Draft Electricity and Gas (Energy Efficiency Obligations) Order 2001

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Mr. Colin Breed (South-East Cornwall): I am pleased to see you in the Chair, Mr. Conway, as once again we meet in this lovely Room.

The Liberal Democrats give the measures a very warm welcome. This is the sort of measure that we must take, on an incremental basis, to try to achieve the twin objectives of meeting our obligations under Kyoto and contributing to the growing problem of how to meet the energy gap in the not-too-distant future. The more we can encourage energy saving and ensure that it is undertaken at all levels and in all places, the better.

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Although the industry always complains that the targets are too tough and that the time scale is too short, the history of the regulated industries shows that they have been able to achieve more than they protested was possible at the beginning. Government efforts include the insistence that low-income households should receive a good proportion of the assistance. We all know of places with fuel poverty, so I greatly welcome that.

The Government should do more to emphasise the importance of all energy-saving schemes. Promotion, grant aid, tax incentives and so forth are all important and I hope that they will be part of a growing programme of energy-saving measures. That should be firmly at the top of the agenda in businesses, households and other institutions. The monitoring of progress through the annual report will be increasingly important from the end of 2005. We must assess whether the targets are as tough as they have been made out to be. If they have encouraged greater awareness of energy saving, that will be a key achievement; hopefully creating a real shift in public understanding.

Will the Minister clarify whether the role of the regulator signals a subtle change? Regulators were initially set up under privatisation, but we have gone through that process and the regulator's role should now meet other objectives, such as energy saving. When the annual report is published, we can see how much of the costs that are supposed to be absorbed by companies have in fact been absorbed by them. Some companies are masters at financial engineering and creative accounting. We must ensure that the costs have been properly absorbed so that consumers achieve the best deal.

Energy saving will bring many economic benefits, job creation and new technologies. Measures properly imposed and rigorously enforced will drive that agenda, but those efforts will require more Government assistance to make the significant difference that most of us want. I welcome the order and hope that it will soon come into force.

4.53 pm

Mr. Meacher: I shall try to answer the questions raised in the debate. I am grateful for the general welcome given to the order by both Opposition spokesmen.

The hon. Member for Mid-Bedfordshire argued that the explanatory note was not as comprehensible or helpful as it should be and explained how he would have introduced it more simply. I shall attempt to be helpful. If the hon. Gentleman has shown a better way of expressing the point, I am willing to follow and to encourage others to understand better.

The order's purpose is to set out the legal target and the administrative arrangements to be followed by Ofgem. It refers to the regulatory impact assessment, which explains the commitment in detail, as did the consultation document issued by the Department. I take the point that this is not just a matter of

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technicalities, and that intelligibility for thoughtful members of the public is just as important. I am prepared to re-examine the language.

The hon. Gentleman asked whether there had been inadequate consultation. I am rather surprised by that. If I had one criticism of the Government, it would be that we suffer from consultation-itis. We seem to consult not just once, but two or three times on almost everything, and we have done the same this time. There were informal consultations in March 2000; comments were invited on provisional conclusions that were reached in November 2000; we had statutory consultations in August 2001. In addition, we had frequent discussions with suppliers, and consultations with industry, Ofgem and the Energy Saving Trust. As I say, we may be faulted on many grounds, but I do not think that one of them is a lack of consultation. I presume that the hon. Gentleman meant that we did not always accept what industry said to us. The point about consultation is that we consult and take account of people's comments, but we do not necessarily have to agree with them.

I will come on now to the hon. Gentleman's key point, which was about the saving of 62 TWh. In deciding that figure, we carefully considered all the available information, including that from the Building Research Establishment, the Energy Saving Trust and the industry. The EST, in whose judgment I have great confidence, agrees with us that it is an achievable, albeit testing, target. We might not expect industry to welcome readily such a tough target, and I would expect it to argue that. However, we examined the issue exhaustively.

The hon. Gentleman questioned the increase of the obligation from 34 to 62 TWh on a constant basis; there must be a misunderstanding. In the November 2000 document, the level of obligation was expressed in terms that did not include deadweight measures, which are those that would have occurred irrespective of the energy efficiency commitment. In the August consultation and the draft order, the obligation level included dead weight, which we did at the suggestion of the energy suppliers. I am sure that they wanted to convey the message to the outside world that this was an enormous total, but much of it is dead weight. The two figures were not calculated on the same basis.

Mr. Sayeed: I am grateful for that explanation. I hope that the Minister will agree that that is not immediately clear on first, second or even third reading of the documents. It would have been helpful had that explanation been in the documents.

Mr. Meacher: I take that point, and the clarity and comprehensiveness of expression is important so that there can be full understanding of the premises that lie behind the figures. Again, I will try to ensure that future literature and statements that we put out explains that point clearly. The hon. Gentleman did not ask me about this, but I will continue nevertheless—[Interruption.] It is helpful to receive by pigeon post something that gives relevant information.

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The hon. Gentleman should read the consultation proposals that were issued just three months ago; specifically sections 2.3 and 2.4. Section 2.3 says:

    ''As proposed in the November 2000 Provision Conclusions, the obligation in this document is set on a new basis. This includes a deadweight component (sales of measures that would have gone ahead anyway, without the stimulus of EEC). The level of the EEC obligation has been raised accordingly.''

Section 2.4 says:

    ''The obligation provisionally proposed in November 2000, on the former basis, was 36 TWh. If the current figure of 64 TWh were expressed on that basis, it would be 34 TWh''

[Interruption.] These things come so thick and fast it is difficult to read, think and talk at the same time. I understand that the hon. Gentleman has not read all the consultation documents, but the point he made is contained there.

The hon. Gentleman did not raise a matter with me that I am anxious to mention. If he had gone somewhere other than the Electricity Council, he could have asked why the proposed level of energy efficiency obligation in the order was lower than that proposed in the August consultation; in other words 62 TWh, not 64. It has been reduced because we have taken account of the issues raised in the consultation responses and we have undertaken further analysis of the recent technical information. This is largely due to the need to ensure that extra energy savings accrue to priority low-income groups. Many of these households live in private sector housing and will not be able to make any financial contribution to the costs of the measures, so achieving those three things will account for more of suppliers' budgets. That is why the figure has been slightly reduced.

The hon. Gentleman also talked of the question of costs and benefits in respect of consumers. This gives me an opportunity to say that the benefits of this measure are quite considerable. The average annual financial benefit to all consumers will be around £11 a year by 2005; to those who are in the priority low-income group it will be about £15.50 a year; to those not in the priority group it will be £8.50 a year.

The costs of the EEC will fall, as the hon. Gentleman recognises, on the energy suppliers but the obligation has been set at such a level that if costs were passed on in full to their customers, they would be no more than 90p per quarter for each customer in respect of both electricity and gas over the three-year period. If there are some savings in marketing budgets for energy suppliers, we are quite sure that that figure will be significantly less. When one takes account of the extra costs and benefits, the overall benefit to consumers is very considerable.

The hon. Gentleman said that if we had undertaken a proper examination of the figures—namely, to accord with that of the Electricity Council—we would have produced an estimate of £4.60 per customer. I do not accept that. However, we have to take account of detailed premises to reach either calculation. I am happy to write to him to set out the reasons why we believe £3.60 is right and not £4.60.

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The hon. Gentleman also raised the question of flexibility with time scales. The EEC obligation is set within the framework of the Utilities Act 2000. That requires the Secretary of State to set an obligation to achieve an energy efficiency target within a specified period. When he asks for flexibility, we are under constraints; that period is specified in statute.

The hon. Member for South-East Cornwall (Mr. Breed) made some helpfully commendatory remarks about this measure. In terms of climate change, this country has to make a carbon reduction of about 36 million tonnes a year by 2012. This measure alone will bring about a reduction of nearly 500,000 tonnes; a not insignificant part of the total. The substantial gains made in terms of reducing fuel poverty, the financial benefits and reduced bills overall for consumers mean that the order passes muster by any standards.

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The hon. Gentleman asked whether the costs will be absorbed by the companies. Ofgem is required to monitor the scheme. It will decide not only the allocation of liabilities for each of the companies, but the manner in which they are dealt with. The report will be published, we will all be able to read it and questions can be asked in this place if there are doubts about the manner in which it has been undertaken. Companies will conform, by and large, but it is right that there should be an independent arbiter. I have no doubt that Ofgem will fulfil that role.

I am grateful for the comments of hon. Members, and I commend the order to the Committee.

Question put and agreed to.


    That the Committee has considered the draft Electricity and Gas (Energy Efficiency Obligations) Order 2001.

Committee rose at five minutes past Five o'clock.

The following Members attended the Committee:
Conway, Mr. Derek (Chairman)
Ainger, Mr.
Baird, Vera
Bradley, Peter
Breed, Mr.
Dawson, Mr.
Francois, Mr.
Gillan, Mrs.
Godsiff, Mr.
Meacher, Mr.
O'Brien, Mr. Mike
Robinson, Mr. Geoffrey
Sayeed, Mr.
Soley, Mr.

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