Energy Prices Bill - Second Reading

Part of the debate – in the House of Lords at 6:51 pm on 19 October 2022.

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Photo of Lord Callanan Lord Callanan Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy) 6:51, 19 October 2022

There are separate provisions allowing generators to invest in clean power. The aforementioned contracts for difference scheme is doing exactly that, providing the incentive for them to invest in clean power. We have increased the number of CfD rounds that we have launched. As the noble Lord, Lord Teverson, said, this has proved to be an immensely successful scheme. I pay tribute to the officials who designed it. It has been so successful that most of the rest of Europe is proposing to adopt a very similar scheme for their own wind generation. It is precisely because that mechanism exists and provides guaranteed revenue for their investments that those incentives that the noble Baroness refers to already exist.

The right reverend Prelate the Bishop of Manchester, the noble Baroness, Lady Young, and the noble Lord, Lord Grantchester, all raised important points regarding the default tariff cap. The energy price guarantee will now determine the prices that households pay for their energy. However, we are retaining the price cap to help deliver this energy price guarantee. Clause 20 will ensure that Ofgem continues to calculate the cap level to determine what it costs an efficient energy supplier to provide a household with gas and/or electricity. Of course, this will not determine the prices that householders pay, but it will enable the Government to identify what level of support is needed to deliver the prices in this energy price guarantee. The price cap is a mechanism that has been proven to prevent excessive charging and to reflect the real costs of supplying energy. Retaining it will ensure that suppliers price in line with the energy price guarantee and that public funds are used efficiently.

The noble Lord, Lord Foster, gave his view that the Bill treats renewables less favourably than oil and gas. No energy firms, however they produce, should be profiting unduly from Russia’s war in Ukraine, whether they generate low-carbon or fossil-fuel energy. Current price levels in electricity markets are far higher than any energy firm could possibly have envisaged or forecast, or would have predicted they would need, to continue investing in renewables.

Low-carbon electricity generation from renewables and nuclear will be key to securing more low-cost homegrown energy, which is why we continue to support investments in the sector. I remind noble Lords of the point I have made continuously: the schemes have been extremely successful. We have the highest proportion of offshore wind energy in Europe, by far. We have the second-highest proportion in the world, and we have extremely ambitious plans to continue investing and producing more of it, precisely because the scheme has proven so successful and is delivering much cheaper power. It is our flagship scheme and it has worked a treat, as I said—so successfully that other countries are now adopting it. In 2023, the scheme will move to annual auctions, helping to further accelerate the deployment of clean low-cost generation, which is something that I know all contributors will welcome.

The energy price guarantee and the energy bill relief scheme support millions of householders and businesses with rising energy costs. The Chancellor made clear that they will continue to do so from now until next April. Looking beyond that, I am sure noble Lords would be interested to know that the Prime Minister and Chancellor have agreed that it would be irresponsible for the Government to continue exposing the public finances to unlimited volatility of international gas prices. Therefore, it is the Government’s intention that, after this winter, support is better focused on the most vulnerable households and those least able to pay, with greater incentives to improve energy efficiency.

The noble Lord, Lord Foster, raised issues on the essential importance of encouraging solar energy use in households. I completely agree with the noble Lord. We are committed to solar power, which not only is good for the environment but at the moment represents the cheapest way to generate electricity in the UK, albeit intermittently. The British Energy Security Strategy sets out an expectation of 70 gigawatts installed solar capacity in the UK by 2035. To achieve that and meet this increased ambition, we will need a significant increase in both ground-mounted and rooftop solar in the 2020s and beyond. The noble Lord will be pleased to know that there is a healthy pipeline of ground-mounted projects, currently amounting to around 19 gigawatts across Great Britain, which either are in scoping or have already submitted planning applications.

The noble Baroness, Lady Worthington, asked me yesterday and again today about our negotiations with Norway.