Energy Bill [HL]

Written evidence submitted by the MCS Charitable Foundation

to The Energy Bill Committee (EB15).

The MCS Charitable Foundation

Our vision is to decarbonise homes, heat and energy in helping to deliver a net zero future to avert the worst impacts of climate change.  As a Foundation we work to increase public confidence, awareness and access to renewable energy and zero carbon solutions across the UK.  We give grants, fund research and help facilitate innovative solutions to drive widespread adoption of renewables in helping to reduce CO2 emissions. In addition, the MCS Foundation oversees the Microgeneration Certification Scheme (MCS) as a profit for purpose company, which defines, maintains and improves quality standards for renewable energy at buildings scale.  All the profits from the Company go to the Foundation to deliver on our Net Zero mission.

Summary

1. As legislation akin to the Energy Bill is so infrequent, MCS Charitable Foundation believe that the Energy bill presents a formidable opportunity for the UK to put in place structures that will ensure the creation of a resilient, equitable, and clean energy system. However, at present we do not feel that the Energy Bill goes far enough to achieve these integral goals, especially when it comes to protecting consumers in the face of a cost-of-living crisis. For this reason, we would request some key amendments to the current draft moving forward:

a) The hydrogen levy be removed from the Energy Bill entirely.

b) Continue to support the Local Electricity Bill to facilitate more community energy projects.

c) Raise the minimum energy efficiency standards of privately rented homes.

d) Legally change Ofgem’s remit to included net zero.

e) Give the Secretary of State powers to prevent energy companies from forcibly putting consumer of pre-payment meters.

f) Accelerate the transition away from fossil fuels.

The hydrogen levy should be removed from the energy bill

2. The current Energy Bill draft has a proposed hydrogen levy, which will be applied to consumers fuel bills. This has the potential to drive millions more into fuel poverty, especially the elderly and more vulnerable households. For this reason, we believe that no additional levies should be applied to people’s fuel bills and instead we strongly urge that any new proposed funding should come through general taxation. The Government have supported households, subsidising 50% of the cost of our energy bills this winter and have extended the scheme for a further 3 months. Introducing a new levy on fuel bills seems at odds with current policy. Furthermore, this proposed levy has been introduced below the radar and may come as a shock to most consumers who are unaware of the Government’s plans to raise fuel bills in this way, by an unknown amount, for a technology that may not benefit them.

3. MCS Foundation believe that green hydrogen is critical in decarbonising the hard to abate sectors like heavy industry, cement, steel, chemicals, heavy transport, aviation, energy generation and shipping. Any use of hydrogen should be prioritised for these hard to decarbonise sectors first, as alternative decarbonisation options are limited at present. If hydrogen is being used for industrial applications as the strategic priority, it is irrational for consumers to pay for gas upgrades that they may never use, especially when oil, gas and energy companies are posting record profits.

4. In the Energy Bill the Government is proposing that electricity suppliers should also pay for a gas upgrades, which will ultimately result in high electricity prices. This could have direct consequences on the UK’s electrification plans. Thus, asking electricity consumers to pay for a hydrogen levy does not support the Government’s Net Zero agenda, nor the Government’s heat pump deployment targets. To grant the Secretary of State the power to introduce a levy at a future date is also unacceptable. It would be a stealth tax that would disproportionately disadvantage the fuel poor households and would drive more people into fuel poverty. General taxation is the best and fairest way to pay for hydrogen.

A decision on hydrogen for heating will not be made until 2026

5. As a decision will not be made on hydrogen for domestic heating until 2026, it is premature to force consumers to pay for a levy. [1] An impartial study claimed that a zero-carbon hydrogen grid is very unlikely for the foreseeable future [2] and there are still doubts on the safety of blending hydrogen into the gas grid. [3] Cadent themselves have admitted that hydrogen village trials are unlikely to receive hydrogen for heating until 2030, [4] which suggests that 100% hydrogen for heating will not be available at a commercial level until 2035 at the earliest, if at all. Introducing a hydrogen levy on consumer bills now when the future of hydrogen for heating is undecided and unlikely, gives uncertainty to the heating industry, risking delays to the uptake of low-carbon technologies that are available now, such as heat networks and heat pumps.

Hydrogen should be reserved for hard-to-abate sectors

6. Hydrogen production up to now has not been on the commercialised scale needed to supply the UK’s heating demand. Green hydrogen production- the only type which can be considered truly low-carbon- is extremely inefficient and costly. [5] Consequently, in 2021, less than 1% of hydrogen produced globally was green hydrogen. [6] Most hydrogen production at present is grey hydrogen from gas, which is carbon intensive, responsible for around 830 million tonnes of CO 2 emissions annually, equivalent to the CO 2 emissions of the United Kingdom and Indonesia combined. [7]   Hydrogen for heating could lock us into grey or blue hydrogen, continuing our reliance on natural gas, thus leaving the UK vulnerable to the volatility of the gas markets. [8] If the UK were to commit to a green hydrogen for heating pathway, it would not only be extremely expensive, but would require a significant investment in renewable energies, as each GW of electrolysis requires 1-4 GW of additional renewables. [9] For this reason, hydrogen should be prioritised for hard to decarbonise sectors such as industry, aviation and shipping, [10] especially when there are more efficient low-carbon alternatives which are available now. [11]

 

All the independent evidence demonstrates no major role for hydrogen in heating

7. There is mounting evidence and independent research maintaining that hydrogen will play a limited role at most for heating. [12] This is supported by the International Energy Agency Net Zero 2050 report in which hydrogen only makes up around 2% of energy demand in buildings in 2050. [13] The cost of using hydrogen to heat a home would nearly double household gas bills [14] , even before the application of a new levy.

8. Hydrogen is not a ‘like for like’ replacement for a gas boiler – Government research [15] has shown that it will ‘undoubtedly result in physical disruption to the property’ as pipework is surveyed and possibly changed [16] , gas meters will need replacing, boilers, gas hobs and gas cookers, as well as four inch ventilations holes in the area of the boiler and appliance to make it compatible for 100% hydrogen. Perhaps the biggest challenge of using hydrogen lies in the small in-house pipes, often concealed inside walls and under floors, that may need to be upgraded to handle smaller hydrogen molecules. To change the roughly 85% of properties connected to the gas grid would require permission from property owners and social and private landlords across the country, involving a huge level of co-ordination, disruption and potential delays as the grid is sectioned off, piece by piece, and every home checked and double-checked to ensure it is safe before hydrogen can be piped to it.

9. If those challenges can be met, pursuing hydrogen for home heating would lock in high fuel prices for a generation - it will cost at least 70-90% more and up to five times as much as fossil gas [17] - research from Cornwall Insight on the cost concludes [18] :

"current and forecast costs all show it is simply uneconomical to use a 100% hydrogen fuel for heating our homes."

Annual running costs of a heat pump are less than a gas boiler [19] , and will always be less than hydrogen [20] , should it ever be introduced. In addition to increased fuel bills, it will also cost households £3-4k to replace appliances.

10. Burning hydrogen in air also produces nitrous oxides [21] , a pollutant in its own right. The widely claimed benefit that only water is released as a by-product is only accurate when hydrogen is used in fuel cells. NO2 is a key air pollutant that is polluting and harmful, as well as a precursor to other pollutants of concern, such as fine particulate matter and ozone [22] .

Include the Local Electricity Bill to facilitate more community energy projects

11. We strongly support the inclusion of the Local Electricity Bill, drafted by the Power for People community energy group. [23]

12. The House of Lords voted the wording of the Local Electricity Bill (LEB) into the Energy Bill as clauses 272 and 273 at Lords Report stage. To recap, these two new clauses would enable substantial growth in community renewable energy schemes by allowing them to sell their clean power to local customers. They are based on the LEB, which is now supported by 318 MPs from all major parties, including 125 Conservatives. Rt Hon Chris Skidmore’s recent Net Zero Review also explicitly recommended that the Government adopt the LEB to create growth in community energy generation schemes.  We will continue to call on for the Government to allow the clauses to remain in the Bill.

13. There are currently several barriers to local community energy generation which the LEB aims to address. There are many benefits to local community energy. These include [24] :

· Creating more local jobs and boosting the local economy.

· Funding community projects.

· Reducing energy bills.

· Raising more customer awareness of energy and climate change.

· More localised flexibility.

· Reducing constraint and transmission costs, which have risen significantly in recent years to £1 billion in 2022. [25]

· Providing localised grid services, such as capacity balancing, frequency response and voltage

Raise the minimum efficiency standards for the privately rented sector

14. In the current draft of the Energy Bill there are insufficient plans in place to ensure improvement of efficiency in homes. Improving the energy efficiency of our housing stock is key to driving down energy costs and addressing fuel poverty. For example:

· Upgrading a home from Energy Performance Certificate (EPC) band D, which is the average rating in the UK, to EPC band C, the Government’s target band for 2035, on average reduces heat demand of a home by 20%.

· EPC F or G rated homes face bills as much as £2,000 higher than those rated C or above. From January, without the EPG, an average C rated home would pay £4,494 compared to £6585 for an F. [26]  

15. For this reason, MCS Charitable Foundation advocate for an increase in minimum energy efficiency standards in the Private Rented Sector (PRS) from EPC E to EPC C by 2028.

16. In 2021, the PRS has the greatest concentration of fuel-poor households, with 38% of all fuel-poor homes living in privately rented homes. [27] Two year later, at least one quarter of the approximately 4.6 million private rented households in the UK are living in fuel poverty. [28] Private renters are particularly susceptible to rising energy prices due to their lack of autonomy surrounding energy providers, tariffs, building fabric and heating systems. Recent research from citizens advice found that 31% of feel unable to heat their homes to a comfortable level, with 1.6 million children in privately rented homes living in cold, damp, or mouldy homes. [29]

17. The consequences for households living in fuel poverty are shocking. For example, illnesses caused by damp and cold homes cost the NHS approximately £1.4 billion. [30] Children from fuel poor families have also been considerably impacted by the cost-of-living crisis. Living in cold homes can lead to negative mental and physical health impacts, impacts on education, negative effects on family relationships, negative effects on aspirations and life chances. [31]

18. Therefore, we see this amendment to increase minimum efficiency standards in PRS to EPC C by 2028 as critical to achieving our climate change goals, as well as addressing these key social inequities for households in the PRS. Benefits of this amendment include:

· Helping the UK to reduce emissions from domestic heating, which currently contributes to 17% of the total UK emissions. [32]

· Reducing our reliance on volatile gas markets and improving the UK’s energy security.

· Combatting fuel poverty and in particularly supporting the Government’s in achieving its target for all fuel poor homes to reach EPC C by 2023.

· Supporting the increase of job opportunities in the decarbonisation sector.

· Helping the UK to achieve its ambition to reduce energy demand by 15% across industry and the built environment by 2030.

19. While there are concerns that landlords are leaving the market, and worsening the housing crisis being experienced by renters, official data suggests otherwise . [33] Data from the English Housing Survey also show that the number of private renting households rose in England by 177,000 from 2021 to 2022. While some landlords are selling up, others are expanding their portfolios, and therefore the overall number of properties in the Private Rented Sector remains fairly consistent .

20. MCS Charitable Foundation strongly feel that this amendment is key policy lever to decarbonise heating , as well a s reduc e consumer bills for the most vulnerable in society. A recent study by the Energy and Climate Intelligence Unit has calculated that without changes to minimum efficiency standards in the PRS, private renters could pay an additional £1bn in energy bills. [34]

Legally change Ofgem’s remit to included net zero

21. In 2035, i t is predicted that renewable technologies will generate from 70% to 90% of all electricity, a capacity of between 80GW and 280GW. [35] There will also be a significant increase in distributed energy resources for the UK to meet its transport and heat electrification targets, including the target to install 600,000 heat pumps per year by 2028. It thus becomes clear that reaching net zero relies not only on our success to generate an increased amount of renewable energy, but also on the energy system’s capacity to transport this electricity across the system efficiently and reliably.

22. In the up-and-coming years, the electricity grid at all system levels, including low-voltage, high voltage, and transmission levels, will need to undergo its largest transformation since the 1960s. Whilst this is a significant challenge, recent research commissioned by MCS Charitable Foundation from Regen [36] has confirmed that this is achievable: "The priority now is moving from action plans to delivering reform and investment at pace".

23. When the hopes of achieving our net zero targets are so intrinsically dependent on the success of creating a reliable, efficient electricity grid, the necessity for Ofgem to have a legally binding net zero remit becomes apparent. For the recent RIIO-2 period (2023-2028) which was completed in 2022, network reinforcements budgets proposed by the networks were reduced 17% by OFGEM. [37] Ofgem have taken a significant risk in potentially delaying the transition to net zero in an effort to lower costs for consumers. The consequences of this are already causing challenges to the UK’s net zero agenda :

· Renewable energy generation and battery storage projects already in the pipeline are facing up to 15 year waiting times for high-voltage connections.

· If spare capacity predictions are correct, the distribution network headroom will run out in 2035, however this could be as early as 2028. [38] Anecdotally, we have heard of housing developers being forced to install gas boilers instead of heat pumps, simply of the basis that the distribution network cannot support them. We have heard similar stories regarding EV charging rations.

· Investment in network capacity has fallen behind generation deployment. [39] The UK Government’s success of achieving 50GW of offshore wind power [40] directly relies on the construction of sufficient transmission infrastructure to support extra supply.

24. G iving Ofgem a net zero duty is recommended by the Climate Change Committee, the National Infrastructure Commission, the House of Lords industry and regulators committee, the G overnment’s "offshore wind champion", the recent Skidmore Net Zero Review, Energy UK, Renewable UK, Energy Networks Association and Warm This Winter. MCS Charitable Foundation agree that this is critical for forwarding the UK’s net zero and energy security goals.

Give the Secretary of State powers to prevent energy companies from forcibly putting consumer of pre-payment meters

25. Another point we would like to raise is the absence of an introduction of a total ban on the forced transfer of households to Pre-Payment Meters (PPMs) in the Energy Bill . Recent research carried out by Citizen’s Advice found that in 2022, 3.2 million people were cut off from electricity supply because they could not afford to top up their PPM. [41] Disconnection was found to be at least a monthly occurrence for 2 million people. Nearly 18% of households who ran out of credit on their pre-payment meters went on to spend two days or more without any energy supply, leaving them unable to turn the heating on or cook a hot meal. 

26. This is affecting highly vulnerable people for whom PPMs are an inappropriate method of managing energy payments. 64% of prepayment meter households are lived in by a vulnerable person, and 51% are lived in by a disabled person or someone with a long-term health condition. [42]  The PPMs scandal uncovered by the i Paper and the Times revealed that energy firms were not following the rules set out to protect vulnerable customers from being forced onto PPMs. [43]

27. Energy firms have recently signed up to a new voluntary code of conduct, designed to govern the forced installation of prepayment meters. However, MCS Charitable Foundation do not feel that this goes far enough to protect highly vulnerable groups or help tackle rising energy debt. While the Secretary of State was supportive of a ban on forced installations earlier this year, the UK Government did not have the power to do so unilaterally and had to rely on Ofgem to do so. We are therefore calling for the Secretary of State to be given the powers to intervene and introduce an all-out ban on the forced transfer to pre-payment meters. The proposed ban will not affect the voluntary installation of PPMs by customer request.

Accelerate transition away from fossil fuels, with no new exploration or coal mines

28. Comprehensive analysis has shown that new fossil fuel exploration is not compatible with goals to keep global warming below 1.5oC. [44] As the UK have legally committed to achieve net zero by 2050 and have signed the Paris Agreement (2015), MCS Charitable Foundation strongly advocate for the addition of a clause in the Energy Bill, banning any further exploration of gas, oil and coal. This sends a clear signal to industry which will ensure that future investment is concentrated on renewable energy generation, storage technologies and innovative low carbon technologies.

29. As the International Energy Agency observed, energy security is not simply about ensuring constant supply or ‘keeping the lights on’ as we say in the UK. Another fundamental component of energy security is ensuring energy is affordable to consumers. [45] Recent wholesale gas and oil spikes have exposed the UK’s vulnerability to volatile global markets and have highlighted the opportunity the transition offers, not only to ensuring a sustainable planet, but also in addressing disparities and social inequity. From 2009 to 2020 the price of solar and wind has decreased by 70% and 90% respectively, [46] with offshore wind decreasing at a much higher rate than was predicted by the Climate Change Committee (CCC). In their 2011 Renewable Energy Review, [47] they projected the cost of offshore wind at £52-124/MWh for 2040, but recently offshore wind projects have signed contracts for £57.50/MWh. [48] Solar and wind power generation is now cheaper than nuclear and incumbent fossil fuels, [49] which means that investment in renewables will also result in a more secure and resilient energy system. What’s more, recent research from Oxford University found that fast transition away from fossil fuels is more cost-effective than slow or no transition and could save $12 trillion dollars globally. [50]

30. We have concerns that the Government’s plans to upscale the use of blue hydrogen and carbon capture and storage (CCS) could lock the UK into fossil fuels. The current performances of CCS plants are poor at best, despite the astronomical costs. For example, the Petra Nova plant in the USA cost over $1bn and captured roughly 7% of emissions before being closed, and the Gorgon LNG plant in Western Australia has cost $3bn and captured roughly 50% of the intended emissions. Recent research has highlighted that nearly 80% of all large-scale pilot and demonstration CCUS projects have either been cancelled or put on hold, and those in operation equate to just 1% of the targeted carbon capture capacity set out by the IPCC in 2005. [51] We are currently in a climate emergency, and thus cannot rely so heavily on technologies that have not been proven at scale and that continue the UK’s reliance on fossil fuels. We understand that some carbon capture and storage is necessary for hard to abate sectors, however, it should not be an excuse to exploit more oil, gas, or coal.

31. We strongly believe that plans should be abandoned to open a new Whitehaven coal mine in Cumbria. As outlined by Chris Skidmore in his independent net zero review, [52] long term certainty and clear signals are key to the transition to net zero. Opening a new coal mine sends the wrong message both nationally and internationally; it is not compatible with our position as a world leader in climate change. This is especially the case, as the UK pledged to help vulnerable countries, such as Pakistan, transition away from coal in the recent COP26.

Ends-

May 2023