree with her, particularly about energy security. It is one of the subtitles of the Bill and, as she said, distributed, renewable energy can make a huge contribution to our overall energy security, and I look forward to hearing the Minister’s response.
Charles Hendry: I am grateful to the hon. Lady for tabling the amendments and the thoughtful and constructive way in which she introduced them. Clauses 77 and 78 are about security of supply and they should be seen alongside the significant package of reforms in the electricity market reform process, which is being developed separately from the Bill. I understand her intentions in tabling the amendments, but I hope I can reassure her that they are not required. I say that, not because I disagree with the sentiments behind them, but because such matters are already covered under the Bill.
We fully recognise the important role that distributed energy has to play in the United Kingdom in meeting our objectives for energy and climate change, and the benefits that it brings in increasing competition throughout the energy market and helping communities to maximise opportunities that exist within their local areas. We also know that, as demand increases for electrification of heat and transport, local generation and local heat networks can help to reduce the cost of transmission system reinforcement. Distributor generation can also play a role in short-term demand side response. I want to reassure the hon. Lady and my hon. Friends the Members for Richmond Park and for Wells that such matters will be an integral part of our policy going forward. We want more local distributed energy within the mix.
The Government are committed to ensuring that appropriate support exists at all scales of the energy market. The feed-in tariffs for renewably generated electricity, in particular, will provide support for the small-scale distribution market. One of the clear
We have also lifted the bar on local authorities generating their own electricity, and many of them will be keen to do so in a way that generates electricity locally for the local community and will of its nature be distributed energy. We are soon to publish a full microgeneration strategy and, within the market reform process, the capacity mechanism will be able to bring forward some technologies and give support to them. Under clause 78(2)(2D), the assessment of capacity required must take into account a number of issues, including the “generation of electricity”. I am happy to place it clearly on the record that, in that context, it includes distributed generation, provided there is a practical way in which to assess it. That is not a cop-out; it is simply to say that some of the distributed generation installations might be of a scale that means they do not have to register, thus we are not necessarily aware of them. Moreover, they do not need planning consent, so the local council is not aware of them. However, where we are aware of them, they will be incorporated within the procedure. The structure of the process takes absolute account of distributed generation.
The hon. Member for Brighton, Pavilion will appreciate that one of the benefits of distributed generation is the range and scale of technologies that it covers. It also presents a challenge in terms of the amount and quality of information that is available. I have therefore asked my officials to work with Ofgem to agree on how best to take account of distributed generation in our assessment of the security of supply. My hon. Friend the Member for Wells made a valid point about renewables, and we have to be much more on the front foot about explaining the role that renewables have in the security of supply.
I do not know what the price of gas will be in the early part of next year, but I know what the price of wind will be for the rest of my life. I know what the price of the tide will be, and that there is a significant element in how we provide long-term protection for consumers if we know that there is a fixed installation cost and that we are using a free resource. The contribution that they make to the security of supply is very significant.
There is also an advantage in using domestic resources. Increasingly, gas will be imported, as will oil. More than half of our coal is imported. Uranium has to be, although one of the largest producers of uranium is Australia, which is a very benign nation and a good trading partner for us, in that respect. Taking advantage of what I call our home-blown, rather than home-grown, energy resources should be part of our energy security strategy.
Tessa Munt: I accept the Minister’s point that Australia and Canada can both provide uranium. When there are market pressures, because everybody will want some—with the initial exception of Germany and one or two other nations, perhaps—the cost pressure will be added to, so there will be inflation in the price of our energy.
Charles Hendry: The OECD has produced a report saying that it is very comfortable about the availability of uranium. I understand that we are straying away from distributed generation by talking about the global sources of uranium, but there are clearly costs and risks that the generators would have to take into account. If those make it unaffordable, generators would find that they cannot get the return that they sought on their investment. I would say, however, that I see this as part of a mixed-balance energy approach: we want to take advantage of the renewable resource that exists; we want clean coal through carbon capture; I believe that we want new nuclear within that mix; and we need to find out what the long-term role is for gas in terms of security, which it can also bring. Balance in energy matters is a critical part of the policy.
Finally, I want to address the point that my hon. Friend the Member for Wells makes regularly. I think that she has asked me more parliamentary questions on this matter than all the Members of Parliament have put together, on every other issue, so I congratulate her for her tenacity. We are continuing to work on the undergrounding costs, although more work needs to be done. I am absolutely committed, however, to ensuring that we have a proper handle on the costs of undergrounding, compared with overgrounding, and that we look more carefully at where it is appropriate to underground, so that we can see where sensitive areas are and find ways to address that. That is not a conclusion in relation to policy, but it is a sense of direction that I hope reassures her.
In terms of distributed generation, I hope that the fact that that will absolutely be included within the security of supply report gives the hon. Member for Brighton, Pavilion the comfort that is necessary to withdraw her amendment.
Caroline Lucas: I thank the Minister for his comments. What would reassure me even more would be a bit more clarity about whether there will be a strategy for distributed energy. I can see that it could form part of the microgeneration strategy mentioned by the Minister, and I would be interested to know what the time scale for that is—I apologise, because I do not know when it is due. To me, however, it still seems that there is a need for something that sets out more of a pathway for how distributed energy will be operationalised. I understand that it is happening in different parts, but I want the overall picture.
Gregory Barker: May I say to the hon. Lady that the microgeneration strategy will be published within the next few weeks, certainly before the summer recess? We also fully understand that microgeneration is not the end of the story. It is a very exciting part of decentralised energy, and it is the most consumer-facing part of the story, so it gets the most airplay. We think that there is huge potential to drive this much more widely, but in the electricity market reform process we will look at how decentralised energy systems can play a much greater role—in particular, low-carbon and renewable DE. We look to the example of economies such as Denmark and the Netherlands, where industrial combined heat and power—for example, gas-fired as a transitional fuel—meets a big chunk of energy supply and energy security needs. We are a long way from being anywhere
Caroline Lucas: I thank the Minister for that response. It is helpful to know that this issue will be tackled under the EMR and to some extent under the microgeneration strategy, too. I am still seeking something that would bring those things together and look at the overall potential, whether that is through the EMR, the microgeneration strategy or another measure. I would like an overall strategy that tells us how we will get from where we are now to a much greater investment in decentralised energy. I appreciate that, at the moment, it is in different parts of the overall Department of Energy and Climate Change remit. Will anything bring those things together into a more integrated strategy for decentralised energy?
Gregory Barker: The best answer is that EMR is considering the whole future of our low-carbon energy sector, but I take on board the hon. Lady’s points, and I will reflect on what she said. Going forward, we need to give greater focus to that. It is not that we are not doing so already, but perhaps we need to give greater focus to convey a sense of the Department’s ambition on that agenda.
Tessa Munt: I thank the hon. Lady for giving way. I hope that the Minister will recognise that at a time when we depend on imports for 60% of our energy, it is terribly important to ensure that we have some framework so that developers and communities know where they are going and planning is sorted out. People must have an absolutely clear indication that it will not be done by what I suppose would be called small-l liberals who knit yoghurt, or whatever it is that we do. It is a realistic prospect to reduce the quantity of energy that comes from outside. It is not fringe activity; it is central to where Government will go in terms of energy provision for the future.
Caroline Lucas: I thank the hon. Lady for that incredibly helpful intervention. It outlines a few more things that it would be nice to have in the overall strategy for where we are going. I thank the Minister for his undertaking to go away and think about the matter a bit more. If he were moved to put something in a letter, it would be even more useful, because then we could go back to it and follow through.
Charles Hendry: Hopefully, hon. Members will have seen our seamless, joined-up Front-Bench approach to these matters and how we work together on security of supply and the parts of the strategy dealing with decentralisation and microgeneration. I hope that what comes through clearly to the hon. Lady and others is exactly the joined-up thinking that my hon. Friend the Member for Wells calls for. It will be evident in the final iteration of the national policy statement and the renewables road map, which we will publish shortly, along with the microgeneration strategy. It will also be evident in the forthcoming market reform proposals. July is energy month for the House. We will have an enormous amount more clarity and structure, so we can move through the consultation phase into firm and concrete proposals so that people know how to take matters forward.
We will certainly be pleased to write to the hon. Member for Brighton, Pavilion to clarify things further and provide her with greater comfort. I hope that it will be the Committee’s will that the amendments should be withdrawn.
Power of the Gas and Electricity Markets Authority to direct a modification of the Uniform Network Code
Huw Irranca-Davies: I have a brief question. I welcome the clause, which does a lot of good things, and the Minister is to be congratulated. One question arises from it: does he see any future role for a public service obligation as a belt and braces, or is he confident that the clause will give us gas security?
Charles Hendry: I am grateful to the shadow Minister for that question, which goes to the nub of where we are on the issue. The United Kingdom does not have enough gas storage at the moment. As we move increasingly to becoming net importers of gas in particular—60% of our gas could be imported by the end of the decade—we must have a variety of ways to ensure that the consumer has security.
The investment secured under the previous Government in the liquefied natural gas terminals in south Wales and the Thames, and the Langeled pipeline to Norway, have dramatically enhanced our energy security. We had the coldest December for about 100 years, but we came through it without pressure on consumers. It might have been more challenging if we had followed it with a very cold January and February, but when we are becoming more reliant on imports, energy security will be an important part of the process.
However, we still want the market to deliver a solution. Storage is one part of that solution rather than the only part. I hope that our approach is creating a framework that will put much greater financial penalties on companies
Charles Hendry: This group of amendments effects a number of adjustments and improvements to the provisions of chapter 3 of this part of the Bill, dealing with access to upstream petroleum infrastructure.
Amendments 53 and 55 to 60 are intended to clarify the scope of the chapter and refine it to make the powers provided more effective, both for the Secretary of State and industry. Amendments 53, 59 and 60 clarify that the provisions of this chapter are to apply to gas processing facilities only where they are upstream. It was pointed out to us by a company planning to build a liquefied petroleum gas import terminal that the previous definition of gas processing facility was sufficiently broad that it would catch its proposed facility and it would be possible in principle for someone to apply to the Secretary of State to determine access terms for that terminal. That is not our intention as this chapter has been framed specifically for the upstream petroleum sector.
Amendments 53, 59 and 60 therefore amend the definitions in this chapter so that it applies only to upstream gas processing facilities. The main feature of these amendments is that gas processing facilities now fall within the scope of this chapter only insofar as they are used for processing gas conveyed by pipelines from a production project. That is to say, they are not in scope with respect to gas delivered or arriving by tanker.
Amendment 55 extends the provision for access notices to provide for compensation where the access may reduce the value of the composite liquids passing through the system. Subsection (10) already provides for compensation where the access sought adversely affects the capacity available to other users of the system. This new subsection allows additionally for compensation in cases where the adverse effect in not on capacity, but on the quality or value of the commingled petroleum liquids.
We also wanted to make sure that the provision in subsection (12)(b), for access notices to be copied to all users of the system in question, took account of the commercial interests of the persons most affected by such notices, namely the owners of the facilities and those seeking access to them. We think it is right that other users of the system should be made aware of provisions in the notices that might affect their interests, particularly any provision for compensation under subsection (9). But the owners, or the applicants, might reasonably regard publication of other terms of the notices as being potentially damaging to their interests.
Amendment 56 therefore provides for the Secretary of State to hear any representations from the owners and applicants before copying the notice more widely; and if necessary, to redact the notices appropriately. By virtue of amendments 57 and 58, we have made similar provision in respect of modification notices issued under clause 82. Finally, amendments 61 and 62 remove carbon dioxide pipelines from the scope of this chapter: third-party access to these pipelines will be addressed through separate regulations implementing the third-party access requirements of the carbon capture and storage directive to be laid before Parliament in the near future. These are detailed technical amendments, and I hope that that has clarified their purpose to the Committee. I hope that they will be adopted.
‘(1A) This section does not apply by virtue of subsection (1)(c) where a person makes an application to the owner of a gas processing facility for a right to have gas processed by the facility for a downstream purpose (as to which, see section 12 of the Gas Act 1995).’.
Charles Hendry: The group is fairly straightforward and brief. New clause 11 will make a number of amendments to section 12 of the Gas Act 1995, which at present covers third-party access both upstream and downstream. We think that it will be desirable to have different regimes governing access to upstream and downstream gas facilities, and we propose to do so by amending section 12 so that the provision will apply only to downstream facilities, leaving the new regime set out in clauses 80 to 89 and schedule 2 to cover upstream petroleum infrastructure.
The new clause will effect the necessary changes to section 12 so that the section applies only to downstream gas processing facilities. The new clause will also amend a number of relevant definitions and remove the Secretary of State from any involvement in access applications to those facilities. They will instead be considered by the Gas and Electricity Markets Authority.
The new clause will also impose new requirements on owners of such facilities to publish a draft of new main commercial conditions or modifications to existing ones
The other amendments in the group are related to the new clause. Amendment 54 will amend chapter 3 for consistency with the new scope of section 12. Amendment 73 will remove the present provision in schedule 2 relating to section 12, which will be overtaken by the new provision set out in new clause 11. Amendment 76 will amend the long title to clarify that downstream gas processing facilities are covered by the Bill.
Caroline Lucas: May I ask about a point of information? Will there be a clause stand part debate in a moment? Do we have to go through the amendments first? I do not want to lose the opportunity to debate clause 80.
‘(10A) A notice under subsection (10) may also contain such provisions as the Secretary of State considers appropriate for the purpose of ensuring that no person suffers a loss by reason of the mixing together of—
(a) substances conveyed by the pipeline or processed by the facility on behalf of the applicant in exercise of a right secured by the notice; and
(b) substances conveyed by the pipeline or processed by the facility by or on behalf of any other person.’.
‘(12A) If a notice under subsection (10) contains provision of a sort mentioned in subsection (9) or (10A) the Secretary of State must give a copy of the notice to every person who has a right to have anything conveyed by the pipeline or processed by the facility.
(12B) Before giving a copy of a notice under subsection (12A) the Secretary of State must—
(a) remove from the copy any provision included in the notice by virtue of subsection (10)(d) or (11)(a); and
(b) after giving the owner and the applicant an opportunity to be heard, remove from the copy any other provision included in the notice which the Secretary of State considers may prejudice the commercial interests of the owner or the applicant if not removed.’.—(Charles Hendry.)
Caroline Lucas: I want to say a few words about the clause and the other clauses in the rest of the chapter. I am concerned that what they are driving at is a facilitation of the exploitation of the last hardest-to-reach oilfields in UK waters and of those with smaller, more marginal, reserves, neither of which are likely to be profitable without assistance. That assistance is found in the provisions that make it easier for third parties to access upstream oil and gas infrastructure such as pipelines to shore.
Further, exploitation of UK oil will obviously delay the point at which we can wean ourselves off unsustainable fuel. That in turn will reduce the pressure to maximise the potential of the energy efficiency and renewable energy industries, which, as we have been hearing throughout the Committee sittings, represent significant economic, environmental and social opportunities for the UK. Furthermore, hard-to-reach oilfields are by definition riskier propositions. If they required only straightforward operations, the areas that the clauses seek to open up would already have been exploited.
The exploitation of such areas is seen as a niche market. As such, the harder-to-reach fields are often exploited by niche operators. I believe there is a significant risk attached to making it easier for new, typically smaller companies to enter that particular market. I am also concerned about the setting up of legally insulated small subsidiaries of larger oil companies operating in this area. I understand that, despite operating in riskier circumstances, niche or subsidiary oil and gas companies often do not have the same level of liability cover as larger operators.
As the Deepwater Horizon and Macondo well disaster showed, when a mistake is made in such a hostile environment, it can be catastrophic and extremely difficult to correct. Some 200 million barrels of oil poured into the Gulf of Mexico. Billions of pounds have already been paid out in compensation and clean-up costs, and that is to say nothing of the impact on BP’s share price. It is unlikely that a smaller company or a legally insulated subsidiary of a larger company will be able to survive such a financial battering and it will simply fold, even with the Government and the taxpayer as insurers of last resort to foot the bill.
In addition to having fewer financial resources to respond to disaster, smaller companies may also lack the practical resources to react with the necessary speed. I oppose the clause because I want to see less oil drilling, not more, and because I want to ensure that the oil rig is extracted as safely as possible. The clause and the whole chapter generally move us in the wrong direction on both points.
Charles Hendry: I am grateful to the hon. Lady, but I think she has misunderstood the nature of the clause. It is a relatively straightforward change to the way that we try to resolve disputes on infrastructure matters in the North sea. She talked about the need to wean ourselves off oil and gas. We agree with that, but at the moment we are dependent on oil and gas for approximately two thirds of our energy today. The reality is that for the foreseeable future, however much we try to change that—it will be a gradual change—we will either have to use our own resources or import them at a cost of billions of pounds to the British economy, but we will still be using virtually the same amount every year. We are going to use other measures to lead us in the direction of a low-carbon economy. It is not realistic to
The hon. Lady said that the hard-to-reach fields are by definition riskier. That is not the case. Some of the riskiness, danger and difficulty depend more on things such as the temperature or pressure of the oil. Those may be in shallower rather than deeper waters. We are nevertheless seeing a change in the way in which the North sea is operated. I welcome the fact that we are seeing some smaller companies moving in. The huge international oil corporations are perhaps less interested in fields of the scale that we now find in the North sea and UK continental shelf and are looking elsewhere.
There is a real role for specialist niche operators that are still nominally multi-billion pound companies that can take part in the process. The issue at stake in the clause is that where they want to use access that is already in place—not their own infrastructure, but somebody else’s—it can sometimes be difficult to get agreement. Sometimes it is straightforward. Sometimes they cannot agree on the funding formula and the long-term arrangements and liability issues. At the moment, the legislation enables them to come to the Secretary of State for a determination, but that is a rarely used procedure. Only one application has been made. We are aware that companies are sometimes worried about approaching the Secretary of State for a determination, because of the importance of that trading relationship to them. They feel that if they come to us, it may be adverse to our long-term relationship. The simple change that we are making here gives the Secretary of State the power, where he believes there is a blockage, to intervene and say, “This is how I believe that access to the infrastructure should be covered”.
The change makes no difference to the long-term liability cover: there have to be assurances that those companies are in a position to decommission or reach an agreement on how the decommissioning should be funded, and the liabilities issues remain intact. It makes a very small change indeed to the process, in which the Secretary of State would now be able to instigate finding a solution rather than having to be asked to do so. On that basis, I hope that the hon. Lady will be prepared to accept that the clause should stand part of the Bill.
Caroline Lucas: I am grateful that the Minister acknowledges that we need to wean ourselves off fossil fuels, but the word that we disagree about is “gradually”. Climate change cannot wait for us to gradually wean ourselves off fossil fuels. He said that it is not realistic to go faster, but I think it is not realistic to believe that the climate will wait until we finally garner the political will to deal with this differently. I strongly argue that were the political will there, we could certainly wean ourselves off fossil fuels much more quickly and go much more rigorously towards the alternative, be that distributed energy, renewable energy or energy efficiency. It is clear that I will not persuade him and he will not persuade me.
To my mind, the clause and the rest of the chapter are essentially about facilitating access to the remaining oil reserves, and that is incredibly dangerous. The scientists
‘(5A) Before giving a copy of a notice under subsection (5) the Secretary of State must—
(a) remove from the copy any provision included in the notice by virtue of subsection (3)(b); and
(b) after giving the owner and the applicant an opportunity to be heard, remove from the copy any other provision included in the notice which the Secretary of State considers may prejudice the commercial interests of the owner or the applicant if not removed.’.—(Charles Hendry.)
‘(A3) Pipelines that are relevant upstream petroleum pipelines for the purposes of section 80(1) of the Energy Act 2011 are excepted from the operation of this section.”’.—(Charles Hendry.)
(a) carries out gas processing operations in relation to piped gas;
(b) is operated otherwise than by a gas transporter; and
(c) is not an LNG import or export facility (within the meaning of section 12 of the Gas Act 1995);’.
‘“piped gas” means gas which—
(a) originated from a petroleum production project; and
(b) has been conveyed only by means of pipes;’.
‘“carbon dioxide pipeline” means—
(a) a pipeline used to convey carbon dioxide to a carbon dioxide storage site; or
(b) a pipeline which is not being used for any purpose but which is intended to be used to convey carbon dioxide to such a site;
“carbon dioxide storage site” means a facility—
(a) for the storage of carbon dioxide (with a view to its permanent disposal, or as an interim measure prior to its permanent disposal); and
(b) in respect of the use of which a person is required to have a licence under section 18 of the Energy Act 2008;’—(Charles Hendry.)
Charles Hendry: I am pleased that we have been able to make so much progress. These are technical amendments, which deal with the Secretary of State’s powers to amend transmission and interconnector licences. Clause 95 empowers the Secretary of State to amend gas and electricity licences in order to put in place a cost recovery mechanism should we ever need to use energy supply company administration. Government amendments 63, 64 and 65 will ensure that if interconnector licences are modified under this clause, the modifications form part of the standard conditions of those licences, which are provided for in section 146 of the Energy Act 2004.
Government new clause 17 ensures that if the standard conditions of transmission licences are modified under clause 95, or under any of the other powers to modify transmission licences contained in the Energy Acts of 2008 or 2010, those modifications are reflected in section 137 of the Energy Act 2004, which governs standard conditions of transmission licences. This amendment will, among other things, cover modifications to transmission licences made as a result of clause 71 of the Bill, which enables the Secretary of State to modify those licences for the purposes of the smart meter roll-out. Government amendment 80 adjusts the long title of the Bill to reflect this new clause.
‘(11A) In section 146(5) of the Energy Act 2004 (standard conditions of interconnector licences under Part 1 of the Electricity Act 1989), for “or under this Act” substitute “, under this Act or under section 95 of the Energy Act 2011”.
(11B) In section 150(5) of the Energy Act 2004 (standard conditions of interconnector licences under Part 1 of the Gas Act 1986), for “or under this Act” substitute “, under this Act or under section 95 of the Energy Act 2011”.’.—(Charles Hendry.)