Electricity and Gas (Internal Markets and Network Codes) (Amendment etc.) (EU Exit) Regulations 2020 — House of Lords, 2020-09-10
Topic: Energy
Martin Callanan (Conservative, Centre-right): I thank the doughty band of noble Lords who have turned up for yet another of these technical regulations for their valuable contributions. I totally take on board the valid point of the noble Lord, Lord Oates: it would have made more sense to combine our Thursday afternoons into one extended Thursday afternoon and debate some of these regulations together. I am not sure why that did not happen—I think there was some sort of miscommunication between my department and the Whips’ Office—but he is right on this one. This is the last time I will ever agree with a point made by the Liberal Democrats; no such thing will ever happen again The Government have of course committed to achieving a smooth end to the transition period for our energy system. As such, a programme of legislation is required to ensure that retained EU law is workable and free of deficiencies by the end of the transition period, and this draft instrument falls within that category of legislation. A failure to address in full deficiencies in the retained EU legislation would create uncertainty and inefficiency in the operation of Great Britain’s market regulation, the role and function of domestic and EU bodies in the markets and the requirements on market participants. Such uncertainty could result in an increase in wholesale prices, which no one wants to see I must stress that this draft instrument, and the UK’s departure from the EU as a whole, does not and will not alter the fact that our energy system is resilient, robust and secure. That resilience is built on our diversity of supply. The UK has one of the most secure energy systems in the world, and the industry has well-practised contingency plans to keep energy flowing and to ensure that our energy supplies are safe. In Great Britain the Government have of course been working closely with the electricity system operator, National Grid ESO, and the regulatory body, the Office of Gas and Electricity Markets, to ensure that measures are in place to deliver continuity of supply and confidence in the regulatory framework in all scenarios. To answer one of the questions from the noble Lord, Lord Redesdale, Ofgem is responsible for regulations in this area, as the independent regulator, and it of course controls network operators and pricing in this space The Government are therefore confident that the UK’s electricity system will be able to respond to any changes safely, securely and efficiently, whether these changes are a result of leaving the EU or other challenges facing the UK today, such as the coronavirus pandemic. Our energy system will of course still be physically linked to the EU after the end of the transition period, through interconnectors, which bring significant benefits including lower consumer bills and security of energy supply Of course, our future energy relationship with the EU is currently being discussed as part of the ongoing negotiations. As set out in the UK’s approach to the negotiations, we are open to an agreement with the EU in this area that provides for efficient electricity trade. However, should we not have reached any further agreement with the EU by the end of the transition period, or if any agreement does not cover the relevant policy areas, there will continue to be significant value in increased interconnection and trade in electricity and gas with our neighbours. This instrument will help maintain the stable functioning of the domestic energy market by fixing deficiencies across retained EU and domestic legislation, while retaining regulatory functions required to keep the market working effectively Let me answer some queries. I will write to the noble Lord, Lord Oates, on his point about grid connections for renewables and give him further information. On the ETS, I have to say that I think Michel Barnier was being somewhat disingenuous with his comments in Dublin, because of course the UK has higher carbon pricing and a more efficient carbon trading market than the EU—if anything, we disadvantage ourselves with our higher carbon costs The noble Lord, Lord Redesdale, asked about pricing. We recognise, of course, the importance to businesses and households of having access to an affordable, secure and sustainable system of energy, and the UK’s exit from the EU will not alter this. Many factors impact energy prices, including fuel prices, exchange rates and generation mix. Great Britain will remain physically linked, as I said earlier, through interconnectors, and we expect any change in electricity prices as a result of changes to interconnector trading arrangements would fall within the normal range of market volatility The noble Baroness, Lady Bowles, and my noble friend Lady McIntosh also asked about interconnectors. The mechanisms for cross-border trade are not expected to fundamentally change after exit. The EU gas market is one of the world’s most developed and provides security through supply diversity, most of which, of course, is not dependent on the EU. The Government have taken steps to enable electricity and gas trade to continue and to maintain the effectiveness of domestic regulation, providing legal clarity for industry on the future operations of Great Britain and Northern Ireland’s energy markets The noble Baroness, Lady Bowles, asked about UK TSOs maintaining a relationship with European TSOs. The UK Government understand the importance of co-operation between system; discussions around the appropriate fora for this co-operation are ongoing and form part of the negotiations The noble Baroness, Lady Bowles, asked what happens when and if the EU changes the codes and regulations. I am afraid I will also give her the reply that this is subject to ongoing negotiations and I cannot comment further on it at the moment. However, we have amended REMIT in our first set of statutory instruments The noble Baroness, Lady McIntosh, correctly stated that this SI just affects Great Britain; it does not affect Northern Ireland or modify EU energy law as it applies to Northern Ireland. It will therefore have no implications for electricity trading through the single electricity market. The electricity trading technical notice makes it clear that trade on interconnectors will become less efficient if a free trade agreement is not agreed with the EU. With less efficient trade, there is of course the risk of increased costs Finally, I will write to the noble Lord, Lord Redesdale, with more information on the future of tariffs In conclusion, the draft instrument is required to ensure continuity for our energy system and certainty for market participants and consumers. In doing so, it will support the implementation of an effective legislative framework needed for reliable, affordable and clean energy. I commend these draft regulations to the House.