Amendment 16

Energy Bill [HL] - Report (1st Day) – in the House of Lords am 6:30 pm ar 28 Mawrth 2023.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Lord Callanan:

Moved by Lord Callanan

16: Clause 57, page 52, line 2, after “66,” insert “(Payments to relevant market participants),”Member's explanatory statementThis amendment provides for the Parliamentary procedure to which regulations under new Clause (Payments to relevant market participants) are to be subject.

Photo of Lord Callanan Lord Callanan Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)

My Lords, in moving Amendment 16 I will speak also to Amendments 20, 21 and 30 standing in my name.

Amendment 30 further clarifies the scope of the modifications that the Secretary of State can make to certain licences for the purposes of facilitating or supporting the enforcement and/or administration of the hydrogen levy. Before making a proposed modification, the Secretary of State is required to consult the holder of any licence being modified. This will help to ensure that relevant bodies are engaged on proposed modifications. To ensure sufficient scrutiny of proposed modifications, the Secretary of State must also lay a draft of the modifications before Parliament, where they will be subject to a procedure similar to the draft negative resolution procedures used for statutory instruments.

I turn to Amendments 21, 20, and 16. I thank the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, again for their amendments in Committee. Having considered those amendments, the Government are introducing a new clause on the hydrogen levy provisions, which I hope noble Lords will find satisfying. The new clause will enable revenue support regulations to make provisions for amounts to be paid to levied market participants by a hydrogen production counterparty or hydrogen levy administrator. This includes the pass through of payments received by a hydrogen production counterparty from hydrogen producers under revenue support contracts, such as payments made to the counterparty when the market price of hydrogen is higher than the strike price. This will help to ensure that regulations can make provisions for fair and efficient payments and reconciliation arrangements.

Subsection (3) of this new clause was prompted specifically by consideration of Amendment 62 from the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, in Committee. This provision enables the Secretary of State to make regulations requiring that customers of levied market participants benefit in accordance with these regulations from payments made to levied market participants by a hydrogen production counterparty or levy administrator. I beg to move.

Photo of Baroness Liddell of Coatdyke Baroness Liddell of Coatdyke Llafur

My Lords, I will speak to Amendment 17. I will not take up much of the House’s time, because this is just about consistency.

The Government have defined a UK low-carbon hydrogen standard, which was updated in July this year, and it includes guidance and a calculator tool for hydrogen producers to use for greenhouse gas emissions reporting and sustainability criteria. It has been designed to demonstrate that low-carbon hydrogen production methods can meet a greenhouse gas emissions test and threshold, and this amendment would require the regulations to have regard to that standard when assessing the eligibility of low-carbon hydrogen production. Using the low-carbon hydrogen standard will ensure that there is consistency for the industry and its users, and will provide them with the degree of certainty that they are looking for when developing their projects.

Photo of Baroness Worthington Baroness Worthington Crossbench

My Lords, I added my name to Amendment 18 in respect of who should be paying a hydrogen levy. I do not consider that hydrogen is going to play a large role in our broader economy. I think it will have specialised uses: it will be used where it is already used, in the production of fertilisers and in certain chemical processes, and it may well be used as a back-up fuel in extremis when we have no other forms of storage. I say that because it is going to be a relatively expensive commodity, it is not going to be easy to handle and it is not necessarily going to be very safe. For those reasons, I think we are overexcited about hydrogen in general, and the Bill is overexcited about hydrogen—and probably, as a result, about carbon capture and storage, which will also be quite expensive.

The reason I lent my name to this amendment is that it seems particularly egregious to expect electricity billpayers to be picking up the price of this expensive commodity, which is not very safe and quite unlikely to be very useful. Therefore, I think it is really important that the Government listen, and listen to everyone outside this Chamber who is saying that we should not be loading any more costs on to electricity consumers but should be doing the opposite. I am looking forward to the Government taking on this issue to redress the balance of how we are tackling climate change and who is paying. At the moment, the electricity consumer is paying nearly everything and the gas consumer almost nothing.

It is time that we started to recognise the value of electricity. It is hugely efficient, and it can be indigenously produced from our nuclear and homegrown renewables and offshore wind. It is that which we should be supporting, not necessarily this rather expensive alternative. Gas, oil and coal companies will continue to promote it, but it is not for the electricity billpayer to pick up the tab. So I fully support Amendment 18.

I would love to hear a little more from the Minister on new subsection (3) inserted by Amendment 20 in relation to the regulations. It is my understanding that that will enable payments to be made back to consumers, but could those regulations also decide not to impose any hydrogen levies on electricity consumers? I would like to understand the extent to which those regulations could solve this problem.

Photo of Baroness Blake of Leeds Baroness Blake of Leeds Opposition Whip (Lords), Shadow Spokesperson (Energy and Net Zero), Shadow Spokesperson (Business and Trade)

I make reference to the Minister’s amendments, particularly the issue he highlighted of including the new subsection that would allow regulations to make provisions requiring that energy consumers benefit. I want to ask just one question on that. While we welcome that provision, there is a concern. If we are allowing regulations to make this provision, what guarantee is there that they will actually be used? Are the Government committing to using them, if they use Clause 66 powers?

I support all of my noble friend Lady Liddell’s comments on her amendment. The main amendment for me is that just referenced by the noble Baroness, Lady Worthington. We spent a significant amount of time talking about this area in Committee, so I will not go through all the detail. However, as the noble Baroness mentioned, in the circumstances we are in, with the extra pressure on the cost of living from energy bills, why are we looking at a situation where we could be asking householders to pay more money? I acknowledge that there will be further consultation but I hope that, as well as it being done thoroughly, its conclusions will lead to the spirit of our amendment. As shown in our amendments, we believe that the Secretary of State could put a levy on gas shippers but not on gas and electricity suppliers, thus preventing responsibility for the levies falling on households.

We need to reflect on the spirit of the Bill—the whole idea is that, while reforming energy systems, we do everything we can to protect consumers and their ability to pay their bills. Every possible action should be taken to minimise the impact on consumers, focusing always on affordability. I am disappointed that the Minister has not gone further on this point. Unless he indicates a willingness to do so, due to the strong feelings surrounding the protection of consumers from inflated bills, I am minded to test the opinion of the House.

Photo of Lord Callanan Lord Callanan Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)

My Lords, I will start by addressing Amendments 18 and 19, which the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, have retabled from Committee. I thank the noble Baroness, Lady Worthington, for her contribution. She requested further detail; I will provide clarification in writing, if that is okay with her.

These amendments seek to ensure that funding for the hydrogen production business model can be provided through the Consolidated Fund. They also seek to restrict where a levy may be placed, removing the option for levying energy suppliers and requiring that a levy could be placed only on gas shippers. They are intended, I assume, to take responsibility for levies away from households.

The powers in the Bill already enable Exchequer funding of the hydrogen production business model, which will initially be Exchequer-funded. It is therefore unnecessary to include additional provisions that enable the business model to be funded through the Exchequer.

The proposal in these amendments to require that the levy could be placed only on gas shippers will limit options for the levy design, with possible implications for its costs and ultimate impact on consumers. There is no such thing as a free lunch. A gas shipper levy would be a completely novel scheme, with administration and set-up costs that could be considerably higher than those required to implement a supplier levy; this is well understood.

The Government have set out their intention not to levy gas shippers in the near term. Levies on energy suppliers have been used in the past to support the deployment of low-carbon electricity and increase the proportion of green gas in the gas grid. These levies are well understood by the private sector. By taking a similar approach with the hydrogen levy, we can help provide investors with the confidence they need to invest in low-carbon hydrogen production projects and support the delivery of our 10-gigawatt production capacity ambition.

By seeking to ensure that the levy could be placed only on gas shippers, these amendments appear to try to protect energy consumers from the costs of a levy. However, as I outlined when they were tabled previously, we anticipate that any costs associated with a levy on gas shippers would ultimately be passed on to energy consumers in a very similar way to levies on energy suppliers. As I say, there is no such thing as a free lunch. It is the opinion of all the policy analysts that it is unlikely that the amendments would have their intended effect.

I recognise the concerns about consumer energy bills, which the Government take extremely seriously. We have given an enormous amount of financial support throughout the winter to try to keep bills as low as possible and are committed to helping ensure that the costs of the UK’s energy transition are fair and affordable for all consumers. The Government continue to focus on providing robust support for energy consumers, including through the energy price guarantee, the energy bills support scheme, the energy bills relief scheme and the energy bills discount scheme. Alongside providing support for households and businesses, the Government are working to help ensure that energy bills remain affordable in the long term. Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown low-carbon energy sector—something this levy is directly aimed at achieving. I am disappointed that the Opposition seem to want to undermine that aim.

I remind noble Lords that the provisions in this Bill will not immediately introduce the levy and that any decision to do so will take into account all relevant considerations, including affordability of energy bills.

Finally, I turn to Amendment 17 from the noble Baroness, Lady Liddell, and the contributions from the noble Baroness, Lady Worthington. I again reassure noble Lords that the Government recognise the need for robust standards on producing low-carbon hydrogen to support the UK’s net-zero targets. The intention of the definition in Clause 61(8) is to ensure that support under hydrogen production revenue support contracts may be provided only in respect of low-carbon hydrogen production which contributes to our decarbonisation ambition.

Clause 61(3) places a duty on the Secretary of State to make provision in regulations for determining the meaning of “eligible” in relation to a low-carbon hydrogen producer. The Government plan to consult on our approach to these regulations shortly; I would very much welcome the contribution of the noble Baroness, alongside those of industry leaders.

The low-carbon hydrogen standard is set out in guidance. We expect it to be updated over time to ensure that it remains fit for purpose and reflects our growing understanding of how new technologies work in practice, including how hydrogen production interacts with the broader energy system. We therefore do not consider it to be the best approach to make express reference to that guidance in primary legislation.

With a focus on investor confidence, our current approach means that the primary legislation provides a clear direction of travel, regulations—which Parliament will of course have the opportunity to scrutinise—and a significant degree of certainty about eligibility, which will provide prospective investors and developers the clarity and transparency they need to bring projects forward. The approach currently set out in the Bill makes the best use of the primary legislation, regulations for setting eligibility, and guidance which can be more responsive to the evolving nature of the low-carbon hydrogen standard.

To respond to the question that the noble Baroness, Lady Worthington, asked me: these regulations are purely about passing on the benefit of payments made to levied market participants and to their customers, not about who is to be levied or exemptions. Decisions regarding the detailed levy design, including in relation to exemptions, will of course be made in due course.

Amendment 16 agreed.

Clause 61: Designation of hydrogen production counterparty

Amendment 17 not moved.

Clause 66: Obligations of relevant market participants