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Grand Committee

Thursday, 24 July 2014.

Road Safety (Financial Penalty Deposit) (Appropriate Amount) (Amendment)(No. 2) Order 2014

Motion to Consider

2 pm

Moved by Lord Popat

That the Grand Committee do consider the Road Safety (Financial Penalty Deposit) (Appropriate Amount) (Amendment) (No. 2) Order 2014.

Relevant document: 3rd Report from the Joint Committee on Statutory Instruments

Lord Popat (Con): My Lords, I beg to move the Motion standing in the name of my noble friend Lady Kramer on the Order Paper.

Last year we announced an increase in the financial levels of fixed-penalty notices for most motoring and road transport offences, including making careless driving a fixed penalty notice offence. Those changes have been made under the negative resolution procedure, and both the Fixed Penalty (Amendment) Order and the Fixed Penalty Offences Order were laid before Parliament on 28 June 2013. Today is about a parallel scheme—fixed-penalty deposits—for those alleged offenders without a satisfactory UK address.

The Road Safety (Financial Penalty Deposit) (Appropriate Amount) (Amendment) Order 2013 enabled the levels of fixed-penalty deposits to be increased by the same amount as fixed penalties for motoring and other road transport offences, and included careless driving as a fixed-penalty deposit. This was originally debated on 2 July 2013. Unfortunately, that order increased fixed-penalty deposits for some parking offences, which was not our intention, as they are not road safety related. An amended negative order was laid on 24 July 2013 to make it clear that parking was not included in the fixed penalties, which are used with offenders who have a valid UK address. The order before us today is to correct the issue with the affirmative order which applies to graduated fixed penalties and deposits for individuals not having a valid UK address.

Since the orders were laid we have written to enforcement authorities to notify them of the issue, the policy position and our intention to correct the wording as quickly as possible. We have encouraged enforcement authorities to be aware of our policy intention in this area when dealing with parking offences, and ACPO has been most helpful in disseminating that to the individual forces, for which I am most grateful. As a result, parking offences committed by drivers without a valid UK address have been dealt with by summons to avoid them being issued with a fixed penalty for an incorrect amount. We are not aware of any cases where an incorrect penalty has been issued.

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This order does not affect the existing fixed-penalty deposit levels for other offences, which remain as amended through the Road Safety (Financial Penalty Deposit) (Appropriate Amount) (Amendment) Order 2013. That includes offences under Section 22 of the Road Traffic Act 1988, of causing a vehicle to be left so as to involve danger to road users.

Fixed-penalty notices are issued by police and Driver and Vehicle Standards Agency officers. Regardless of whether an alleged offender has a valid UK address or not, they are issued with a fixed-penalty notice. Those alleged offenders without a satisfactory UK address are then required to pay a fixed-penalty deposit. The Road Safety (Financial Penalty Deposit) (Appropriate Amount) Order 2013 prescribes the amount of financial penalty deposit that may be requested by an officer.

To mirror the increases that are being made to most motoring and road transport fixed penalties, deposit levels will be increased by the following amounts: from £30 to £50, £60 to £100, £120 to £200, and £200 to £300. DVSA figures show that in 2012-13 over 10,500 deposit notices were issued with a payment rate of almost 100%.

The changes to fixed penalties follow up key commitments in the Government’s Strategic Framework for Road Safety, published in May 2011, which sets out a package of measures that will continue to reduce deaths and injuries on our roads. The framework recognises the importance of targeted enforcement to tackle those behaviours that represent a risk to road safety. The measures announced last year focus on making the enforcement process more efficient, ensuring that the penalties are set at the right levels to avoid offences being perceived as trivial and inconsequential, and making educational training more widely available for low-level offending. This order supports the framework by ensuring enforcement is relevant and appropriate, and provides clarity to the enforcement authorities. I therefore commend the order to the Committee.

Lord Tunnicliffe (Lab): My Lords, I will not spend much time on this order because us being here is a waste of time. The order is to create waste caused to the police, the Department for Transport and Parliament. The explanation of the error is weak. I had expected, instead of a review of how wonderful government policy is, a more fulsome apology. I would like the Minister to say what the department is doing to make sure it does not happen again. Errors by the Department for Transport are not infrequent. Does it not have sufficient resources or sufficient quality, or is it not properly motivated by its leadership? If the Minister does not feel that he can provide answers to that now, I will be very happy to take a letter.

Lord Popat: My Lords, I agree with the noble Lord that we should not be making mistakes of this nature. This was very much a one-off. Although we try to check instruments thoroughly at every stage of the procedure, there are times when errors occur. I can assure the noble Lord that this is a one-off—especially when the instrument is so complex, technical and not easy to follow, as is the case with this instrument. As soon as it was recognised that an error had been made,

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steps were taken to correct it. I hope that I have addressed one question about the error we made in this instrument. I hope that we will not make similar errors in future.

Motion agreed.

Drug Driving (Specified Limits) (England and Wales) Regulations 2014

Motion to Consider

2.08 pm

Moved by Lord Popat

That the Grand Committee do consider the Drug Driving (Specified Limits) (England and Wales) Regulations 2014.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments

Lord Popat (Con): My Lords, I beg to move this Motion standing in the name of my noble friend Lady Kramer on the Order Paper. The draft regulations are being made to specify the drugs and the limits over which it will be an offence to drive or be in charge of a motor vehicle in England and Wales. As noble Lords are aware, the review of drink and drug-driving law by Sir Peter North concluded that there was a large drug-driving problem and recommended this new offence. Drivers impaired by drugs kill large numbers of people: there could be as many as 200 drug- driving related deaths a year in the United Kingdom. Figures show that a drug-driver has one-fiftieth of the chance of being prosecuted compared to a drink-driver and yet European evidence suggests that drug-driving is about half as prevalent as drink-driving—so enforcement related to drugs is disproportionately low. These regulations will thus enable more effective law enforcement.

The drugs included in the draft regulations have been recommended by the expert panel in its report, Driving Under the Influence of Drugs, as being the drugs that pose the greatest road safety risk. The Government have additionally included LSD, as while the expert panel stated that,

“LSD usage in the UK driving population is unknown”,

it also stated:

“The use of LSD is not likely to be compatible with the skills required for driving”.

The Government consider that even if there are just a small number of cases, it is worth including LSD as the police would then have the powers to progress these cases.

The Government have also taken note of noble Lords’ concerns about the potential impact on patients in previous debates during the passage of the Crime and Courts Bill, which introduced a new offence by breaking down morphine into a subdivision of its metabolic marker, which is called 6-MAM. This will separate heroin users from those taking opiate-based medication. However, we have not included the expert panel’s recommendation on amphetamine. We intend to do that at a later date but, first, we aim to reconsult later this year on a limit for amphetamine. I apologise that I could not pronounce that medical word. I am not a doctor by profession and I have taken on this

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order at very short notice. We accept that there is significant medical use and that having a low limit might discourage ADHD patients, in particular, from taking their medication. Evidence came to light during the consultation of a large study, published on the day before the consultation closed, showing that unmedicated ADHD patients represent a road safety risk. I believe that this demonstrates to noble Lords that the Government have been listening to the medical profession and want to ensure that all patients continue to take their medication and to drive, providing that they are not impaired.

The Government have also included in the draft regulations the road safety risk-based limits, as recommended by the expert panel, for those drugs most associated with medical uses. In most cases, this will be above the normal therapeutic ranges, so patients would not provide a positive result if any blood test was taken. The Government recognise that there may be some patients who have built up tolerances to higher doses, and who could be above the specified limits and be safe to drive. There is a medical defence available to those drivers and we want to ensure that they are dealt with swiftly at the roadside to reduce any inconvenience to them.

This is why the Government published guidance to healthcare professionals on the new drug-driving offence earlier this month, which includes an explanation of how to raise a medical defence early on in any dealings with the police in relation to driving. If the police view is that they are impaired for driving, the existing Section 4 offence will apply. The guidance has been widely circulated to medical bodies and patient support groups, and we are confident that it will reach those providing the advice and, ultimately, their patients. However, we will be monitoring the new offence, and bodies such as the British Pain Society and the Royal Pharmaceutical Society have agreed to assist us and report directly to our researcher if any negative impacts emerge.

Finally, rather than setting limits for eight illegal drugs at the expert panel’s recommended limits where a road safety risk applies, the Government have proposed a zero-tolerance approach as they believe that it would be unacceptable to the wider public to set limits where it is okay to take a certain amount of illegal drugs and drive. Zero tolerance does not mean zero limits, as we do not want to provide an opportunity to any defence lawyer stating that their client was exposed to others’ use of a drug, such as by passive inhalation. That is why I am proposing to the Committee limits for these eight illegal drugs as above “accidental exposure”. These limits have been provided by an expert advisory group, which includes some of the members of the expert panel, such as Dr Kim Wolff, to whom I am most grateful for her hard work on the matter. Those drugs and their limits have been supported in a public consultation, and I believe that we are taking a balanced and pragmatic approach.

2.15 pm

Lord Berkeley (Lab): My Lords, I have a question or two for the Minister on these draft regulations. I am glad that he had difficulty pronouncing the names of some of those controlled drugs, because I certainly would.

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First, I think that it is a very good thing that the regulation is being brought in; we have all been debating for years having some limit for driving under the influence of drugs, as we once had for a long time for drink. How will these drugs be detected? Can it be done at the roadside, or will you have to go back to a police station, with all the fuss that that entails? Who can stop, detect and, if necessary, charge a driver? Presumably, PCSOs cannot; they can fine only bicycles and not cars anyway, but it would be interesting to have an answer for that. My third and most important question arises because 16 different drugs are listed here. Surely if you mix the lot, it is a bit more serious, even if it is under the limit, than if you just take one. I know nothing about it at all, but how will that be dealt with? If you exceed the limit on none of them but mix them all together, you might still be under the influence. No doubt the expert panel has considered that, and I would be glad to hear the Minister’s comments.

Lord Whitty (Lab): My Lords, I am pleased to see greater specification in this area, but I am slightly confused about both how the levels apply and how we will deal with issues such as those raised by my noble friend. Clearly, a cocktail of these drugs, if three or four are detected, is more dangerous than the level for a single one. I do not know any more about it than my noble friend.

Lord Berkeley: Yes you do, you were a Minister once.

Lord Whitty: When I was a Minister, I was certainly not allowed to know a lot about it. However, some of them are more detectable than others. Included in the list—I will not attempt to spell it out—are drugs that relate to cannabis. The problem with cannabis is that it stays in the system for a very long time but is probably not active after a few hours. Therefore, it is difficult to treat in the same way as, for example, cocaine or diazepam. I wonder whether the same process of testing applies to all the drugs. I also wonder whether the reason why what I regard as unfortunate the changes in relation to alcohol detection—trying to simplify the roadside and the police station tests, thereby laying them open to challenge rather more than the present system—applies also to these drugs tests. Some drugs are detectable at the roadside, as I understand it; others are not.

As a throwaway question, as the Government are addressing those limits, why on earth are they not addressing the current alcohol limit, which is still probably the greatest—even if, thankfully, declining—cause of major accidents due to drugs in this country? Our level is considerably higher than that in almost every other European country.

Lord Tunnicliffe (Lab): My Lords, I have been recently drafted into the opposition transport team and handed the task of a simple one-page order to take through the Committee. Unfortunately, unlike my noble friends here, it would be unacceptable for me to say that I know nothing about the order. Therefore, rather bravely, I drove myself towards the impact assessment and discovered that the ratio between the impact assessment and the order was the largest I have yet come across, there being 31 pages in the impact

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assessment and barely one page in the order. However, I have struggled with it and I have some comments to make. I apologise to noble Lords from the energy lobby who are waiting patiently for the next business.

The order, essentially, contains a list of two lists of eight drugs—it would have been easier to understand if it were split into two eights—comprising eight drugs that are illegal and eight which are, for want of a better term, therapeutic. The eight illegal drugs are set at a zero-tolerance level and the extent to which the figures are not zero is the experts’ recommendation of the levels that might be detected through accidental secondary inhalation and so on. They are, I am assured by the impact assessment, extremely low levels—de facto, zero.

Like my noble friends, in general I support the thrust of this policy. However, I am concerned about the extent to which it has any substance. In my view—I do not know whether the Minister agrees with me—the order is a manufacturer’s specification. In other words, it gives some numbers for the people who are developing detection equipment to work to. Clearly, for the equipment to work it has to be able to operate in the range implied by the factors in the order.

The impact assessment, all 31 pages of it, is frankly an impact assessment for the whole policy thrust and—this may receive more approval from my colleagues than initially from me—introduces the concept of zero tolerance. It makes a conscious decision to move away from the concept in the drink driving recommendations, which is an attempt to specify a level that creates a level of impairment that has road safety consequences. Essentially the drink-drive limits are consequential limits; the limits for the eight illegal drugs are zero-tolerance limits. The impact assessment goes through the debate as to why that level has been chosen and concludes that creating a meaningful relationship between a level in the blood and impairment—given the different metabolisms that will have to be dealt with and so on—is not practical; and that the only practical way of dealing with the eight illegal drugs is the so-called zero-tolerance limit. I hope those sitting behind the Minister will pass him a note if I have got that wrong, but I think I have drawn the right conclusions.

On page 24, paragraph 84, of the impact assessment, there is a less than ringing endorsement of the policy. In referring to a cost-benefit assessment it states:

“The Best estimate is that there is a Net Cost but has the potential to provide society with wider benefits in taking a zero tolerance approach to illegal drugs that are not captured in Table 11”—

which is the summary of the analysis. It continues:

“However, given the uncertainties around casualty savings and costs and thus the vast range, there could still be a considerable net benefit”.

In other words, the 31 pages come to the conclusion that the best case is marginal. In fact, the traditional cost-benefit is negative.

Paragraph 85 goes on to say:

“In considering the approach to drug driving the Government also needs to take account that drugs matter to the whole of society and not just road users. From the crime impact on local neighbourhoods to the corrupting effect of international organised

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crime, drugs have a profound and negative effect on communities, families and individuals. A zero tolerance approach to illegal drug driving would assist the Government’s wider drug strategy”.

In other words, something is directed at driving which has a pretty iffy cost-benefit case about it but wider criminality issues are prayed in aid.

Therefore, I have two questions for the Government on this. First, will this policy happen? I ask that because, for it to happen, suitable testing equipment has to be manufactured at levels of cost and reliability such that police forces will buy it and use it. There are comments here and there in the impact assessment and there is the Library review of it. As far as I can see, there is one machine that detects three substances and it sort of works but will not work outside. Therefore, the provision of testing equipment is very iffy at the moment.

The second question is: even if a machine can be produced, will the police use it? Under the heading “Police costs” on page 17 of the impact assessment, it is stated:

“We have not considered the true opportunity costs of police time, as it is unrealistic to determine how police forces will decide to re-allocate resources in response to the new legislation”.

In these times of constrained police resources—for instance, the number of police officers between 2010 and 2013 went down by more than 15,000, some 11%—how would a chief constable deploy his resources other than on an opportunity-cost basis? At the end of the day, he has to look at the crime in his area and the good that policemen on patrol do, and he has to look at the ratio of the cost and the benefit of providing that. The policy as analysed by the impact assessment would not naturally fall very high in any analytical approach to that allocation of resources.

Therefore, do the Government really think that police forces are going to buy this equipment, which is not yet developed, and use it to any significant extent, given that it has a negative cost-benefit case, that the target group will be young people and that many of the people tested will be innocent, with the whole issue of then creating alienation?

The analysis divides into two. It centres on the eight illegal drugs and it also talks about eight therapeutic drugs. Here, the approach is, for want of a better term, one of impairment. I have read the parts of the assessment that cover this. It is essentially set above a zero limit so it does not interrupt the use of these drugs in therapy. It suggests that medical professions—clinicians and the pharmaceutical industry—will have to adapt by explaining to patients about the limits and that the drugs they are taking may take them in that direction, so there is some cost there, but it seems quite sensibly balanced.

Finally, the impact assessment and the regulations are silent on legal highs, which we all know is an emerging issue. If the Government are to successfully introduce this legislation, I should like to know whether they have thought about how they are going to drive illegal highs into it. In simple terms, will the kit be available, will it work and will it be affordable? Will police forces be willing to commit resources to prosecute these laws, given the many problems that they will face?

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2.30 pm

Lord Popat: My Lords, I thank the noble Lord for his questions and I shall try to cover as many of them as I can. Failing that, I will be very happy to write to him.

This is something new for us. It is no different from what happened when we introduced legislation on driving with excess alcohol in 1967. The legislation will take some time to mature, but I am sure that these regulations are a good place to start. Drink-driving is dangerous and so is drug-driving.

Let me start with the question asked by the noble Lord, Lord Berkeley, on how we detect when somebody has taken drugs. The police will test first for alcohol and they will know the extent of the alcohol taken by the driver. If he comes out positive on the excess alcohol test, the chance is that a similar test will occur to determine if he has taken drugs. If there is no screening device to test the driver, if the police suspect that he has taken drugs, he will be taken to the police station for a blood test. Only the police can arrest and charge him for driving under the influence of drugs. Another question raised by the noble Lords, Lord Berkeley and Lord Whitty, was about what would happen if someone is under the limit but has mixed their drugs. If impairment exists, Section 4 can be used to arrest the driver.

The noble Lord, Lord Whitty, asked: why not address alcohol and drug limits? That is an important question. Drugs are much more complex than alcohol in many ways. It is very difficult to ask the police to deal with a new, complex drug-driving offence and any changes to the alcohol limit. The police need to focus on the new offence of drug-driving first. This is very much in the initial stage, given the time that the police will need for the necessary training in how to detect people and what action to take when they find somebody under the influence of drugs under the new legislation. The Government asked the expert panel for advice on risk-based limits and the evidence was that the police will more or less be able to detect that a person is under the influence of drugs more easily by just looking at his body language and his face. Often, his eyes will be red. With alcohol, there is an ability to test whether the driver is under the influence of alcohol.

The noble Lord, Lord Tunnicliffe, raised the issue of zero tolerance. The Government have a zero-tolerance approach to illegal drug use. Considering the panel’s recommendation, it is clear that the zero-tolerance approach in the new drug driving offence will send the strongest possible message that you cannot take illegal drugs and drive. The Government made it very clear in their consultation that the zero-tolerance approach does not mean zero limits, as we need to rule out any exposure, for example, through passive smoking.

Judging from the impact assessment, there is a great potential to reduce drug taking in the first place. We provide some examples of where it may arise. It is extremely difficult to monetise something when we cannot be sure of the causal link. It is not possible to disentangle the two effects. It would not be right for the department to take the credit and attempt to monetise it. Will this policy actually happen? A number of pieces of equipment will be tested by the Centre for

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Applied Science and Technology at the Home Office. We expect these to be approved in time for the commencement of the new offence.

I say to the noble Lord, Lord Tunnicliffe, that we responded to drink-driving, and we consider that the drug-driving offence must be proportionate to any serious risk to road safety. Drug takers can be as dangerous as drinkers. The most important thing is to make sure that the roads are safe for the people who use them.

I guess that I have covered not all but some of the points raised. Noble Lords will, I hope, forgive me, as I came to these regulations at very short notice, but I shall be very happy to write to noble Lords. I will go through Hansard, speak to the department and make sure that I responded properly on this subject. It is not an area in which I specialise, so noble Lords will have to forgive me for that.

We owe it to the victims of drug-drivers, such as the schoolgirl Lillian Groves, whose family have campaigned tirelessly for this new offence following the death of their daughter through drug-driving in 2010. I hope that this instrument will make a difference to the number of accidents that take place; an estimated 200 deaths a year are due to drug-driving.

Motion agreed.

Electricity Capacity Regulations 2014

Motion to Consider

2.36 pm

Moved by Baroness Verma

That the Grand Committee consider the Electricity Capacity Regulations 2014.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 6th Report from the Secondary Legislation Scrutiny Committee

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con): My Lords, today we are considering the six instruments which form the implementing secondary legislation for the electricity market reform programme—namely, the draft Contracts for Difference (Definition of Eligible Generator) Regulations 2014, the draft Contracts for Difference (Allocation) Regulations, the draft Contracts for Difference (Standard Terms) Regulations 2014, the draft Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, the Electricity Market Reform (General) Regulations 2014 and the draft Electricity Capacity Regulations 2014. I apologise from the outset: given that we are taking a large number of regulations together, I have some detailed speaking notes.

The electricity market reform programme is designed to encourage investment in secure, low-carbon electricity generation. The reforms that we will debate today will transform the electricity sector, supporting jobs, strengthening supply chains and boosting economic growth. The reforms have been strongly welcomed by the industry, and that is best demonstrated by the fact

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that it is already generating private sector investment in low-carbon electricity. Based on the information provided by projects, the eight renewables projects which have signed investment contracts—an early form of CFDs—will bring forward up to £12 billion of private investment. We hope that by delivering EMR this year, we can secure much more of this vital investment.

This investment, of course, is needed to ensure that we have a generation mix which responds to the challenge of climate change and meets our legally binding carbon and renewables targets. The investment is also necessary if we are to ensure that the lights do not go out. The UK faces very rapid closure of existing capacity as older, more polluting plant goes offline, and this needs to be replaced with a cleaner, more sustainable generation mix. To achieve this, we estimate that £100 billion of investment is required up to 2020.

The enabling powers to make this implementing secondary legislation are found in the Energy Act 2013, which completed its passage through Parliament last December. Since then, my department has finalised the policy detail for the two mechanisms for reform—contracts for difference and the capacity market. These two mechanisms are implemented through the draft regulations before your Lordships today. They have now been approved by the other place and, if approved by noble Lords this afternoon, are planned to come into force on 1 August.

Noble Lords may be aware that yesterday the EMR programme reached a significant milestone as we received state aid approval for the CFD for renewables, the capacity market and the five offshore wind projects which have secured investment contracts under the final investment decision-enabling for renewables process. This is a large step forward for the programme and, subject to today’s debate, will keep the Government on track to launch the first CFD allocation round and the first capacity market auction before the end of this year.

Passing these regulations will be another important milestone which will provide developers and financiers the certainty they need to continue making the investment our energy infrastructure requires. Timely delivery of the reforms will help to ensure that we are on track to meet our carbon and renewables targets and that we have cost-effective measures to keep the lights on.

One of the key objectives of EMR is to minimise costs to consumers, and delivery this year will also help ensure that the benefits to consumers are realised as soon as possible. A delay to implementation is likely to mean that more developers will seek support under existing mechanisms such as the renewables obligation, the closure of which the Committee will debate later. While these mechanisms have served us well, they do not deliver the same value for money to consumers and industry that CFDs provide.

Timely delivery of the reforms will also reinforce the UK’s reputation as one of the most attractive places to invest in energy globally. Industry and investors have demonstrated that they have confidence in the new arrangements and have already expended substantial resources in preparing for the introduction of EMR. It is vital that we maintain this confidence and along

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with it the vast economic benefits—not only in terms of our energy infrastructure but in terms of job creation in energy industries and supply chains. The EMR will deliver that.

I know that securing approval for the implementing secondary legislation will be strongly welcomed by stakeholders, who are keen to engage and invest in the new arrangements, and I hope I will effectively explain why the timely delivery of these reforms is so important.

Before we commence the debate I will briefly describe the six statutory instruments under consideration. The first five instruments implement the contracts for difference regime. The Contracts for Difference (Definition of Eligible Generator) Regulations and the Contracts for Difference (Allocation) Regulations provide the starting point by setting out, respectively, which persons are eligible generators for the purposes of applying for a CFD and the eligibility criteria which must be met. The Contracts for Difference (Definition of Eligible Generator) Regulations define an eligible generator by reference to a person’s relationship to the generating station; and define those generating stations which are eligible generating stations by reference to the technology used by the generating station. The regulations include a list of 15 low-carbon technologies which are eligible for a CFD.

The allocation regulations stipulate qualification requirements that an eligible generator must satisfy in order that the application for a CFD by that generator may take part in the CFD allocation process, and provide for a three-tier appeals process in relation to the eligibility assessment. The qualification requirements include, for example, that an applicant’s project has secured relevant planning consents and that a grid connection agreement is in place. Applicants wishing to construct or alter offshore wind generating stations will be required to provide evidence of a Crown Estate agreement for a lease; and all projects generating 300 megawatts or more will be required to show that an approved supply chain plan is in place.

To avoid projects benefiting from a double subsidy and to ensure value for money, generating stations already in receipt of funding from another government support scheme, such as the RO, are excluded from the subject of a CFD application under the regulations.

Noble Lords should note that my department also intends to introduce, through future amendment to the regulations, a non-delivery incentive to discourage speculative or strategic applications where there is little or no prospect that they will deliver on CFD commitments. We are also exploring measures that prevent an applicant who has engaged in such behaviour from applying for a CFD in respect of a generating station on the same site as that included in such a speculative application, for a period of time that will cover at least the allocation round subsequent to that in which the CFD was offered or entered into.

The allocation regulations set out the parameters for the allocation process. Included as part of this is how applications are to be assessed by the delivery body; how the budget for each round is notified to those wishing to apply for a CFD; and how an allocation framework applies to an allocation round. The allocation

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framework is a separate document that sets out the CFD auction process in detail, including the individual rules that apply to each auction, and may, where the allocation regulations permit it to do so, set out supplementary qualification requirements. Having a non-statutory document in the form of an allocation framework helps the Government effectively to balance the need for regulatory certainty for investors with the flexibility needed to adapt the auction rules to changing circumstances or to close loopholes that undermine the integrity of the auction process. It would not be practicable to subject any changes in the auction rules to any parliamentary procedure as doing so might constrain the Government’s ability to deal quickly with a problem that has been identified with the technical auction rules.

2.45 pm

The allocation regulations stipulate that an allocation framework must be published in advance of each allocation round opening for application. Noble Lords may wish to note—indeed some may have already noticed—that the latest version of the near-final allocation framework, which is intended to apply to the first allocation round due to take place this autumn, has been placed in the House Library. Noble Lords may also have noticed that today my department has published indicative budget figures for the first CFD allocation round. These have been released around three months ahead of the round opening to provide visibility and certainty for investors, enabling them to prepare their applications. Final budget figures will be confirmed in a budget notice at least 10 days ahead of the allocation round opening.

I turn to the third set of regulations which implement the CFD regime: the Contract for Difference (Standard Terms) Regulations. These regulations set out how a generic CFD—one issued on standard terms following a notification by the delivery body—may be drawn up, offered and publicised. It includes a list of the standard terms which must be included in a CFD contract, helping to ensure parity between contract holders and consistency for the duration of the CFD regime. Again, I draw the Committee’s attention to the need to provide consistency and certainty with flexibility. While the essential elements of the CFD contract will be consistent for all CFD holders, we also want to ensure that a wide range of developers are able to access the benefits of the regime. As such, we have included provision for generators to request necessary modifications to the standard terms that are of minor effect. This flexibility has been tightly defined in the regulations so that it is available only to generators precluded from applying for reasons they cannot change, and the changes must not alter the risk/reward balance of the CFD or allow the generator to gain any kind of commercial advantage. The standard terms regulations also specify how the CFD counterparty—designated earlier this month as the Low Carbon Contracts Company, which is set to become operational and have full powers on 1 August—must prepare, offer and register CFDs.

I turn to the fourth set of regulations, the Contracts for Difference (Electricity Supplier Obligations) Regulations, which establish the supplier obligation mechanism, a levy on all licensed electricity suppliers

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to meet the costs of the support provided to low-carbon generation under the CFD regime. The levy will apply proportionately to all suppliers in Great Britain from 1 April 2015, with contributions based on market share. The Government carefully considered the impacts of the supplier obligation on suppliers and competition in the market when designing the mechanics of the obligation. We have engaged extensively with stakeholders throughout policy design, and following consultation feedback we have modified the design of the supplier obligation. The model we have adopted is a fixed levy with a quarterly reserve fund and reconciliation, rather than the previously proposed fixed levy with an annual reserve fund and reconciliation.

Our analysis suggests that the quarterly levy design will reduce the average size of the reserve fund collected per year from suppliers over the period 2015 to 2020 by around 70%. As a result, the average cost to suppliers of financing the reserve fund is expected to be more than halved over the same period, which will be of particular benefit to smaller suppliers. The (Electricity Supplier Obligations) Regulations also set out the arrangements for the collection of a small additional levy from all licensed electricity suppliers to pay for the CFD counterparty’s operating costs.

The fifth and final instrument which implements the CFD regime is the Electricity Market Reform (General) Regulations. There are three aspects of the regulations which I would like to draw to the attention of noble Lords, which I will briefly describe. These are: a requirement on the EMR delivery body to provide information and analysis in relation to strike prices; provisions relating to the submission of an approved supply chain plan; and the creation of a liability shield for National Grid Electricity Transmission plc as the EMR delivery body.

The first relates to the information gathered and supplied by the delivery body—National Grid—which the Government use to inform decisions taken on EMR, such as the CFD strike prices. Such decisions are taken, based on key assumptions using electricity market and electricity generation technologies data, and therefore it is essential that the information used is robust. The general regulations, therefore, place an obligation on the delivery body to supply such information relating to the development of CFD strike prices, and also confer a power on the delivery body to request certain information from CFD-holding generators, if needed, to perform effectively its information and analysis function.

We consider that this mechanism is necessary to ensure that the Government have the best information available when making decisions relating to CFDs. However, we have sought to minimise any adverse effects on generators. To avoid any unnecessary administrative burden, the power for the delivery body to request information from generators applies only when it has been unable to obtain the information it reasonably believes is necessary from the CFD counterparty in the first instance. The CFD counterparty will already hold a wide range of information, and, therefore, we expect that on many occasions there will not be a need to request information. To allay potential generator concerns about sharing information, particularly

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where this could be commercially sensitive, we have taken forward a series of measures to manage potential conflicts of interest between National Grid’s EMR delivery body and commercial roles to ensure that information is properly safeguarded. We are doing so via modifications to National Grid’s transmission licence.

I turn now to the second aspect of the regulations, which is how and when an eligible generator may make a supply chain application. As I mentioned earlier, the allocation regulations stipulate that applicants with projects generating 300 megawatts or more will be required to show that an approved supply chain plan is in place. These general regulations detail what a supply chain plan should cover. The purpose of this requirement is to help ensure that the reforms support the development of a diverse, robust supply chain and support innovation and the development of skills. Draft guidance on developing supply chain plans has been published, and the final version of the guidance is expected be available on 1 August when applicants can start to submit their plans—subject, of course, to approval of these regulations.

The final aspect of the general regulations, which I shall describe very briefly, is how these regulations create a liability shield for National Grid Electricity Transmission plc, protecting it from liability and from damages arising as a result of exercising EMR delivery body functions. We consider that it is appropriate for National Grid to be protected against the unforeseen risks which may arise for the company as a result of its new, additional responsibilities as the delivery body. However, we recognise that it is critical that this protection does not undermine incentives for National Grid to perform effectively, nor should it prevent complaints or concerns from CFD generators or other stakeholders being properly addressed. To ensure that we achieve the correct balance between protection and responsibility, a number of exclusions to the liability shield have been applied following consultation.

While there are five instruments implementing the CFD regime before us today, we intend to bring forward a sixth instrument which will introduce the offtaker of last resort mechanism. This will help independent generators access the market by ensuring that eligible renewable generators have access to a back-stop PPA on specified terms with a creditworthy offtaker throughout the duration of the CFD. Subject to consultation, the regulations will be laid before Parliament in the autumn, and we intend them to be in force by the first allocation round—ensuring that CFD applicants will have a high degree of clarity about the arrangements in advance of the first auctions.

I turn to the final instrument, the Electricity Capacity Regulations, which, together with the capacity market rules, implement the second EMR mechanism—the capacity market. The capacity market will provide a regular retainer payment to reliable forms of capacity, on both the demand and the supply sides, in return for such capacity being available when the system is tight.

The regulations set the overarching strategic design framework for the capacity market and include the aspects of the design where it is appropriate that the Secretary of State retains responsibility, such as setting the amount of capacity to procure in a capacity auction.

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As well as provisions relating to the Secretary of State’s role, the regulations include core features such as provisions concerning the auction parameters, eligibility for capacity auctions and dispute resolution and appeals.

The rules, in contrast, provide the technical and administrative detail for implementing the operating framework set out in the regulations. The rules were laid before Parliament on 19 June and the first set of rules is subject to an approval process equivalent to the negative procedure—although, after the first capacity auction, future changes will be consulted on and made by Ofgem. We consider that this approach will help to ensure that there is sufficient flexibility to allow for timely operational changes where necessary without impinging on the robust framework set by the regulations.

The Committee should also note that the Electricity Capacity Regulations include provision for a levy on suppliers to fund the capacity market settlement body’s costs to 31 March 2015. However, to align the capacity market and contracts for difference regulations, it was decided that a dedicated separate set of regulations, the Electricity Capacity (Supplier Payment) Regulations, will be provided. This instrument will make provision for payment post-31 March 2015 and will be laid in Parliament shortly. These are technical provisions that we are keen to ensure we get right, and they do not need to be in force prior to the initiation of the first capacity auction.

I express my thanks to noble Lords for enduring a very long introduction—but it was necessary given that there are six instruments and it is a quite a complex area. I beg to move.

Baroness Worthington (Lab): Can the Minister clarify something for me? There are seven instruments listed on the Order Paper, including the Renewables Obligation Closure Order.

Baroness Verma: That one will be debated separately.

Lord Jenkin of Roding (Con): My Lords, my noble friend the Minister has made a very brave and thorough attempt to explain all these complicated regulations to the Committee and I do not envy her her task. This is an immensely complicated business, and I approach this as one who has spent many months over the last two or three years dealing with these matters—first on the Energy Bill, now the Energy Act 2013, and in the months since then. I see that I am surrounded by a very select band of aficionados who have been doing the same, and I think that between us we have the capacity to put some questions to my noble friend.

I entirely endorse the description of the scrutiny committee, which reported a few days ago. In paragraph 9 of its report, it said:

“The number of statutory instruments laid, and the highly detailed nature of their provisions, are not conducive to a rapid understanding of their effect”—

to which I can only say, “Hear, hear!”. Of course, the committee expresses some anxieties about how far consumers can be helped to understand these measures. In response to that, the then Minister for Energy undertook to provide what he described as an,

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“additional, succinct explanation of the legislation”.

I invite noble Lords to look at Appendix 1 to the Select Committee report. I m not sure that the six pages of detailed description can match what Mr Fallon said on that occasion. This is a serious problem. The scrutiny committee was clear that much more needed to be done to explain this complicated system to consumers.

3 pm

However, my noble friend has indicated that, even in the midst of the preparation for today’s debate, we were confronted with four hugely important pieces of information yesterday and this morning which, in my case, caused a substantial revision of the text of what I was hoping to say to the Committee this afternoon. My noble friend has referred to them. We had yesterday’s welcome news that no less than two reports of the European Commission have now given the green light under the state aid rules to the capacity mechanism and to the contracts for difference. I received yesterday—I am sure other noble Lords have copies—a detailed letter from my noble friend in response to a question I had put to her by e-mail several weeks earlier. I shall talk about that later. Finally, as she said, this morning we had the announcement of the budget for the first year of the contracts for difference auctions. A figure of £200 million will be available for the first year and further funds up until 2021.

When I came to grips with this news yesterday and this morning I thought it might reduce the number of questions that I would have to put to the Minister—indeed, I have rubbed some of them out and taken out several pages—but I hope the Committee will bear with me because it has prompted new questions. I will return to the four announcements later.

My noble friend will be relieved that I do not intend to comment on all the regulations that she has described to the House. However, there are several issues I wish to raise. Perhaps I may take them in the reverse order of the subjects that she described. I turn first, therefore, to the capacity market. Noble Lords may recollect that during the passage of the Energy Bill, I and a number of my noble colleagues and friends expressed considerable concern that the current proposals would fail to enable new gas generators to invest, particularly under the capacity mechanism. As my noble friend explained, the purpose of the capacity market is to incentivise sufficient investment to ensure that the lights do not go out. That is a very good phrase but one might add, “and to save the planet”. It concerns both sides: one has got to consider the environment as well as security.

To protect customers from higher electricity bills, I and three other noble Lords—the noble Lords, Lord Roper, Lord Cameron of Dillington and Lord Berkeley, who I am pleased to see in his place today—moved an amendment to the Bill to make competition a specific objective under the capacity mechanism. For that to be effective, new generators had to be able to bid in the capacity auctions. To our disappointment, my noble friend rejected the amendment. However, there is an interesting postscript. My noble friend’s right honourable colleague Mr Fallon was standing at the Bar listening to that debate and was overhead to say, “If this

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amendment is carried, we cannot reverse it at the other end”. Therefore one began to see a glimmer of hope.

The fact of the matter is that we have won the argument on competition and this has ensured—my noble friend referred to this and I may come back to it—that, for the most part, the big six are not to be allowed to dominate the market. Competition will drive down prices. Indeed, that was said very clearly by Mr Fallon, who told the Secondary Legislation Scrutiny Committee at paragraph 13,

“that the Government wanted to see competition between technologies and among the technologies: ‘we see that as one of the main pressures on price and making sure that what our constituents pay is affordable’”.

Therefore that is a clear statement of the Government’s intention which I, and I am sure many other noble Lords, will welcome.

However, to achieve that, DECC had to be persuaded that the original form of the draft regulations simply had to be amended. It would have been impossible on the basis of that first draft for independent companies to raise the finance necessary for them to enter the auctions for the capacity market. By dint of skilful and intensive negotiations, the industry was able to persuade Ministers to make important and significant changes. Those were set out for me in a letter I received from Mr Fallon on 30 April. He said that,

“we absolutely recognise the need for investment in new plant. That is why we are seeking to make the scheme as pro-competitive and investable as possible, and our current proposals aim to create the right market signals”.

I do not need to read the rest of the letter, because I am sure that many other noble Lords will have seen it. He described changes which met in substance most of the representations that the industry had made. That was very much welcomed, and certainly by me.

Of course, some uncertainties remain. One of them, as my noble friend mentioned, was removed yesterday. The EU Commission decided that this did not offend the state aid rules, which is extremely valuable, and stated that,

“the proposed UK Capacity Market is in line with EU state aid rules … The Commission found in particular that the scheme will contribute to ensuring the security of energy supply in the United Kingdom … in line with EU objectives, without distorting competition in the Single Market”.

When I read that yesterday, I thought to myself, “Well—they’re not so bad after all”. We still await the Hinkley Point decision, which is still to come, but those two decisions yesterday give one some prospect of hope.

However, there remain one or two questions. One question for my noble friend is: can she yet say—or will she be able to say—how much capacity will be auctioned? Am I right in saying that this morning’s contract for difference budget statement does not cover what will be necessary for the capacity market? If so, when will the budget for the capacity market auctions be announced? I hope that my noble friend will be able to give us some reassurance on those matters. Uncertainty is the enemy of investors’ confidence, so it is essential that we get these things absolutely clear before the first auction is held.

The contracts for difference may be a little more difficult. Here, again, we have a separate announcement

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that it is okay under the state aid rules. While that removes what has hitherto been a major uncertainty, it underlines the huge subsidy still to be given to wind power, which of course goes straight on to consumers’ bills. I will not weary the Committee with all the details, because noble Lords have seen the figures themselves, but they indicate very large sums, which are covered by the contracts for difference and the wind power that will, I hope, result from them.

My right honourable friend the Secretary of State claimed that the EMR as a whole will save consumers around £41 per annum up to 2030 in lower energy prices. I am not sure about the per annum. I think that it may be in total—it is not entirely clear from the right honourable gentleman’s statement. Can my noble friend give an estimate of what the subsidy that will befall consumers’ bills will be? It would be helpful to be given some indication of that.

My noble friend has explained the purpose and impact of the contracts for difference arrangements, and she will recollect my telling her last month that I was having a meeting with the independent renewable energy generators group—IREGG. She asked me to let her know the problem. I did so in an e-mail on 26 June. Briefly, the Government were proposing to advance the date for the first contract for difference auction from 2018 to 2015 without, at the same time, advancing the availability of the arrangements for the offtaker of last resort. She referred to that point earlier, and I shall come to that. The group was worried that because of the gap between the auction starting in 2015 and the offtaker of last resort coming two or three years, it would find it impossible to finance the investment because of the apparent risks.

Since sending that e-mail, I noticed that there had been a number of indications that there would be further regulations covering the offtaker of last resort. My noble friend today has confirmed that, and this leaves time for further consideration of this matter. However, my noble friend answered the letter yesterday, and I hope that copies have gone to other noble Lords who may be interested in the same subject. Because it is so recent, I will read the first four paragraphs of the letter, dated 23 July, if the Committee will bear with me. It states:

“Regarding IREGG’s concerns around the timing of the Offtaker of Last Resort, I would like to assure you that the benefits of the OLR can still be realised from the first allocation round.

DECO launched a consultation ‘Implementing the Offtaker of Last Resort’ on 27th June 2014. This consultation included a copy of the backstop PPA contract”—

power purchase agreement—

“draft supply licence modifications and draft OLR regulations to deliver the OLR and the input into this consultation will be used to develop the final OLR regulations.

We are on track to deliver the final policy and introduce enabling regulations before the first allocation round for CFDs opens. As such, CFD applicants will have a high degree of clarity about the arrangements for OLR in advance of the first auctions.

Generators will be able to discuss their likely financing requirements and costs with lenders, and constrain their cost assessment such that they can submit a bid for a CFD. This means that the OLR will meet its aim of broadening generators’ route-to-market options”.

So far, so good. That sounded rather encouraging.

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However, there is a difficulty. I was able to consult a number of the organisations that have been briefing not only me, but I am sure other noble Lords, on this subject. I have to say that their immediate reaction is far from enthusiastic. For instance, IREGG replied late last night, making its assertion—and this is the point I really want to make to my noble friend—that,

“the OLR needs to start no later than April 2015—not October”.

3.15 pm

The generators then quote my noble friend’s letter about the assertion that the OLR advisory group,

“which is made up of stakeholders from a cross-section of the energy industry, including independent renewable generators, raised no objection to these arrangements. Members of the group were comfortable with the terms of the backstop PPA being made available ahead of the first allocation of CFDs—a key factor for generators”.

They do not recognise that. They had representatives on the advisory group. It has not actually met since May. The trouble is that the big six are also represented on that advisory group. I have no doubt they were very enthusiastic about the thought that the offtaker of last resort would not be available until October. I find that rather distressing. The Renewable Energy Association, writing to me this morning, made exactly that point when it stated that the big six were,

“consistently arguing against the need for any measures, so while these group members may have welcomed the final proposals, the independent members were less enthusiastic”.

There is a familiar ring to this. The big six have consistently and with great force of argument asserted that these measures, intended to fulfil the Government’s policy of bringing in as many independent and new generators as possible, were simply unnecessary and that they were opposed to them. My fear is that although Ministers—indeed, from the Prime Minister downwards—have reiterated the need for competition in these markets to protect consumers’ bills from rising prices, even now the big six seem to have an influence among officials at DECC. It is officials who attended the advisory committee meetings that have led the Government still to adhere to the later date for the introduction of the offtaker of last resort. I have no doubt that the big six feel that that will frighten off a number of their potential competitors so that they will continue to have the ability to dominate the market. I find this rather alarming.

However, as my noble friend made clear a few minutes ago, we are not at the end of the road. There is still time to put this right. The OLR regulations are still to be published though the consultation, as she says, actually ends tonight—this is the last day. My noble friend made very clear, and I took a careful note of what she said, that these will be “subject to consultation”. My final plea is that, for goodness sake, whatever advice she may be getting from her officials, I beg that Ministers listen to the representations still coming from the independent generators so that when the regulations are finally published, they do implement what they have always said is Ministers’ determination to ensure that there should be competition in these markets. It would be tragic if, at the very last minute, we found ourselves failing to ensure that OLR support for independent generators was introduced in time for

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the first auction. To my mind, the Government simply must listen to that if their intentions are to be achieved, and I hope that my noble friend will take note of that.

Viscount Hanworth (Lab): My Lords, I wish to reassert and reinforce some of the anxieties that we have been listening to. More than 20 years ago, a Conservative Government sought to privatise the electricity industry in favour of free enterprise and competition. The outcome has been an industry dominated by an oligopoly of six large suppliers owned primarily by foreign capital. There has been an absence of the necessary oversight of the industry that would provide an assurance that it will meet the future needs of the nation, and there has been a severe deficit in investment.

The present Conservative Government have sought to amend this situation through a programme of electricity market reform. The result was the Energy Bill, which we struggled with last summer. The Bill promised to engender a raft of secondary legislation that would come to haunt us later. Now, that legislation is represented by a massive pile of documents concerning the regulation of electricity market reform, the regulation of the so-called contracts for difference and the regulation of the capacity market. We are aware that not all the regulations are yet before us, and this shortfall promises to cause problems.

On encountering the mass of regulations, I am assailed by feelings of inadequacy. I have neither the time nor the energy for the task of scrutinising the regulations in detail. I fear that my own inadequacy may be a symptom of a more general problem with which government is faced in our era. One of the features of the problem is clear. It is that, by pursuing a philosophy of free enterprise and marketisation, the Government have created an almost impossible amount of centralised regulation.

The foreign ownership of our electricity industry is one of the reasons for the severe underinvestment. The owners of the big electricity companies are large multinational enterprises that are able to look worldwide for the best investment opportunities. They have no overriding incentive to invest in the UK. Therefore, the Government are constrained to look to small independent generators within the UK to provide much of the necessary investment. These companies require careful fostering if they are to fulfil this role and if they are not to be squeezed out by the big six oligopolists.

The Government have signally failed to protect independent generators. Their oversight in this respect is baffling and distressing. Last summer, it seemed that, eventually, the Government had been convinced that the independent generators required an assured route to market for their product. The means of providing the necessary assurance has been termed the offtaker of last resort. In the absence of a purchasing power agreement, the offtaker would be prepared to purchase the power at a heavy discount. This stringency threatens the viability of any investment projects that the independents might wish to pursue, and it has made it unlikely that they will be able to raise the necessary finance.

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Now we are discovering that, notwithstanding the belated assurances of the Government, the problem persists. It seems that there will be an 18-month delay between the negotiation of the first contracts for difference and the realisation of the arrangements for the offtaker of last resort. My supposition is that this delay has been caused by the sheer volume of secondary legislation that is entailed in the electricity market reform and that this crucial element of the programme has been sidelined or at least severely delayed. The consequences for the independent generators and for their investment programmes will be dire.

Lord Deben (Con): My Lords, I, too, support my noble friend in his concerns. It is a pity that the noble Viscount, Lord Hanworth, retreated to his usual attack on free enterprise and a glorification of the appalling electricity industry which was there before privatisation. Those of us who worked with it knew that the Central Electricity Generating Board was one of the most inefficient, self-opinionated and dreadful bodies that has ever been created. It was so bad that it hid from the world the cost of nuclear power, and when it was taken to pieces, the Cabinet had to accept that it could not do much of what it wanted to because the facts had been hidden by Lord Marshall—Walter Marshall—whose personal fiefdom it had become. It really is a pity if we have to discuss this via the déjà vu which was extremely biased in the way that the noble Viscount put it forward.

It seems much better if we discuss how it is at the moment, which is that privatisation has done a great deal of good but has a number of problems. One of its problems is that it has ended up with an oligopoly, but that oligopoly has been made more possible by decisions made by other parties as well. Looking back on it, I think that the previous Government would not have made the changes that they did and which have underlined that. Let us not make this into a party-political argument but try hard to see what to do now.

The two things which we have to do now are, first, to stop being argumentative about the fact that it is going to cost money to enable us to have a generating system that will withstand the very many pressures upon it. There is the pressure of climate change; we have to decarbonise our electricity system and do so according to a budget, which I am happy to say has again been accepted by the Government. That budget means that it has to be done relatively fast because we cannot reach the 2050 target, which is a statutory one, unless we do it according to the sort of speed which the budgets lay down. That means we will need a portfolio of generating capacity, because only in that way can we ensure that we do not pick winners and find ourselves in a situation of not having the opportunities as technology changes.

Regarding my noble friend’s slightly offhand remark about the cost of supporting wind generation, there is a very big cost in supporting something that he is very fond of, which is nuclear power. The strike price which we agree now and the commitment to that over a very long period may well turn out to be the most expensive piece of decision-making that we have made. I happen to think that it is necessary but do not let us suggest that it is not expensive—because, frankly, it is extremely

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likely that offshore wind will have come down in price to be competitive with nuclear and goes on going down, whereas I am afraid that nuclear is a system which has never actually got cheaper. It has always become more expensive and been less reliable in delivery terms than almost anything else.

Let us realise how difficult is the issue that we are dealing with. We need to have a real mix. However, my noble friend is right to say that one of the ways in which you can ensure that that mix works is to be absolutely clear about the need for competition. Only competition will stop us returning to the easy, comfortable position of the electricity business in the days of its nationalised state. New and small companies that are based here find this extremely difficult. My noble friend has been their advocate over a long period.

I have to ask the Government something terribly simple. If it is necessary to have an offtaker of last resort in the period following the first 18 months, why is it not necessary for the first 18 months? Indeed, I have to ask something much more fundamental than that. I am a businessman, and it seems to me that the process which has brought this to fruition has been one in which the Government have accepted that if you want independent generators, you need to have this protection. When do you need that protection most? You need it at the beginning of the process, when these people have just started, and when it is most difficult for them. If you need it at all, you need it when it begins. The idea that you need it not when it begins but 18 months later is almost incredible. I do not see how you can argue that case. The case must be that you either need it, in which case you need it at the beginning, or you do not need it, in which case you do not need it at all. It is not possible to argue a case which says that you need it, but only 18 months after you start. I find the economic and business arguments for that very difficult to take.

3.30 pm

I will say one final thing. The big six have not covered themselves in glory in recent weeks. Statements from some in the industry suggest that all we need to do is hand over the operation to them and they will deliver, but of course we do not need to be too careful about emissions. The crucial part of electricity market reform is to make it possible for this nation to make its proper contribution to the battle against climate change. That is why this matters. We have to do that in a way that makes sure that the lights do not go out, and in the most cost-effective manner possible, because that is the only way that is proper for a Government.

The Minister will forgive me for not going page by page through these very technical and detailed documents. She will receive a good deal of support and help, and will get a good deal of criticism. However, the central issue of competition is absolutely crucial. It is a pity that we have to have this argument, because the Government ought to be complimented on their willingness to bring forward this extremely important reform. They are following in the footsteps of their predecessors, and we ought always to remind ourselves that in this we are forging a new way forward, and that it is a crucial part of our campaign against climate change.

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Therefore, I do not want anything I have said to make the Minister feel that I am not extremely grateful for the enormous amount of work that she, other Ministers and the Government as a whole have done to deliver this. However, let us not lose at the last moment a crucial part of it, which is to make sure that every single one of the opportunities for competition shall be open. Without that, we will find ourselves in the hands of people who have not so far distinguished themselves by an understanding of the national—or, I sometimes think, the international—good. Can we just bring the two dates together?

Lord Whitty (Lab): My Lords, as the noble Lord said, we knew that this was a massive task for the Government and that very detailed regulations have to go through. I think we are all a bit upset that we are here on the last Thursday before the recess, and that we have to deal with all these regulations at the same time. I guess that very few of us, even though we are aficionados, as the noble Lord, Lord Jenkin, said—although that probably exaggerates the degree of sentimental attachment we have to the process—do not find it difficult to come to grips with these regulations today. I will underline a bit the process that the noble Lord, Lord Jenkin, and the Select Committee referred to—the difficulty of coming to terms with it in this way.

The appendix supplied by the Minister or her Secretary of State is very helpful, but it is an idiot’s guide. This particular idiot is happy that it is there, because it helps me through the regulations before us this afternoon, but what is needed is a comprehensive narrative: one which participants in the industry and consumers of its output understand. At the moment, none of it is understood out there, even among people who are engaged in the industry. It is certainly not understood by consumers and will not be when some aspects hit them—either literal consumers of energy or people faced with various developments in their part of the country.

I do not want to get deeply into the ideological debate that has been going on here. From the beginning, we recognised that this is not exactly free competition, but not exactly reverting to the CEGB either—I think that at one point, the noble Lord, Lord Lawson, called it Gosplan, which I think was going a bit too far. Nevertheless, this is not quite a free and open market. There is not, strictly speaking, technological neutrality here; we have different systems for the capacity market against the CFD non-fossil fuel market, and we have differences within the renewables sector in terms of government intervention. Let us not pretend that we are starting from a level playing field, but we need to ensure that the outcome is that there are more participants in the system than there are now. One energy Minister, who has now moved on, said that we want to have not the big six but the big 60,000. I rather fear that the CFD side of this in particular is unlikely to deliver 600, let alone 60,000, new participants.

I hope that the noble Lord, Lord Jenkin, is right. We are a little behind on the capacity mechanism; this is the first time that we have seen an outline of it, which is very helpful. I hope that he is right that it will

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allow more participants to get in. Given the further detail that we have on the CFD side, I am not sure that it will allow more participants than we were hoping for when we started this exercise.

I want to make some points about small businesses, by which I mean independent generators. They may be quite large in relative terms, but they are not the big six. I have some particular points that relate to the renewable technology that is probably cheapest, the one that comes down fastest in price, the most easily installed and the one that has least planning and public opposition: the solar industry. That seems to be seriously disadvantaged by the detail of these rules. Some of my points apply to independent generators in general, but I will focus on the solar sector.

The solar sector has been extraordinarily successful here and internationally in many ways, but it has become the victim of its own success. Successive Governments have changed the terms regularly through the RO process, so individual firms—they are mainly small firms in that sector—and potential investors are confused about what will be the level of subsidy through the whole RO process. That is now compounded by what is happening on the CFD side of the provision.

The budget makes that slightly worse, I think, because the level of subsidy allocated to what are regarded as established technologies—which includes solar: what are established and what are not is a bit of definitional fuzz—is £50 million. According to the industry’s calculation, that would probably deliver 1 gigawatt. The Government are probably too constrained by what they put in their indicative plans, because until quite recently, the price was coming down and the number of installations was going up, so they decided that they would not only introduce the degression under the RO but that they would also, under the new system, not allocate it a significant amount of the budget because they thought that we were already approaching the level in their forward plans.

That seems to me pretty daft. If you have a successful industry and a successful regime with a level of understanding, and that industry largely consists of small companies, it needs the highest degree of stability possible. Uncertainty is always complained about by the big six but the people whom uncertainty really hits are those who invest their own money and who need to attract new investors into their area. That applies to the solar area and other sectors as well.

The other disadvantage—maybe the Minister will put me right on this—is that FITs will apply to small-scale solar. Between 5 megawatts and 10 megawatts the RO will have been withdrawn right at the beginning of the RO process—this may apply to the next regulation we are discussing. Whereas it will be phased out in general by 2017, it will be withdrawn from that sector immediately and there will be no CFD equivalent. That is the very sector which the Government in UK Solar PV Strategy Part 1: Roadmap to a Brighter Future were emphasising only a few months ago as being a major part of our conversion to low-carbon technology. The sector that was on the roofs of factories, flats, schools and universities—and to some extent in the countryside, although that runs into planning problems occasionally —is the very sector that seems suddenly to have no support, or no clear support. I would be grateful if the

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Minister could tell me whether that is a wrong analysis, and that there will be some support for middle-range solar regimes within that period because it is an area of possible significant expansion. In other countries, such as Germany, there has been substantial investment in this sector and to some extent it is included in building regulations in Germany and other parts of the continent.

The solar sector made a number of other points that may apply more widely as well. There is the regularity of auctions at once per year and the attached qualification that if you have failed in the bid, you cannot qualify for the next period. That would obviously have a significant impact the longer the timescale is between auctions. The sector is arguing for quarterly rather than yearly auctions. It could be that at the beginning of this process there could be a move towards more frequent than annual auctions. Of itself, that would benefit SMEs. Since we are differentiating by technology, but we want all technologies to be in there, government policy should set a technology minimum for all those technologies to which the CFD process applies.

There are very substantial costs—this is a general smaller-business issue—in the prequalification period. The Government need to find a way, if they are genuinely to open the market, to ensure that those costs are minimised. It seems to me that these regulations will probably increase the costs beyond what the industry was originally thinking. The likely outcome of this process is even more costs upfront for companies that may or may not win an auction. The Minister will know that some of these sectors argued against auctions, and this is the knock-on of that argument. Nevertheless, now that we are having auctions, it must be recognised that auctions do, to some extent, disadvantage smaller operators and independent generators.

There is a particular point where the issue of qualification seems to arise. The Contracts for Difference (Allocation) Regulations refer to qualifications in relation to agreements to connect. The solar sector and the onshore wind sector argue that the agreement to connect is at the end of the process. If you have to wait for qualification until you have a full-scale agreement with the grid to connect, the rest of the process cannot work. They seemed to feel that they had had some understanding from the department that it should be the offer effectively from the grid rather than the agreement at the end of the day that should stipulate that they were eligible—otherwise they are going to engage in yet more expenditure until the point where the agreement is signed, sealed and delivered.

3.45 pm

Other noble Lords have made the point about the offtaker of last resort. This is a very important issue. The noble Lord, Lord Deben, must be right when he says that the point where investors need the insurance of an offtaker of last resort is at the beginning of the process, before everyone is used to it and knows that it is stable—yet we seem to be in a hiatus where it might be several months before the offtaker of last resort comes into being. There is a certain ambiguity in what the department have said on that hitherto and I hope the Minister can resolve that ambiguity. It would

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certainly be of great comfort to several sectors if it was clear in the auction and process of allocation that the offtaker of last resort will be there and operating, and that people could rely on it being in the form they were told about at the point at which they entered the process.

There are some serious, detailed points about real participation by independent generators and smaller companies, epitomised—perhaps with some peculiarities —by the solar sector. If the end result of this process, on the capacity side and on the CFD side, on which I have concentrated, is that we end up with something like the big six still operational, all the Competition and Markets Authority investigations and all the government interventions in the world will not make the system work.

We may all have started from different points but in the process of the Bill we have come to recognise that, for energy security and for its contribution to climate change and carbon reduction, this is the only show in town and we have got to make it work. I hope, therefore, that the Minister will give at least a few assurances that the department has the job in hand; that by the autumn and the commencement of the auctions on the CFD side, and by the time we have full clarification on the capacity mechanism, it is clear that it will benefit from wider participation; and that the big six will not dictate policy, supply and price in the way that they have done over the last few years.

Lord Oxburgh (CB): My Lords, many of the points that I would have made have already been made by other speakers more eloquently than I could have. I simply make three separate small points.

First, the importance of the OLR to small businesses has been emphasised on every side. I hope the Minister will take this back to her department and seek urgent action on it. It is very important. The Government’s stated objective to bring in small companies and open up the market simply will not happen unless this is fixed.

My second point is more a comment. Does the Minister realise that the very process of consultation that the department has embraced, with the best intentions in the world, discriminates against small businesses? I read that there have been 30 separate consultations over the past 12 months. The big companies can take their responses in their stride—they have people who do nothing but write responses on their behalf—but for small companies it is a major burden. The department runs a serious danger of seeing responses from the big companies overemphasised in what is intended to be, with the best will in the world, an open consultation. The Government have to take that into account when responding to this process and acting on it.

I will not pursue the second point in detail, but it relates to the capacity mechanism, which we have not been discussing in detail today. The information we have received so far is not encouraging. Clearly, competition is important—many of us around the table here support that—but there is competition and competition. An awful lot depends on the precise and detailed rules associated with that competition.

To go back in history, we had the ROC system—we still do—which was introduced as a technology-blind mechanism. It did not matter what technology was

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used. The fact is that, given the structure of the ROC mechanism, only one technology could compete: wind. There was not really any competition between technologies. We are in serious danger of getting into the same apparent open competition, with the capacity mechanism as we see it now, without it being truly open.

Without going into detail today, I need to be persuaded that the capacity mechanism as we see it at the moment, given what has been published so far, is not heavily weighted in favour of the continuation of heavy use of coal. That is not consistent with the Government’s objectives, legally committed to, to climate change and carbon reduction. I would be very grateful if the Minister could describe how she sees the capacity mechanism playing out in the balance between coal and gas.

My final point—I declare an interest as honorary president of the Carbon Capture and Storage Association—is to ask the Minister why carbon capture and storage has not been included in the list of CFD-eligible technologies. I see no reason for that. We have had a competition on carbon capture and storage, and two companies were selected. I do not criticise the basis of that selection, but, if I remember rightly, five or six companies had done a lot of work on that competition. We would like those companies to continue to engage with carbon capture technology, because it is one of the legs of the Government’s low carbon strategy. I am a little surprised not to see it mentioned here, because it would at least give those companies that were unsuccessful in the main national competition something to think about and some encouragement to go forward.

Baroness Worthington: My Lords, I am grateful to the noble Baroness for her comments by way of introduction and for taking us through the instruments that we face today, and for the contributions of noble Lords from all sides to this debate.

Here we are again. I seem to remember that for most of last summer we were working through very similar topics and subjects. Now we see some of the detail flowing from that primary legislation before us.

I want to start by making a couple of general points before considering the instruments in more detail, when I will have a number of questions for clarification. First, this is our first opportunity to discuss the energy market reform package since the finalisation of the Energy Act. Between then and now, something quite significant happened in the Budget, when it was announced that the carbon price floor, which was a fundamental part of the EMR package, was to be frozen. Noble Lords will remember that during the passage of the Bill, that topic was debated at length, and we received many reassurances from department officials and from the noble Baroness, both in the House and in meetings, that the carbon floor price was integral, because that was to ensure that we move towards a low-carbon economy. However, the ink had scarcely dried on the Act before we saw a fundamental change announced in the Budget—there was no mention of it in the Pre-Budget Report, which I thought was quite odd—simply bringing it in.

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That serves to highlight something that we have all commented on, which is that that instrument is not a firm policy. It is not bankable or something that investors can take into account as a material policy, because it is subject to change at the whim of a Chancellor. I think that we are less than two years into its operation and it has already been fundamentally changed.

My first question is: what impact did that decision in the Budget have on DECC’s dynamic dispatch model? By that I mean: how has it changed the forecasts that DECC now uses for capacity and what does it do to the fuel mix? If that is perhaps too complex an issue to go into here, I would welcome a note on this, because it is fundamental in thinking through how the EMR hangs together.

That leads me to my second general point. This is an incredibly complex set of regulations and, at some point, you have to try to take a step back and see how they all affect each other. It is a yarn of wool; you pull one end and the other gets affected. We are making a massive intervention in the market and this afternoon we have had something of a philosophical discussion, in which noble Lords have expressed differences of opinion over whether we should be more state-governed or more market-governed. What we have at the moment is, potentially, the worst of both worlds. We have a hugely state-driven system but with no power for the state to deliver. The state is entirely dependent on private entities coming forward to invest in this market. They will do so only if they feel they have clarity and confidence, and can understand the rules that they are being asked to apply. So we have a lot of micromanagement from government but no ability for government to make anything happen without the private sector. This morning Peter Atherton, a renowned commentator, stated after listening in on the budget announcements about the CFD:

“We are now in a world of staggering complexity, micro management and second guessing by the state”.

I am afraid that that is quite an accurate portrayal of where we are today.

We have also seen, just this week, that we have had state aid clearance. That was welcome although, as I understood it, there was a queue of state aid clearances with Hinkley as number one, then the rest of the CFD and then the capacity mechanism. We have not had a decision on Hinkley yet but we have on the capacity mechanism and have had the renewables part of the CFD cleared. Should we infer from that that there is something of a delay on the Hinkley decision? Can the Minister explain why we have received these judgments slightly out of the order in which we thought they were being considered and when we are likely to see pronouncement on Hinkley?

I mentioned that this is complex and that we need to take a step back to look at how all these parts interrelate. I now want to say something in relation to how these two major planks of the EMR package that we are considering today interrelate. Obviously, we have CFDs, which are there to bring on low-carbon capacity and to give guaranteed payments over a period of years to ensure that we can get capital-intensive projects away. We then have a capacity mechanism

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which, to give a shorthand definition, is designed to try to keep the lights on. However, there is something of a conceptual gap between these two mechanisms. I would really like to hear more from the Minister on that.

The reason that there is a gap is that CFDs reward low-carbon capacity. We are told that they will do this at some point through competition, where price will determine it. At the moment, it is not quite clear what the determinant is between somebody getting or not getting a CFD, so it is administratively decided. Nevertheless, that is the system. Then there is the capacity mechanism, which is designed to reward those people who are able to provide firm power and maintain system availability. In order for the capacity mechanism not to double reward, the decision has been taken that anybody receiving a CFD will not be eligible for the capacity mechanism. That essentially means that there is a class of CFD-eligible technologies which are firm—they provide you with available, predictable and, more importantly, dispatchable power—but are not being given any reward for that element.

To clarify: if we consider biomass or CCS, they are very different to wind or solar in that they can be fired up at will and used to meet spikes in demand. They therefore have an inherent value that is not rewarded through the capacity mechanism or the CFDs. How does the department value that element of capacity—the firm, low-carbon power that is coming on? I would appreciate an answer to that question.

4 pm

To look at the slightly bigger picture, taking a step back, the other, key, interrelated issue is that we now have capacity mechanism that is designed to help to bring on new plant. However, the definitions of new plant are quite broad. There seems now to be a slight inconsistency with what you have to do to qualify as a new entrant in the capacity mechanism—which is defined as spending a certain amount of money—and the definitions of new entries or new plant under the EPS. I know we are not debating that today, but we will see regulations come forward to implement the EPS—the emissions performance standard. However, noble Lords will remember that we had quite a considerable debate about the potential for coal generators to qualify under the capacity mechanism for quite lengthy contracts.

It recently came to my attention that analysts now say that it is perfectly possible for existing coal plant to reach that £250 per kilowatt threshold and bid for 15-year contracts. Will that happen? I do not know. Could it happen? Absolutely. What is the Government’s back-stop policy, should that be the case? What happens if the 14 gigawatts of coal which is still undecided as regards what it will do to comply with the industrial emissions directive decides that its best option is to fully fit and retrofit and make itself compliant, and spends that 250 kilowatts and bids for a capacity payment? What will happen then? How will that be compatible with our carbon targets and our desire to set the decarbonisation target in 2030? Therefore that is a serious concern.

On a related point, you will not see those triggers— the decision to determine what a new plant is by the amount of money you spend—in any of the detailed

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regulations here. It appears in chapter 2, paragraph 11 of the capacity regulations. Those are all caught up in the auction parameters. However, the parameters appear to be set by the Secretary of State; there appears to be no consultation; and I am not clear as to how early or late they can be changed. How does the Secretary of State determine the parameters that are set out in chapter 11, on page 18? They are quite fundamental to how that capacity mechanism will reward or allow different plant to come in. We know that some of the thresholds have already been published, but they are not statutory instruments and so are subject, I think, to change by the Secretary of State. How much flexibility is there, and how late in the day can they be changed?

Turning to the capacity mechanism in a little more detail as regards what it seeks to achieve, I understand—we had lengthy debates about this—that it is trying to do two things. First, it aims to ensure that we have sufficient generation on the system to enable us to have a secure supply, but it also recognises that simply building new plant and holding existing plant open is one way of doing that. Another way of doing that is by bringing demand down—demand management. However, this is meant to be a mechanism that incentivises both.

As we are in an oversupplied market at the moment, where we have 56 gigawatts of plant that is potentially eligible for the capacity mechanism, but an auction that has been set at only 52.3 gigawatts, there is an obvious overhang of qualifying thermal plant that will not get an auction contract. In the four-year in-advance auction we are very likely to have overbidders. If that is the case, the T-1 auction—the one year in advance auction, which is when you see the demand-side bidding—could be squeezed out by thermal plant that is still looking for a contract. Perhaps this is due to my inability to decipher this from the regulations—maybe it is here—but I want reassurances. Is it the case that there will definitely be capacity for the demand-side response to bid into, or can it be squeezed out by capacity that is still looking for a contract?

In thinking about the choices we have made about the capacity mechanism, my concern is that this is a solution that works under certain circumstances but does not properly reflect the world we live in today. Paying everybody and having an auction that pays everybody up to a certain limit is little-island thinking. It does not really work if there is a high degree of interconnection. That has been one of the problems—how we treat interconnection.

It also does not work when one is going through a period of quite rapid transition to a low-carbon economy because the pie gets ever smaller as we go forward. You are never actually contracting for the full market: each time a contract is awarded the pie shrinks; every time a CFD is awarded, more of the capacity is outside the pie. Therefore, it is a very cumbersome and complex solution. It reflects an old way of thinking about electricity supply: we are an islander nation, we can only rely on what we generate on our shores, and it is all about building things and keeping things on the system. I do not think it was designed for the nature of what we are doing today, which is investing to reduce demand, and that should have been our first and

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foremost priority. Actually, what we have done now is over-reward incumbents and existing operators for fear of the lights going out, which I think has been an overplayed element of this EMR debate.

I will talk a bit about consumers and how they will be protected through these changes. Obviously, we have a capacity mechanism now that is taking money and recycling it in the market. The theory was that any moneys raised would be compensated by a fall in wholesale prices as prices got less spiky as we got more secure. Have the Government assessed whether we will actually see wholesale prices falling in the near term? I ask in particular because the cash-out arrangements for the settlement arrangements are changing to make them more price-reflective, which means that wholesale prices could get spikier.

My fear about our capacity mechanism is that the benefits we should see in terms of prices going down might be eroded by those changes to make the cash-outs more price-reflective. I am sorry that it was a very complex point but it is important because this will not be cheap if we do not see a reduction in wholesale price. If we were simply to see large amounts of money going into existing incumbents to help them retrofit their plant but no reduction in wholesale, that would not be a good result for the consumer. I should maybe apologise again as it is perhaps my lack of understanding of all the detail, but I am interested in how we ensure that moneys are paid back to the consumer, so that the consumer does see a benefit. I would hate there to be a hidden windfall arising from this.

That relates to another area where I am afraid I am going to ask for clarification—penalties. One of the big discussion points about whether or not the capacity mechanism would entice new entrants or keep people in the market was the degree to which they would be penalised for not being available. I confess that I have looked at the regulations and I think I understand how it works but I would welcome clarification. I understand there are two termination fee levels and that they are triggered under different parameters, and that somewhere in Schedule 1 the answer lies. Schedule 1 terrifies me. It is probably the most complex piece of regulation I have ever set eyes on so I would like clarification on how the penalties will operate now and what that means in terms of incentives created or not created.

My last point on the capacity mechanism is that it is very complex and we will need a review. I was heartened to hear—I apologise if I have misunderstood but I think that the Minister implied this—that there would be a review after the first auction and that that would be subject to potential changes and consultation. I strongly support that concept. The first one is clearly going to be a dry run. In a way, I can understand why some of the parameters will be subject to change: it is complex, we may have got it wrong and we may get an outcome that we were not anticipating.

The outcome, I fear—I hope that I am proved wrong—is that we will see a lot of inefficient, very old coal plant seeing the capacity mechanism as a nice, quick way of having a refurbishment paid for by competitors and bidding for those 15-year contracts.

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I am sure that people will tell me that they have consulted the industry and that it says nothing of the sort. Let us hope that that is true, but it would be more by accident than by design because, as I see it, there is nothing in the capacity mechanism rules as they stand that would prevent them doing so. As we have discussed previously, we do not have a back-stop policy and we do not have a carbon price floor escalator. We have a carbon price floor that is being discounted by everyone because it has already been changed once, and we have an EPS which does not line up with our new definitions of new plant under the capacity mechanism.

I have a few points to make on CFDs. They are obviously the flipside—this is where we try to encourage people to enter the market. I have a quick question on the definitions. We previously had a debate about what I think are called onshore-offshore wind farms. They are wind farms that are out of UK territory and so are offshore, but they are onshore in terms of being in Ireland. Are they eligible? I could not tell from the first regulation.

I think that noble Lords have alluded to concerns about the allocation of budgets under the allocation framework and the fact that this is non-regulatory. Therefore, there is a feeling that this could be subject to quite a high degree of political interference. I hope that that is not the case. We have all received representations from certain sectors saying that the budgets are too small for the established technologies. It has been pointed out to me that the early CFDs—the eight or so that were administratively set—have received a budget of around £1.2 billion, yet only £50 billion extra has been made available for all the other established technologies. That worries me and I hope that, as we have a bit more time to digest this, we will be able to interrogate that budget-setting process a little more closely.

On the standard terms of the contract, which relates to the third statutory instrument, I have a general question which touches on the reference by the noble Lord, Lord Oxburgh, to CCS. I understand that CCS is eligible for CFDs but I wonder whether the standard contract is suitable for them. Again, I am sure that we will come back to this, but CCS does not yet have a published strike price. We need early clarity on how CCS is going to be accommodated under the CFD process, how much headroom it will have and whether the contract needs to be specifically changed for CCS.

The fourth regulation relates to the supplier obligations. My question there is the same as it was on the capacity mechanism. If suppliers overcharge in order to have enough money to pay for obligations under the CFDs, how can we ensure that that money comes back? How can we ensure that Ofgem is on it, and that the money does not just get squirreled away somewhere?

That is about it for now. This is a very complex area. It is good that we have returned to it but I still have fundamental worries. I echo what the noble Lord, Lord Deben, said: obviously something needed to change. We need to see market conditions that allow us to invest in big capital-intensive projects. That could have been done in different ways but this is how we are doing it now, and the Government have the support of the Opposition in this. However, as with

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everything, the devil is sometimes in the detail. I hope that my comments have been helpful and I look forward to hearing the Minister’s response. Obviously, if she is not able to respond because of lack of time or the level of detail, I shall be very happy to receive a letter.

4.15 pm

Baroness Verma: My Lords, I thank all noble Lords for their helpful remarks and questions. It has been a well informed discussion. These are complex measures and, quite rightly, my noble friends and other noble Lords have asked for clarification. If I do not respond to any questions raised during the debate, perhaps it might be helpful if I undertake to write to noble Lords and place copies in the Library. There were a large number of questions and it may well be that we have overlooked some of them.

I start with the questions posed by my noble friend Lord Jenkin. I would like to put on record my apology to my noble friend for responding to his letter rather late. There were gremlins a-playing and I can only blame them. I hope my noble friend will agree that usually I try my level best to give prompt—and maybe lengthy—responses to questions that he and other noble Lords put to me in the department.

We want to ensure that independent generators are very much part of what we are trying to deliver; making sure that the lights stay on, and driving down costs to the consumer through competition. A number of questions were put to me around that matter. My noble friend raised the issue but other noble Lords have added their concerns about why it cannot be April rather than the October date that has been laid out. I will try my utmost to bring the date as far forward as I can and I will be happy to meet independent generators to give those assurances. However, noble Lords who know me will know that I would rather play on the side of caution. Rather than over-promise and then fail to deliver, I would prefer to put in place a date I feel I can deliver. That does not stop me—I hope my noble friend and other noble Lords will take away this assurance—from pushing to get an earlier date, but I felt I could deliver on the October date.

As always, my summer holiday will be spent pushing dates with officials, but perhaps my noble friend can take back to the independent generators that the date is not set in stone; that it is there because I would rather not over-promise. I am willing to work closely with the independent generators and I would be happy to meet them and reassure them. Perhaps my noble friend will take up that offer.

My noble friend asked how much capacity will be procured. The Secretary of State confirmed on 30 June that the first delivery year will procure 53.3 gigawatts for 2018-19. These will be procured at two auctions: one later this year will procure 50.8 gigawatts, and the second phase in 2017 will procure 2.5 gigawatts. He also asked if the indicative CFD budget included the contract for the capacity measure. The answer is no. The interactive budget numbers published this morning relate only to the CFD mechanism.

My noble friend inquired about the Bill’s impact on the CFD. My department’s latest analysis suggests that household electricity bills will, on average, be

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about 6% lower per year over the period 2014-30 under EMR compared to meeting the Government’s objectives under the existing policy instruments. It is estimated that the annual electricity bills of businesses will be around 7% to 8% lower.

Lord Jenkin of Roding: I am grateful to my noble friend for that. She reiterated the statement made this morning by her Secretary of State regarding 6%. I hope that my noble friend Lord Deben will forgive me for asking this question again. The sums spoken of in the EU Commission’s consent for state aid are very large. Unfortunately, I sent the numbers to Hansard, so I do not have them in front of me. My question is: how much of that represents subsidies that will have to be paid by consumers? The Minister will know that I have another amendment, which we will be discussing in October, to the Infrastructure Bill, under which I am asking for us to know what it will cost consumers. This is the same question. It is not the overall cost; it is how much of the cost of contracts for difference will fall on consumers.

Baroness Verma: I am extremely grateful to my noble friend for that clarification. I hope that I will be able to respond to that. If not, if my noble friend will allow me, I will write to him.

I am always pleased by the great energy with which the noble Viscount, Lord Hanworth, contributes to our debates but, as my noble friend Lord Deben pointed out, we had a very dysfunctional system before, so we need to go forward by ensuring collectively that the systems we have put in place since privatisation allow for greater competition, for costs to be driven down and, especially, that we are meeting our carbon commitments as well as ensuring security of supply.

I do not agree with the noble Lord’s premise about how we are approaching this. These are complex instruments and, with complex instruments, we have to ensure that people reading them can understand them. I undertake to try to make the instrument easier to understand. The noble Viscount showed me a big pile of notes. Sadly, all of us have had to drive through those because of the complexity of the Energy Bill 2013 and what we are trying to deliver through it.

I thank my noble friend Lord Deben for his intervention. First, I put on record our appreciation for all the work that he does as chairman of the Climate Change Committee, his great understanding and the very useful support that we gain from the work done by him and his committee. I agree completely that we need a real mixed portfolio of technologies and that, although energy security is crucial, we must not lose sight of our commitment to reduce carbon emissions by 80% by 2050. Therefore, it is important that, when we are talking about the need for energy security, in everything we do we are mindful of that target as well.

My noble friend also asked whether we were doing enough to push for competition. Vigorous competition and transparency is the key to keeping prices as low as possible, and to raise consumer confidence in the market. It is in a much better place today than it was when we first came to power in 2010. That is because

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there are now many more players in the market—although, I entirely agree, not enough. We have to open up markets and make them certain for the smaller players so that we do not have them disappearing, as they did when we the big six took over by consuming them.

The noble Lord, Lord Whitty, asked whether consumers understood what EMR was. I know that many of us have stood at the Dispatch Box with that question in mind because it is incredibly complex. I can assure the Committee that I have looked at different ways of making sure that the message goes out to the consumer. Ultimately all of us are working to ensure that consumers are the beneficiaries and can understand the policies that we are trying to deliver. As with all complex pieces of legislation, it is about how we bundle it up without losing the underlying measures that we are trying to deliver. I will take the noble Lord’s views back to the department and instruct it again to try to talk in a language that has more outreach. But with complex legislation, there are limits to what we can do.

The noble Lord also asked what engagement we have had with consumer groups. He is aware that we have been closely involved with all stakeholders, including consumer groups. They have been part of every discussion and we have consulted them on everything that we are doing. It is important to say that as far as we are aware, we have not tried to exclude anyone, but have taken their views on board. The noble Lord also asked about allocation rounds and whether they should operate on a quarterly basis. An allocation round takes about three to six months, depending on whether there are any appeals. This means that the earliest another allocation round could be scheduled would be around May or June next year, when we know how many contracts have been signed and are able to reallocate any unspent budget.

The noble Lord also said that there was not enough support for solar. The noble Baroness, Lady Worthington, also mentioned that. We work closely with the solar trade associations and others to assess the RO grace periods and other issues that have been raised by them to ensure that full participation is possible in the CFD auctions. The amount of money allocated to Part 1 in this allocation round and in the indicative budget for October 2015 will enable around 1.6 to 1.8 gigawatts of solar PV deployment, and potentially more depending on the strike price at which individual projects will bid for.

The noble Lord, Lord Oxburgh, asked about consultations, particularly with smaller players in the market. I can assure him that more than 30 consultations have been published on EMR since last summer and overwhelmingly, a number of them were to ensure that we had given support to stakeholders, particularly the smaller players. We wanted to ensure that they could understand the reforms and effectively engage in the consultation process. If the smaller players feel that they have not been involved enough we must do more, but the department has worked incredibly hard to engage at all levels with smaller players. The noble Lord, Lord Oxburgh, and the noble Baroness, Lady Worthington, asked why CCS was not mentioned. It is an eligible technology and I draw the Committee’s

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attention to Part 10 of the allocation regulations which enables the Secretary of State to direct the CFD counterparty to offer, for example, two CCS generators.

The noble Baroness asked about the impact of a dynamic despatch model on capacity. It is quite complex so if the noble Baroness will allow it, I will write to her and to other Members of the Committee.

4.30 pm

Baroness Worthington: On a point of clarification, I did not ask whether CCS was eligible; I stated that I knew that it was and asked whether the standard contract terms in the third regulation before us were suitable for CCS. That was my question.

Baroness Verma: In direct response to the noble Lord, Lord Oxburgh, who did ask that, I think that I have laid that out clearly. I will wait for some inspiration to come my way in answer to the noble Baroness. Concerning coal in the capacity market, I say to the noble Lord, Lord Oxburgh, that the purpose of the capacity market is to ensure security of electricity supply, providing all forms of capacity with the right incentives to be on the system and to deliver energy when it is needed. Ruling out existing coal would add unnecessary cost to consumer bills. In addition, it acts as an important bridge while new nuclear and renewables come online, leading to a natural need not to have more coal.

The noble Baroness, Lady Worthington, asked about Hinkley Point C. The Commission considers the UK’s Hinkley Point C state aid notification as part of the normal process. We are working closely with the Commission. As the noble Baroness will be aware, these things take time to go through the various stages, but it is not significant to us that it is taking this long, because it is a big project. Of course we need to ensure that we comply with all the things that the Commission expects of us on state aid issues.

The noble Baroness asked about existing coal stations bidding for capacity agreements of up to 15 years. As I said to the noble Lord, Lord Oxburgh, all types of generation can in theory bid for a capacity agreement of up to 15 years. However, we do not expect any existing coal capacity to do so. The thresholds have been set so that the capital expenditure would have to be of a level similar to building a new plant to qualify for a 15-year agreement, so even if an existing plant could justify making that level of capital investment, it would be unlikely to do so. Modelling demonstrates that the wider market conditions, such as the carbon price floor, will make coal uneconomic in the 2030s. As I said to the noble Lord, Lord Oxburgh, ultimately it is about value for money for the consumer and energy security—both objectives that I do not believe for a minute noble Lords opposite or other Members of the Committee would be against.

The noble Baroness also asked whether the Secretary of State could change the auction parameters, such as the amount of capacity to procure, without consultation. The regulations give the Secretary of State the power to determine auction parameters, including the amount of capacity to procure, before each auction. They are

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not subject to consultation; they are made when published. The Secretary of State has the flexibility to change them between the pre-qualification period and when the auction takes place so as to be able to take account of issues such as the amount of capacity that has been pre-qualified and the plant that has opted out but will remain operational.

The noble Baroness also asked why the Government did not use the capacity market to support other means of capacity, such as interconnection or demand-reduction programmes, rather than support dirty coal. The capacity market is open to a wide range of capacity, from gas to CHP, as well as technologies including demand-side response and storage. All are eligible to participate in the first, main capacity auction. As we announced last year, we were unable to find a way to include interconnector capacity to allow it to participate in the first auction. However, that is an issue only for 2014, and interconnection will be eligible to participate early in 2015. We will bring forward amending legislation in early 2015 to facilitate that.

The noble Baroness also asked about eligibility for fixed generators in receipt of low-carbon support. The capacity market is open to technologies as long as they are not in receipt of other low-carbon support, such as a carbon capture and storage grant or a long or short-term operating reserve contract.

Baroness Worthington: Some of my questions have perhaps been a bit lost in translation. One of my questions on coal was also specifically about the definitions of new plant. If you get a 15-year contract under the new plant definitions in the capacity mechanism, should it not therefore mean that you are equivalent to a new entrant or a new plant under the EPS regulations? When we were debating this back in the summer of last year, nobody was aware that coal could qualify for 15-year contracts. I would really welcome a comment on that.

In terms of the demand-side management, I know that the generators are eligible but my question was more about whether there will be any room for them, given that we have 56 gigawatts of thermal capacity chasing an auction of fewer than that. It is conceivable that existing generators will be able to outbid them in that T-1 auction. I seek reassurances on how the Secretary of State is going to ensure that there will be space for the demand side to bid in.

Baroness Verma: I am grateful to the noble Baroness but I do not think that it got lost in translation. I responded to her but perhaps my response was not full enough, so it may be helpful if I undertake to write to her and to the Committee on that issue, as well as on the issue that she has just raised.

As I have said from the beginning of this debate—and it is now two hours later—the delivery of these new arrangements will be a significant achievement. They will ensure that we keep the lights on and ensure a clean, sustainable and competitive mix of electricity generation. We also want to do that in a way that secures value for money. I have always made the point to noble Lords that it is really important, as well as reducing carbon emissions, to look at value for money

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because, ultimately, all our measures have an impact on consumers. I commend these instruments to the Committee.

Motion agreed.

Electricity Market Reform (General) Regulations 2014

Motion to Consider

4.37 pm

Moved by Baroness Verma

That the Grand Committee do consider the Electricity Market Reform (General) Regulations 2014.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 6th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Contracts for Difference (Allocation) Regulations 2014

Motion to Consider

4.38 pm

Moved by Baroness Verma

That the Grand Committee do consider the Contracts for Difference (Allocation) Regulations 2014.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 6th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Contracts for Difference (Electricity Supplier Obligations) Regulations 2014

Motion to Consider

4.38 pm

Moved by Baroness Verma

That the Grand Committee do consider the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 6th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Contracts for Difference (Definition of Eligible Generator) Regulations 2014

Motion to Consider

4.39 pm

Moved by Baroness Verma

That the Grand Committee do consider the Contracts for Difference (Definition of Eligible Generator) Regulations 2014.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 6th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

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Contracts for Difference (Standard Terms) Regulations 2014

Motion to Consider

4.39 pm

Moved by Baroness Verma

That the Grand Committee do consider the Contracts for Difference (Standard Terms) Regulations 2014.

Relevant documents: 4th Report from the Joint Committee on Statutory Instruments, 6th Report from the Secondary Legislation Scrutiny Committee

Motion agreed.

Renewables Obligation Closure Order 2014

Motion to Consider

4.40 pm

Moved by Baroness Verma

That the Grand Committee do consider the Renewables Obligation Closure Order 2014.

Relevant document: 5th Report from the Joint Committee on Statutory Instruments

Baroness Verma (Con): My Lords, the renewables obligation—which I shall now refer to as the RO—is currently the Government’s main mechanism for supporting renewables electricity generation in the UK. In July 2011, as part of the electricity market reform White Paper, we confirmed our intention to close the RO to new generating capacity in 2017 and to make the transition to contracts for difference, or CFDs, as the new support mechanism for large-scale, low-carbon electricity generation.

The order is consistent with our overarching policy of transition towards CFDs with an aim of avoiding an investment hiatus. It introduces change in two main areas: setting the date of closure of the RO to new generating capacity, and the implementation of grace periods with respect to that closure date. The order sets the closure date of the RO as 31 March 2017. The closure date will not affect capacity that has been accredited under the RO before the closure date, and generating capacity will continue to receive its 20-year period of support under the RO or until 31 March 2037, whichever is the sooner.

Following the Committee’s earlier approval of the six EMR instruments, the Government expect CFDs, the new support mechanism for large-scale, low-carbon electricity generation, to open for applications in the autumn. From that point until 31 March 2017, any new eligible renewable generating stations will have a choice of entering either of these supported schemes. Renewables projects are generally large infrastructure projects which take several years to develop and construct. Like any large infrastructure project, they can be subject to construction delays. Some renewables projects, such as those using new or emerging technologies or those constructed in difficult environments, could be

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at a much greater than average risk of delay. Others that are simply due to be completed close to the RO closure date may be deterred if factors beyond their control risk delaying them and stopping them getting support.

A two and a half year transition period may not be long enough to prevent a hiatus in investment in these kinds of projects. The order will therefore implement a number of exceptions to the closure date to cover projects against specified delay risks. These are clearly defined grace periods, and they will provide a set period of time after the closure date in which the projects benefiting from the grace period will be able to enter the RO.

The order provides the following grace periods: a 12-month grace period for projects of any technology delayed due to grid connection delays or due to delays to works on radar stations or radar equipment; a 12-month grace period for signatories of CFD investment contracts if the contract is later terminated due to reasons relating to state aid or due to changes made to the investment contract in the light of the standard CFD terms and conditions issued by the Secretary of State; and a 12-month grace period for advanced conversion technologies and offshore wind projects designed to give them sufficient assurance, in advance of full clarity on the CFD, to move forward towards final investment decisions on the basis of RO support. It also provides grace periods of 18 months for dedicated biomass projects, with or without combined heat and power; and an 18-month grace period for offshore wind generating stations in Scottish waters using test and demonstration wind turbines or floating wind turbines.

I hope that I have assured noble Lords that we appreciate the value and importance to industry of maintaining a clear and coherent RO scheme across the UK and the greater certainty it will bring to those looking to develop renewable projects in our overall transitional arrangements, and in a way that ensures value for consumers. The grace periods within the order are key to investor confidence and to the progress of renewable electricity projects due to complete construction in late 2016 and early 2017. I beg to move.

4.45 pm

Lord Deben (Con): I want to be sure about the relationship between this and the national Governments. In the Climate Change Committee, we are much impressed with the work that is done in Scotland, Wales and, increasingly, Northern Ireland. As this refers specifically to Scottish waters, I am concerned that the Scottish Government should be happy about it.

Baroness Verma: My Lords, I thank my noble friend for his intervention. We have consulted with all devolved Administrations.

Lord Whitty (Lab): I have two points on which the noble Baroness may wish to write to me. I mentioned in the previous debate the apparent intention of the department to end ROs on larger solar projects over 5 megawatts from April next year, which is well before anything else happens. I wonder whether the department are proceeding with that—it is a uniquely early finish

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of RO cover—for projects which may come on, or be in the process of coming on, in the period between now and 2017.

Secondly—I may have to declare a past interest—there is an obscure footnote to this which relates to the need to consult the National Consumer Council, of which I was formerly chair. The National Consumer Council was abolished but its powers and interest in the energy dimension have transferred to Citizens Advice. I hope that the department can give a general assurance that Citizens Advice will be consulted in the same way as Consumer Focus, and before that Energywatch, was consulted on all matters of energy policy which relate to consumer outcomes.

Baroness Worthington (Lab): My Lords, I am sad to see the end of the renewables obligation. It is tempting to say that everything was dysfunctional, that nothing was working and was not it awful. However, we should look at what we have achieved: at how much renewables capacity we now have in the UK and at how quickly and efficiently it has been deployed. This was largely achieved because of the RO, which replaced the NFFO scheme.

It was a highly innovative scheme which was introduced to allow the market to choose the projects it thought it should bring forward. It was obliged, of course, to meet targets set by Government but, by and large, it chose what to do. There were merits in that because it created an obligation. As we know, faced with having to do something or not do something, most people would choose the latter, stick with what they know and remain encumbered with technology that they understand and assets that they can continue to sweat. One of the benefits of the RO was that it did not allow that to happen. The ways in which penalties were repaid back to your competitors encouraged you to build new bits of kit, and to do so under a market-driven system. Over time, of course, it changed to ensure that we were not paying too much and that consumers were getting a good deal.

Over the years that we have been debating EMR, I can remember someone saying to me—I do not know whether or not it is true—that when EDF first approached government and said, “We want to build a new nuclear power station”, its first suggestion was, “Simply give us a ROC band. We can do it. We can build you Hinkley if you turn it into a low-carbon obligation and allow nuclear to be eligible”. Would it not have been a lot simpler if we had just said “Yes”? We did not, but we have come up with a new system, and we are where we are. However, I want to put on record that RO was successful; it brought forward a lot of capacity and brought diverse players into the market. We saw a great diversification of the number of companies that took part in the electricity market because of the RO. I, for one, am slightly nervous that we are abandoning what was a functioning system and embarking on a new, glorious path. I hope that the CFD will be as successful.

However, one suggestion is that it would be good for the department—perhaps this talks to my noble friend Lord Whitty’s point about communicating with the public in ways that it understands—if we could have an assessment of the RO, how much capacity was

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brought on, the diversity of that capacity and of the investors in that capacity. That would give us a good baseline from which to measure the success of the CFDs. We want CFDs to be more successful—we want them to bring on more capacity from a more diverse range of participants. Therefore, although it is not strictly speaking part of this regulation, and nothing in there requires it, it would be good for the department to undertake to provide us with a summary and a review of the effectiveness of the RO. From there it could move on to use those parameters of diversity and deployment against the CFDs, so that we can measure how successful they are.

My noble friend Lord Whitty raised an important point, that once the RO closes and the CFDs move on, there is a danger that we have mid-range technologies which fall into a sort of valley of death between FITs and the new CFD arrangements. I echo his question. We want to clarify that we will not see technologies that are currently receiving support either through FITs or the RO being lost in translation towards the CFDs. However, other than that, I thank the noble Baroness for her presentation.

Baroness Verma: My Lords, I am extremely grateful to all noble Lords for their contributions. This has been a very short but interesting debate. I will respond very quickly to one or two of the points that were raised. Again, if I do not respond fully, I undertake to read Hansard carefully and to respond in writing.

The noble Lord, Lord Whitty, asked whether Citizens Advice would be consulted on the use of powers relating to the RO; the answer is yes. He also asked about financial support for solar PV. We have consulted on the proposals to close RO across Great Britain to new solar PV capacity above 5 megawatts from 1 April 2015. Those proposals will apply to both new installations and to additional capacity added to existing ones. From the noble Lord’s expression, I am not sure whether that was the answer he expected.

Lord Whitty: My Lords, I appreciate that the Government have consulted. Is there a final outcome to that consultation? If it is in line with the original propositions, I will be worried.

Baroness Verma: My Lords, the only response I can give is the one I gave just now. However, if that is not useful, as I said, I will go back and read Hansard to see whether my answer can be tweaked to be a little better —although I think the answer will possibly be the same.

The noble Baroness, Lady Worthington, asked about the success of RO and asked for us to provide some detail of its success over the period it has been in place. Yes, it would be wrong to try to produce it now, so it may be useful to write to the Committee to allow it to look at it in fuller detail. However, I hope that the noble Baroness did not misunderstand me. In our earlier debate, I referred to the RO as being a useful tool to bring on the renewables that we so rightly need to reduce our carbon footprint, but also to ensure that we have a proper mix of energy sources. However, in future the CFDs provide a better mechanism for the longer-term necessity for investment confidence.

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I know that the noble Baroness, like other noble Lords, is very supportive of a much more self-sufficient renewable sector in the country, particularly given what is happening across the globe. The CFD scheme provides longer-term certainty and better returns for investment, but also gives us an opportunity to try to bring the costs down so that the impact is much more beneficial to the consumer.

The order raises two important changes introduced to the RO scheme. The first sets a consistent closure date across Great Britain to new generating capacity, at which point CFDs will become the main support mechanism for large-scale, low-carbon electricity generation. The second introduces grace periods designed to target specific risks of delay with the intention of avoiding any investment hiatus. Both measures will ensure that investors continue to have confidence in the operation of the RO in its final years as we transition to a new support regime.

I thank all noble Lords for their contributions.

Motion agreed.

Local Government (Transparency) (Descriptions of Information) (England) Order 2014

Motion to Consider

4.57 pm

Moved by Lord Ahmad of Wimbledon

That the Grand Committee do consider the Local Government (Transparency) (Descriptions of Information) (England) Order 2014.

Relevant document: 5th Report from the Joint Committee on Statutory Instruments

The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Lord Ahmad of Wimbledon): My Lords, this order was laid before the House on 24 June 2014. It expands the descriptions of information about which the Secretary of State may require authorities to publish information more frequently than annually. On 1 May, under Section 2 of the Local Government, Planning and Land Act 1980, the Secretary of State issued a code of recommended practice on the publication of information by local authorities—the Local Government Transparency Code 2014. It is the Government’s intention to make it a legal requirement for local authorities to comply with Part 2 of that code, and this will include a requirement to publish on a quarterly basis information about their spending and the contracts they enter into.

However, the Secretary of State may require authorities to publish information on occasions recurring more than once a year only if the information falls within a description of information to which Section 3(4) of the 1980 Act applies. In short, legislation needs to set out which categories of information the Secretary of State can require to be published more frequently than annually. Therefore, this order adds to the descriptions of information about which the Secretary of State may require authorities in England to publish information

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more than once a year—namely, information about any expenditure incurred by authorities, including expenditure exceeding £500 and government procurement card transactions, any legally enforceable agreement entered into by authorities and any invitations to tender for such agreements.

The average band D council tax payer gives their local authority £122 a month. Hard-working taxpayers deserve excellent services that meet their needs. They have a right to know how their hard-earned money is spent and how their services are delivered. They also have the right to ensure that their council is getting the best deals, to make every pound being spent work just a little harder. Taxpayers have a right to know what their council is doing. It is therefore reasonable to expect councils to publish all the information they hold unless there is a good reason not to do so, such as child protection or commercial sensitivities. Taxpayers should also be able to challenge councils in cases where they may be wasting money. That will act as an incentive to councils to keep looking at how they drive down their costs.

This is not just a whim. Since the Government took office, we have reversed several centralisation measures of the previous Administration. We have given unprecedented control to councils and local people for the delivery of local services. The code is another step on this journey. Local people want their council to publish key information. For example, Bedford’s citizens panel survey showed that 64% of respondents thought it was very important that the council makes data available to the public. Over half of respondents said that they were most interested in seeing data made available about council spending and budgets.

5 pm

A Local Government Association transparency survey found that more than half of the respondents cited local decision-making and democracy as a benefit of publishing open data. Research by Ipsos MORI has found that the more citizens feel informed, the more they tend to be satisfied with public services and their local authorities. But the performance of councils up and down the country is still too patchy. While some are embracing the importance of transparency and giving local people the information they want, others still have a way to go or their performance has tailed off. The LGA’s survey found that of 113 respondents, only half published contract information in line with the then voluntary recommended transparency code. Earlier this year, the Press Association found that a number of local authorities were not publishing timely spending data.

We should not, therefore, be surprised that councils struggle with all this. They spent too long having to deal with central targets set by the last Administration: having to send the Government data on thousands of performance indicators and to prepare for constant inspections. We have got rid of all that waste. Local authorities now need to make sure that they are accountable to those who matter most—local people.

The order is the culmination of over three years’ experience of local authorities implementing a recommended transparency code. I have seen the scrutiny committee’s report about this order. It is never the

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department’s intention to mislead Parliament and I do not believe that we have done so in this instance. I assure noble Lords that we have consulted three times about local government transparency. During our second consultation, 91 respondents said that it was unnecessary for the Government to regulate to make it a requirement for local authorities to publish certain information. In effect, that means that 58%—219 respondents—did not, in fact, object to that regulation. During the most recent consultation, the Government made absolutely clear their intention to regulate and to require the quarterly publication of certain information. Nobody questioned the Government’s intention to require councils to publish quarterly data about their spending and the contracts they sign. Indeed, some respondents told us that they would go further, with monthly publication.

I believe that I have outlined the reasons behind this order and I beg to move.

Lord McKenzie of Luton (Lab): My Lords, I thank the noble Lord for his introduction of this order and begin by a declaration of interest that I have entered in the register. I am a trustee of a local charity in Luton which takes people off the street, gives them a meal, gives them some training eventually and, it is to be hoped, helps them into employment. The charity engages with the local authority. It has various contracts with it and is always looking to have further such contracts.

The noble Lord will be aware of the debate in the other place and, from that, the fact that we are not looking to oppose this order. We are very happy to sign up to it and are supportive of the issue of transparency. I shall quote from the LGA briefing on the code to put the matter in context. It states:

“Local government is already one of the most transparent parts of the public sector, publishing information to inform citizens, communities and business about local authority democracy, accountability and finances, services and performance, and activities. Local authorities already publish their data based on statutory requirements and local needs and demands, which are often determined by local intelligence and Freedom of Information requests”.

It regrets the fact that this is effectively micro- managing the process and does not enable local authorities to work out their own arrangements for transparency and informing their citizens.

The Government’s position is that they espouse the cause of localism but, wherever you look, they have actually gone in the other direction—for example, with some of the planning changes that have been made, the assault on the publicity arrangements that local authorities enter into, issues around referendums and restraints on council tax levels. We recognise, too, that there has been a lot of history around this issue, culminating in the Local Government Transparency Code 2014. Therefore, I should like to make sure that I understand precisely the import of the order before us.

Part 2.1 of the code lists the areas where publication has to be quarterly. Under Part 2.2, there is a list of information to be published annually. It includes data covering local authority land, grants to voluntary, community and social enterprise organisations, organisation charts, trade union facility time, parking revenues, controlled parking spaces, senior salaries,

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constitution and the pay multiple. I should like to be clear: in terms of widening the types of expenditure that the Government can require to be reported on quarterly—or certainly more frequently than annually—which of those are going to be included in that approach? Are they all going to be required to be dealt with on a quarterly basis in future? If some of them are still going to be required annually, which ones will not? I am not sure that that has been spelled out, although I may have missed it. I understand that this is a voluntary code. So far as it is going to be made mandatory, from what date is that mandation going to apply?

This approach focuses on local authority expenditure; nothing in it causes an assessment of the value of the spending that has been undertaken, its impact on the community and whether it is value for money. I shall take up just one matter: the requirement in relation to published details of trade union facilities. I am bound to say that that is a bit of a spiteful issue. There is nothing in the reporting which requires any assessment of the extent to which trade union time may have been spent validly supporting and improving health and safety in the workplace, which can have significant benefits and consequences for a local authority and its taxpayers.

Also, what has happened to the best value portfolio? This was a data series owned by the Audit Commission. We debated at some length what the future of that data set was going to be with the demise of the Audit Commission. When we left the Bill—now an Act—we did not have any clarity on that. I understand that a local authority company is going to be set up to deal with the management of the ongoing contracts, but I have not seen mention of what is going to happen to those best value portfolios. Perhaps the Minister can let us know.

The code has been around for a little while in one shape or form and it has been used more or less enthusiastically by certain authorities. However, what is our experience to date of people who are accessing the data and the use to which they are putting those data? We have a concept here and one can perhaps see the thrust of that, but what is happening here in reality? Who is getting on the internet and getting these data on a regular basis? Are great hordes of the voting public engaged in this? What evidence base do we have for that? Indeed, do we have any concrete examples of how the publication of these data has actually opened up market opportunities to particular SMEs or, indeed, the voluntary sector?

What are the enforcement arrangements to be in respect of this? Is it the Information Commissioner who will have to have oversight? Does a local authority’s auditor have to take a view on this? What is it that will ensure that the quite significant effort which is to be put into this will actually be carried out in practice?

The documentation which we have indicates that the Government have accepted that this approach should be treated as a new burden. However, that acceptance came before the impact of this order, which presumably carries with it a further increase in burden if there is to be more regular reporting of some expenditure items. What precisely is planned in terms of extra resourcing, given the impact of this order?

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I note that it was the LGA, I think, which raised the question of whether the expenditure we are talking about was inclusive or exclusive of VAT. Part of the Government’s response in their Q&A was that if the VAT is recoverable, it will be net of VAT, but if it is not, it will be gross of VAT. However, that is too simplistic. The noble Lord will, I am sure, be well aware from his business experience that you can have circumstances where there is partial recovery of VAT. How is that to be encompassed within these arrangements?

Can the Minister also respond to the point that the LGA makes about parking revenues and controlled parking spaces? If I may, I will read that paragraph from its briefing. It says:

“Local authorities already make a return under the single data list for civil parking enforcement, including penalties issued, penalties cancelled and the immobilisation of cars. We see little value in publishing the number of controlled parking spaces in isolation, without a geographic reference to a town centre, because this gives no indication of the relationship between supply and demand, which will usually be affected by the availability of privately-owned car parks and the price of parking there. Moreover parking charges may only apply for part of a day and the times may not be the same at every location. As the charge for parking is determined by the demand for it, requiring publication of the number of paid for parking spaces in isolation from the detailed context affecting each location will not shed light on the quality of the parking service provided or the reasonableness of the charges. It is more likely to obscure the facts than to reveal them and will impose a pointless, unfunded burden on councils”.

The LGA calls for the requirement to be removed. How does the Minister deal in detail with the thrust of the argument that it makes there?

I have one final point to make. With thresholds of £500 and so on, what is our experience to date on whether there has been particular gaming around that amount, pitching expenditure just under it or having split invoicing arrangements? Obviously it potentially lends itself to that sort of approach? I will be grateful for the Minister’s response on all this but, as I indicated earlier, we are not minded to oppose the order.

Lord Ahmad of Wimbledon: My Lords, first, I thank the noble Lord, Lord McKenzie, for his broad support for what the Government are seeking to do. Although I totally accept that it is important that we debate the detail, I think that all Members of your Lordships’ House believe that increased transparency at local authority level is a positive thing. That is certainly the intention behind the order.

Perhaps I may pick up on a few of the themes and some of the specific questions. First, I make it clear that the department is working very closely with the LGA and local e-government standards bodies to prepare advice for local authorities on how to meet their obligations under the code. In this regard, as the noble Lord may know, we have already published a “frequently asked questions” document alongside the code, which provides answers to questions raised. Moreover, my department is also working with the Information Commissioner’s Office to ensure that the model publications scheme definition document and guidance are also aligned, as far as possible, with the code.

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5.15 pm

The noble Lord, Lord McKenzie, suggested that, although the Government have driven localism, this perhaps goes against the grain. I cannot agree with him. Local authorities will not be reporting to Whitehall but will be more accountable to local people. As I said in my introduction, this is about local authorities publishing data so that local people can hold them to account for their decisions. Transparency, as I am sure the noble Lord will acknowledge, will improve democratic accountability and bring about greater efficiency gains, through both service reform and increased competition.

On data share, Redbridge, for example, provides a vehicle to present data online in an open format that people can read and use. It also provides data in graphical formats which allow the public to interrogate data against their own criteria; submit their own idea for data that should be published; and allows data to be linked between data sets. As a market-leading project, data share has attracted government funding for its deployment to up to 100 local authorities already. Currently there are 230 data sets available to the public; there are 80,000 registered users; there are more than 1,000 visits per month; data sets are interrogated more than 1,500 times a month; and 1,700 data sets have been downloaded over the past six months.

It is important that we move forward because some local authorities are not sharing the information that they should be. There are examples around the country of local authorities which have not published expenditure information for more than a year. In terms of use, there is an organisation called Spend Network which captures the data on spending and allows people to compare the patterns of their authority with others. I have already provided the example of Redbridge.

The noble Lord, Lord McKenzie, asked about the date of implementation. Once this order is in force it is our intention to lay the regulation to make the code mandatory as soon as possible. He also asked whether the annual data will be included quarterly. We have no plans to extend the information currently required, which I detailed in my opening remarks, to a quarterly basis. The noble Lord suggested that this is an extra burden on local authorities. In our assessment of new burdens, the publication of the mandatory requirements is within the code. It was derived after discussions with local authorities—not excluding them—and the LGA.

On enforcement, the Information Commissioner’s Office will not monitor compliance with the code. It will react to complaints from the public under existing frameworks—the Freedom of Information Act and the environment regulations—to ensure that authorities fulfil their obligations. Let me make it clear that anyone can make a complaint to the monitoring officer of the local authority and remind it of its duty. The public can use local authorities’ complaints procedures, and it will be possible to make a complaint to the local government ombudsman where other local authority complaint procedures have been exhausted. The authority could, of course, become subject to judicial review, and the public can make freedom of information requests.

The noble Lord also asked about thresholds and the £5,000. We understand local authorities’ concerns about burdens. However, the Government want to open up local markets and increase competition for

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contracts, particularly among SMEs and the voluntary sector, and think that a lower threshold will increase opportunities for smaller enterprises, which are likely to be the type of organisations that might be attracted to compete for smaller contracts at a local government level.

The noble Lord asked specific questions about the best value portfolio and, if I may, I shall write to him in that regard.

Lord McKenzie of Luton: In relation to centralisation, my point was not against transparency but about a centrally prescribed form of transparency. There is a view that there should be a requirement for transparency but also a degree of flexibility as to how local authorities go about it. It is the centralisation which runs contrary to the position that the Minister was taking. I understand what the Minister said about Redbridge and data sharing. It is still quite difficult to get an understanding of the extent of the volume of individual voters out there who are making use of those and the use to which they are putting them. It might be somebody sitting at home after the football, switching on the computer and having a trawl through it. I am trying to get a better sense of how this is being used, in particular—I do not think the noble Lord addressed this issue—the circumstances where this is actually going to help somebody get more business, in the private sector or in the voluntary sector.

My point about new burdens was on the proposition, or supposition, that the order would involve more reporting more frequently. From what I understood the noble Lord to say, at the end of the day this is an enabling order; nothing is going to flow from it directly at the moment. Obviously, if that is the case then it could not generate a new burden. Is it right that this is just bringing forward an opportunity for a Government at some stage in the future to change the code so that some of those things published annually at the moment could be made to be published more frequently or, presumably, to enable those things that do not have to be published at all under the code to be published? It would be quite helpful to have something specific on that to make sure that we have understood it.

Lord Ahmad of Wimbledon: As ever when the noble Lord and I—I was about to use the term “trading blows” but I never trade blows with the noble Lord—have our cordial exchanges across the Floor, be it in the Moses Room or the Chamber, one thing I am always guaranteed is a number of questions from him. I hope the noble Lord appreciates, as I am sure he does, that where possible I try and provide a rapid response service. He raised a number of other questions but I come back to the question about the quarterly data. As I said, during the recent consultation the Government made absolutely clear their intention to regulate and to require the quarterly publication of certain information. These quarterly data are about spending and the contracts they sign. Specifically on the contracts information, having greater transparency would impact and increase competitiveness. Therefore, certain parts of this certainly would require quarterly reporting. As I said in my opening remarks, some actually requested that this be done on a monthly basis.

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The noble Lord talked about centralisation. I have served in local government, as has the noble Lord, and if we take a step back I think we would both recognise that there are occasions where, of course, every local authority rightly demands local and devolved powers. However, to set a standard there are certain requirements that central government must set in codes of conduct and codes of practice. We seek to do just that, to provide the framework in which local authorities are then required to provide greater transparency at a local level, with the key beneficiaries being local residents. I hope that I have been clear on that. Moreover, the evidence from the National Audit Office, the LGA and the Press Association shows that local authorities at times have not volunteered and published key information that residents would find useful. The Government are not seeking to coerce or impose but to provide guidance and a framework in which local authorities can report more effectively and more regularly, on a quarterly basis.

There were a number of other questions. I have already said that I would write to the noble Lord on one. He raised the issue of VAT. We have discussed the treatment of VAT with the CIPFA, based on questions that arose from authorities. Where VAT cannot be recovered, the gross amount should be published instead, otherwise the amount of VAT paid would be published, be it at partial or full rate.

The noble Lord also asked about parking spaces and reviews. He will be aware that parking restrictions and enforcement are important issues to local people. I can remember my postbag being rather full with such complaints. Not that many people wrote to me telling me how wonderful the local parking restrictions were, but one or two did and they have gone into my memory box.

I am sure that the noble Lord would agree that local people should be able to see the core data and be able to take an informed view of the authority’s decisions. We have used existing DfT definitions in drafting this code. I assure the noble Lord, and I am particular about doing so whether it be on primary legislation or orders, that we will revisit Hansard and if there are specific questions that I have not answered completely, I will write to him.

Lord McKenzie of Luton: I am grateful to the noble Lord. He always seeks to answer questions fully either at the Dispatch Box or subsequently. I just want to make sure that I have the issue of the impact of the order right. The code issued in May this year already has a requirement for quarterly reporting on a range of issues and annual reporting on another range of issues. In those circumstances, is the impact of the order just to say that those requirements can be mandatory, or is it an enabling measure to say that we could change the range of expenditures that have to be reported more frequently at some stage in the future?

Lord Ahmad of Wimbledon: One of the points the noble Lord makes is about making what was a voluntary requirement mandatory in as much as local authorities will be required to report quarterly. As I have said before, it is important to aid transparency at a local

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level. We need to see greater levels of transparency. We have seen good and bad examples among local authorities. The code issued in May is recommended practice until the regulations are made. This order enables the regulations that we intend to make that will require quarterly publication. The noble Lord is right to say that we are moving from a mandatory code, but these regulations will make it a requirement for the local authority to report on a quarterly basis. I hope I am clear on that.