My Lords, I thank all noble Lords for their valuable contributions to the debate. The Government are 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 from deficiencies by the end of the transition period. This draft instrument falls within this category of legislation. Failure to address in full the deficiencies in retained EU legislation, or to ensure that the relevant aspects of the Northern Ireland protocol are able to work properly, will create uncertainty and inefficiency in the operation of both Great Britain and Northern Ireland’s market regulation, the role and functions of domestic and EU bodies in the markets, and requirements on market participants. This uncertainty could result in an increase in wholesale prices.
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 and secure. This 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 been working closely with the electricity system operator, the national grid, and with the regulatory body, Ofgem, to ensure that measures are in place to deliver continuity of supply and confidence in the regulatory framework in all scenarios. The Government are therefore confident that the UK’s electricity system is 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 still be physically linked to the EU after the end of the transition period through interconnectors, which bring significant benefits, including lower consumer bills, as well as security of energy supply.
In response to the questions from the noble Lords, Lord Oates and Lord Grantchester, it is indeed the case that our future energy relationship with the EU is 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 in this area that provides for efficient electricity trade. Noble Lords will understand that I am unable to go into any further details of our negotiating position at this stage because the negotiations are confidential. 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 area, there will continue to be significant value in increased interconnection and trade of 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 the regulatory functions required to keep the market working effectively.
I will move on to the specific questions I was asked, all of which were of a similar nature. The noble Lords, Lord Oates and Lord Grantchester, and the noble Baronesses, Lady Burt and Lady McIntosh, asked whether the devolved Administrations have been engaged. It remains the case that devolved Administration ministerial consent is not required for these SIs because energy is not a devolved matter for either Scotland or Wales. However, BEIS regularly engages on EU exit and energy matters, and both Governments were informed about the SIs before they were laid in draft.
The situation with Northern Ireland is slightly more complicated. In preparing the electricity and gas amendment regulations, BEIS consulted and worked closely with the Northern Ireland Department for the Economy to get its views on the changes required, and Northern Ireland ministerial consent for the SI was provided. BEIS also engaged with the Utility Regulator on the content of the SI. I cannot remember who asked the question, but the specific request from Northern Ireland was to remove the provisions contradicting the protocol as described above.
The noble Lords, Lord Oates and Lord Fox, and the noble Baronesses, Lady Burt and Lady McIntosh, referred to the single electricity market and Northern Ireland. I can confirm that it is the UK Government’s long-standing position that by far the best outcome for electricity in Northern Ireland is to maintain the single electricity market across the island of Ireland.
This has consistently been supported by both the Irish Government and the EU Commission. Continuation of the single electricity market has been achieved through the Ireland/Northern Ireland protocol to the withdrawal agreement, and nothing in this legislation affects that. As to what would happen to the single electricity market if we do not reach any further agreement with the EU, the provisions for the market were established under the Ireland/Northern Ireland protocol to the original withdrawal agreement and that provides the basis for the single electricity market.
The noble Baroness, Lady McIntosh, asked about the impact on prices. Many factors impact energy prices, including fuel prices, exchange rates and energy mix. As I said earlier, we will continue to be physically linked to the EU post exit through a number of electricity and gas interconnectors. We expect that any change in electricity prices in Great Britain as a result of changes to interconnector trading arrangements would fall within the range of normal market volatility. Therefore, we do not expect any significant impact on prices.
Again, with regard to gas markets, the mechanisms for cross-border trade are not expected to fundamentally change after exit. The UK gas market is one of the world’s most developed and provides security through supply diversity, most of which comes through LNG tankers, and is therefore not dependent on the EU.
The UK 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 operation of Great Britain and Northern Ireland’s energy markets.
To go into a bit more detail for the benefit of the noble Lord, Lord Oates, and the noble Baroness, Lady Burt, the SI will help support the continued operation of the single electricity market by removing the provisions relating to electricity in Northern Ireland, so that they do not come into force at the end of the transition period and therefore contradict the Northern Ireland protocol. The Northern Ireland protocol provides for a limited set of EU law provisions relating to wholesale electricity markets, carbon pricing and industrial emissions to apply to Northern Ireland at the end of the transition period to ensure the continued operation of the single electricity market. The Northern Ireland Executive are responsible for implementing the Northern Ireland protocol in relation to the single electricity market, as energy is a transferred matter, with my department—BEIS—continuing to provide support where appropriate.
The noble Lord, Lord Grantchester, asked about the difference between the two SIs. They both make technical changes to ensure that retained EU law will work in a domestic context, minimising impact on businesses and consumers should the UK reach no further agreement with the EU or if any agreement does not cover the relevant policy area after the end of the transition period. Most of the changes are minor—for instance, removing references to member states or EU bodies, which will of course be no longer appropriate in the circumstances.
The noble Lord, Lord Fox, in his typically genius way, used the word “electricity” in the title of the instrument to ask a whole series of unrelated questions on targets
for offshore wind capacity. I am very happy to write to him with a proper answer to those questions and on the details of the Ofgem consultation, which are, as I am sure he will understand and realise, unrelated to these regulations. As always, however, I commend him on his ingenuity.
In conclusion, this draft instrument is required to ensure continuity for our energy system and certainty for both market participants and consumers. In doing so, it will support the implementation of an effective legislative framework needed for reliable, affordable and clean energy. It is my pleasure to commend the draft regulations to the Committee.