With this it will be convenient to discuss the following:
“and of distribution systems in conjunction with licenced distribution system operators”.
This amendment would include certain distribution systems in the functions of the ISOP.
Amendment 97, in clause 119, page 109, line 5, at end insert
“and of distribution systems in conjunction with licensed distribution system operators”.
This amendment would include certain distribution systems in the functions of the ISOP.
Clause stand part.
Clause 120 stand part.
New clause 37—Assurance of independence of system and distribution operators—
“(1) The Secretary of State must appoint a supervisory and advisory board of at least eight suitably qualified independent energy figures to assist the person designated as the ISOP under section 120.
(2) The purpose of the board appointed under subsection (1) is to assure the independence of transmission and distribution system operators through independent oversight of and advice to the ISOP.
(3) Energy UK and the Energy Networks Association must be consulted on the appointment of the board under subsection (1).
(4) The Secretary of State may make provision of financial assistance to enable the board to carry out its functions.”
This new clause aims to ensure the independence of system and distribution operators.
We come to a section of the Bill that I heartily approve of. I have long championed the idea that we set up an independent system operator in this country. It is really important in our next phase and where we go in renewing our infrastructure, and ensuring there are delivery mechanisms to cope with the renewable energy that we hope will be the mainstay of our carbon production. It is important not only that those systems are in place, but that they are in place as soon as possible. There will be discussions in this section about the best way of ensuring that the ISOP is set up in such a way that it can perform that function.
As the Minister will know, the independent system operator has been in gestation for a while, in terms of the separating of National Grid ESO from the National Grid itself. National Grid ESO now performs something of the function I have started to describe, but without the remit to do so. What we need over the next period is not just National Grid ESO, nor something with a different name from National Grid ESO, but something that is much closer to a system architect in upgrading our systems for renewable purposes. That is how I see the development of the ISOP. It is important that in our first go at what the ISOP does, as it were, we get the best combination of things it is responsible for and that we get right its ISOP set-up.
In the development of the grid so far, certainly as far as renewable energy connections are concerned, there is no real distinction between the high-level grid, which was the historic purview of National Grid and ISOP, and the lower-level grid, which is still pretty powerful but is in the hands of the distributed network organisations. Sometimes a false distinction is made between what is happening at National Grid level and what is happening at a more regional or local level. There is no real distinction now, because renewable sources, in particular, are seeking to substantially connect to 123 kV cables to a far greater extent than they are seeking to connect to high-level grid 440 kV cables. Consequently, some of the biggest backlogs in connection dates are not just in the high-level grid.
The Minister will be aware—we have discussed this previously in the House—that a number of large wind farms are getting connection dates to bring ashore and distribute the electricity they are producing not just a few years away, but in 2036. As I have mentioned previously in the House, that is one year away from when the Government have indicated they wish to see a predominantly renewable energy system in place. We may well have the tools to have the low-carbon energy system in place, but if we cannot deliver the electricity from those tools to anybody, we do not have a low-carbon energy system in place in the end. It is important that we get the system properly in place, so that it can deliver the connections and the offshore re-cabling. That way we will have a decent grid highway with anticipatory investment.
On the hon. Member’s comments about offshore green infrastructure, does he share my concern that offshore developers in Scotland are now being told that they need to connect to the grid in Blyth because the connections are not available in Scotland? It just seems counterproductive and clearly adds additional costs to these projects.
Indeed. The hon. Member makes an important point about where we connect and the facilities for connection, which I will consider briefly in a moment. This is also a substantial problem with DNOs, as we know from published data on local junction boxes and various other things. How long a local or a regional connection will take is determined by whether the system is red, yellow or green in terms of its local connections within the DNO network. We are seeing similar waiting times for smaller connections and the sort of large offshore connections that the hon. Member mentioned. Obviously, that is difficult in helping to ensure that onshore electricity is delivered as well as offshore electricity. That is one reason why the distinction between the high-level grid and the lower-level grid in the circumstances of our renewable, low-carbon future is not as great as has hitherto been the case.
The hon. Member for Kilmarnock and Loudoun rightly draws attention to the fact that some Scottish-based offshore schemes are now being asked, on a point-to-point basis, to connect south of the border, because the facilities for delivering from those connections, were they to be north of the border, are not as good as they should be. Interestingly, the Government are presently considering a bizarre series of arrangements called marginal cost pricing, which will deter certain people from taking particular views about where they should connect because there will be a price differential in connecting. As I am sure the hon. Member will agree, the solution is not to start messing about with theoretical market considerations about who might connect where, but to build the stuff so that people can connect to it properly, where they are and where they want to be, with a certainty that there will be a connection in a short period of time and that what they have connected to gets to where we want it to be. Those are all reasons why the ISOP will be so important.
Through these amendments we want in no way to undermine, but rather to enhance, the substance of the ISOP. Our amendments, which are on page 5 of the amendment paper, seek to do several things regarding the structure and operation of the ISOP. First, we think that the ISOP should have oversight not just of the cabling itself, but of the cabling efficiency and loss reduction in cabling as it goes around the country. That is a potentially important issue for the future. I am sure that hon. Members know how much electricity is lost just by the transmission function.
The hon. Member is absolutely right. I think the figure is around 6%—sometimes a bit higher—but part of the issue with that loss is not just the general inefficiency of the system; under certain circumstances, we are using cables for transmission that are much less efficient than they should be.
I visited—this shows the exciting things that I do as shadow Energy Minister—a test site of a highly efficient cable system. I will not mention the company’s name, but as far as I know it is pursuing a much more efficient cable system with a number of DNOs. When I got to the site, there was not very much to see because the cable had been buried underground; I was pointed to a field. There was, however, in the corner of the field, a hut in which calculations on how the cable was performing, and how it would perform in conjunction with other forms of cable, were being undertaken. I was able to see for myself an increase in the efficiency of the cable of about 15%, just by having that cable design as opposed to others.
It seems to me quite important that the cabling introduced to our new system be as efficient as possible. It needs to be clear to the companies that will put the closed cables in that that is what will be expected of them. That is why we would like an additional function to be added to the ISOP’s concerns: oversight of efficiency and loss reduction in cabling.
We have tabled other amendments, which concern the relationship with the DNOs. It is important that we do not make an artificial distinction in terms of what we are doing with the ISOP in the high-level system and others. I am afraid that the Bill, whether intentionally or not, appears to create that divide. The DNOs can get on with their activities, and the high-level grid will have a different system of governance and management. That is why amendment 96 would add
“and of distribution systems in conjunction with licenced distribution system operators” to the end of line 3, in clause 119. Amendment 97 would add the same words. That would create a much better system of co-operation and collaboration between the DNOs and the new system operator.
I appreciate that we will not vote on new clause 37 today. It is important for the independent system operator really to be independent, and not a creature of either the energy companies or the Government, so that it has its own ability to look at the system, to produce recommendations and arrangements, and to oversee the development of the system as its own master within that.
We therefore suggest in new clause 37 that an independent advisory board be set up to ensure the independence of the ISOP. There are other ways of doing this, but we are suggesting one particular way of ensuring that the ISOP operates in the genuinely independent way that we all want it to in pursuit of the future of grids and connections.
I hope that the Minister and the Committee understand that our amendments and new clauses all seek to help with the ISOP. I hope that the Minister will respond positively by saying that there are different ways of achieving what we want to achieve with the ISOP’s powers, or that, although he might not be able to accept the amendments today, he is actively minded to have a good think about them. By the way, I am grateful for the note that the Minister wrote to me last night about the fact that the Government have done just that with one particular amendment to the Bill. That sort of process could easily be followed in such circumstances in future.
Before I expand on the Government’s position and explain why we will not accept new clause 1 or the hon. Gentleman’s amendments, I will acknowledge absolutely that connections and connection timelines are the biggest challenge we face—for electrification to grid, for driving our economy forward in the way we seek to and for reaching our net zero goals. Every single day for the past few months, but in particular this week, I have been engaging with DNOs, transmission operators, Nick Winser who conducted the independent review, Ofgem and the National Grid ESO about what we can do to drive down those timelines. At a critical point, part of that will be the creation of the ISOP. For the benefit of those who might be slightly confused, that is what we refer to outside the Bill as the future system operator—ISOP and the future system operator are one and the same thing.
I will now turn to the question asked by the hon. Member for Southampton, Test about why an advisory board would make ISOP risk-averse and not fully independent. We are concerned that, rather than enhancing independence, the members of such a board would likely hold various energy sector conflicts. That could crystallise in many ways, including resistance to systematic reform, advice to pay compensation to energy sector participants or an incumbent bias that would seek to frustrate new market entrants. Establishing an industry-led advisory board for the ISOP would be similar to establishing one for the Climate Change Committee—it is not required for an organisation that needs to remain independent, such as the Climate Change Committee, which we are using as the basis for how we proceed.
A prime consideration of the ISOP consultation was that the body should be independent from day-to-day Government control and from other energy sector interests. That is why we need to ensure that the ISOP is a trusted and independent voice within the energy sector.
I am happy to answer the hon. Gentleman. The aim and the ambition is for the FSO/ISOP to be up and functioning by the middle of next year.
I turn to amendments 95, 96 and 97, tabled by the hon. Member for Southampton, Test. The Government agree that those are all things that the ISOP needs to bear in mind, but we think that the balance in part 4 would be distorted by calling them out in the high-level illustrative list of the ISOP’s initial functions in the clause.
On amendment 95, matters already of concern to the existing system operator will continue to be a concern to the ISOP, in particular as it seeks to promote system efficiency under clause 121. On amendments 96 and 97, we understand that a closer relationship between the system operator and the distribution system operators—indeed, closer relationship across all energy networks—will allow for better co-ordination and ensure optimal system-wide planning. However, we do not think that such things should be included in the high-level illustrative list of the ISOP’s initial functions. A new collaboration duty is not necessary as that lies at the very heart of our vision for the ISOP. The importance of co-ordination across networks is made clear by clause 121(4)(a) and the whole systems duty in 122(1)(c).
Clause 120 empowers the Secretary of State to designate the ISOP, doing so by granting a power to the Secretary of State to make the first designation of a person as the ISOP and, if needed, to revoke that designation and issue a new one. I commend clauses 119 and 120 to the Committee.