Committee
Net Zero, Energy and Transport Committee 10 May 2022
10 May 2022 · S6 · Net Zero, Energy and Transport Committee
Item of business
Energy Price Rises
Thank you for those opening remarks, which set the scene very well. We move on to questions and answers; I will ask a couple of questions before I bring in other colleagues. In your opening remarks, you mentioned that Ofgem will introduce new measures to boost financial resilience in the sector, including financial stress testing for all suppliers and increasing the number of times a year that the price cap can be adjusted. What is the timescale for implementing those new measures? Evidence that has been given to the committee by other stakeholders suggests that the price cap will have to be increased between now and the winter season later this year. Can you talk us through your expectations for the price cap increases that we might see over the next six to 12 months?
In the same item of business
The Convener
Con
Our next agenda item is an evidence session in our inquiry into the significant increase in energy prices that we have all witnessed in recent months, what i...
Neil Lawrence (Office of Gas and Electricity Markets)
Thank you very much. As the energy regulator, Ofgem’s job is to protect the interests of energy consumers, and we know that many consumers in Scotland and a...
The Convener
Con
Thank you for those opening remarks, which set the scene very well. We move on to questions and answers; I will ask a couple of questions before I bring in o...
Neil Lawrence
Ofgem absolutely recognises that the price rises that we have seen are having a huge impact on consumers, and we really care about that. Our job is to make s...
The Convener
Con
You also mentioned in your opening remarks that around 30 energy supplier companies have failed and have had to close shop since early 2021. I believe that t...
Neil Lawrence
First, we must recognise that we have seen absolutely unprecedented rises in wholesale prices: they are 500 per cent more than they were last year. That is t...
The Convener
Con
In the banking sector, for example, the Financial Conduct Authority imposes market-risk and capital-adequacy limitations. I know that hindsight is a wonderfu...
Neil Lawrence
The number of suppliers that are coming into the market has dropped dramatically. There were only two new entrants in 2021, and one of those was a pre-accred...
The Convener
Con
The supplier of last resort process has added £2.8 billion to consumer bills. How has that been spread to the average consumer’s bill? Do you have a number o...
Neil Lawrence
The cost from the SOLRs to date is £68 per consumer. We must accept that that is absolutely unprecedented. The wholesale price rises last August, September a...
The Convener
Con
I am sure that other members will want to come back to some of those issues. I will bring in Fiona Hyslop.
Fiona Hyslop (Linlithgow) (SNP)
SNP
Good morning, and thank you for joining us. We have a cost of living crisis that is being made worse by an energy crisis, but we also have a climate crisis....
Neil Kenward (Office of Gas and Electricity Markets)
You have put your finger on the really important long-term aim, which is to achieve the transition to net zero, ensure that it happens smoothly and in the in...
Fiona Hyslop
SNP
You will know that, in Scotland, we have an extensive range of renewable assets in generation, and we export much of our renewable electricity. However, your...
Neil Kenward
Our commitment is to getting the net zero transition happening at the lowest cost to consumers. We try to establish rules and the incentives that will ensure...
Fiona Hyslop
SNP
Do you acknowledge that National Grid’s plans still penalise Scotland, and that we have people living in fuel poverty in the part of the United Kingdom that ...
Neil Kenward
Fuel poverty is a problem across GB. As my colleague has been saying, we try to establish a least-cost system, but we do not have the ability to introduce ne...
Fiona Hyslop
SNP
Are you saying that subsidy issues would be addressed by the UK Government in an energy market to deliver what you wanted?
Neil Kenward
That is right.
Fiona Hyslop
SNP
Bearing in mind the recent energy price spikes, is there a case for wholesale energy market reform? You have said that gas is the marginal generation technol...
Neil Kenward
We fully accept that we and the Governments need to look at the current energy market and ensure that it is reformed so that it is fit for the net zero futur...
Fiona Hyslop
SNP
How long will that take? People are facing an energy price crisis now. Some of the changes that we need will require wholesale energy market reform. What wou...
Neil Kenward
As I am sure you appreciate, making major changes to wholesale markets—if that is what the Westminster Government chooses to do—is a process that is likely t...
Fiona Hyslop
SNP
I am sorry, convener, but I just want to say that there does not seem to be a sense of urgency. During the Covid pandemic, we saw whole-system changes becaus...
Neil Kenward
We are taking steps to make sure that the system works effectively. We are supporting the creation of the new system operator to ensure that it can do the st...
The Convener
Con
Liam Kerr has a supplementary question.
Liam Kerr (North East Scotland) (Con)
Con
The deputy convener talked about transmission charges being higher for generators in Scotland, but does that not simply reflect the reality that demand is co...
Neil Kenward
I will not speculate about potential reforms, but the transmission network charges are set up to incentivise the most efficient location of generation. As yo...
The Convener
Con
That is great—thanks. Next up is Jackie Dunbar, to be followed by Monica Lennon. Over to you, please, Jackie.
Jackie Dunbar (Aberdeen Donside) (SNP)
SNP
Good morning, gentlemen. I will follow what the deputy convener said about the cost of living crisis. I am interested in your thoughts on how that should be ...