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Lord Frost
That this House takes note of the cost of renewable energy and its effect on energy costs in the United Kingdom.
Lord Frost (Con)
My Lords, I draw attention to my entries in the register of interests. I thank all those Members of your Lordships’ House who have agreed to speak today; I am very grateful to them all.
With COP 29 well under way in Baku, it is a timely moment to have this debate, even if that conference is perhaps attracting rather less interest than in previous years. That is certainly not because of lack of interest in the climate and energy issue. President Trump’s election is likely to open up debate once again at a global level. In the EU, we see increasing levels of doubt about the policy consequences of the climate commitments already made. Here in the UK, we have the new Government’s plan to decarbonise the energy grid by 2030, with the report last week from NESO, the newly formed National Energy System Operator, constituting the first detailed commentary on that plan.
Central to that plan is delivery of large-scale renewable capacity for our energy grid, both wind—onshore and offshore—and solar, together with a revamp of the transmission system to handle that. The NESO report provides us with costings for all this and much else besides. Like most other official and quasi-official studies on the costs of net zero, the NESO report uses figures already produced by the Government for this purpose. That is why it is such a matter of regret that there appears to be a large measure of disagreement about many of those underlying figures. We would have a much higher quality debate about the costs of net zero overall if there were at least consensus on the underlying figures. There is not, and that is why I felt it right to try to secure today’s debate on this matter. I do not expect we will find consensus today either, I fear, but perhaps we can hope to shed some light on why the differences exist.
The difficulty arises for two broad reasons. First, there are starkly different views of the levelised costs of renewables, particularly onshore and offshore wind, and these are relevant to the closely connected question of subsidies to this sector. Secondly, it is an inevitable consequence of the intermittent nature of renewables that this imposes costs elsewhere on the energy system: back-up, interconnectors, other non-renewable generation, and measures to ensure grid stability, together with the costs of rebuilding and reconfiguring the transmission system—and all this seemingly on a highly ambitious scale. I want to look at these areas in turn.
First, on the levelised costs of renewables—that is, the cost of building and operating wind and solar, discounted over time—the latest figures were published in 2023 by the Department for Energy Security and Net Zero and, as I said, the NESO report is based on them. Those figures claim that offshore wind can generate power at £44 per megawatt hour in current prices. Yet AR6, the recent round of capacity auctions, awarded contracts for offshore wind at £82 per megawatt hour in current prices. It is difficult to understand why there should be such a significant difference between these figures, if the £44 figure is in any way correct. One becomes even more baffled if one looks at the actual accounts of recently commissioned offshore wind farms, which suggest a production cost of around £100 per megawatt hour, or, indeed, if one looks at the recent payments, published yesterday, to offshore wind farms under contracts for difference, which suggest a production cost of around £150 per megawatt hour.
There are similar huge gaps in other areas of the costings. DESNZ assumes a capital cost for offshore wind of £1.5 million per megawatt of capacity. Yet, once again, looking at the accounts of wind companies, the figure appears to be about £3 million per megawatt, which is twice as much. Indeed, at the end of 2023, the developers of Moray West wind farm were still installing the foundations of the wind farm yet had already, at that point, spent the equivalent of £1.6 million per megawatt hour. It bears noting that if the seemingly correct higher offshore wind capital spending figure were used, the NESO estimate for capex from now to 2030 would go up by about £15 billion every year, taking the total capex from a total of £31 billion to £34 billion to a total of £45 billion to £50 billion annually.
To take just one further difference, the DESNZ figures assume a 61% capacity factor for offshore wind—that is, they assume that over a year, wind farms generate about three-fifths of their notional installed capacity. But once again, recent wind farms are opening at a capacity of 45% when new, and that figure is falling over time. The real capacity factor over the whole of the life of a wind farm may well be under 40%. If that is correct, it means that we will need to build 50% more offshore wind farms to get to the actual power that DESNZ estimates—and, of course, costs will go up by the same amount.
I note that Professor Gordon Hughes from Edinburgh University and Andrew Montford, director of Net Zero Watch, wrote to the Permanent Secretary at DESNZ on 16 September asking for further detail on some of these discrepancies. They have not yet received a reply.
Those figures are just the actual costs of operating offshore wind. The gap between assumptions, auctions and actual real-world costs explains why there has been such a need for subsidies ever since the shift to renewables began in the mid-2000s. The OBR says that “environmental levies”—a catch-all category which covers the renewables obligation, the contracts for difference and the feed-in tariffs—currently stand at about £12 billion a year. That is over £400 for every UK household. Yet one has to ask again: if the real cost of offshore wind really is £44 per megawatt hour, well below current market prices and the prices agreed in auction rounds, why do we need these subsidies at all?
I turn now to my second category: the costs elsewhere in the energy system. I think everybody agrees that there are some such costs; the question is: how high are they and what are the consequentials? The costs are principally those of intermittency, of which there are two kinds. The better-known one is the fact that little power is generated by renewables when the wind does not blow and the sun does not shine—periods like the one we saw in this country for most of last week. This requires back-up, currently mainly gas, and there is obviously a capital cost in maintaining a dual system of any kind. Moreover, the fact that the gas-fired stations cannot be used at close to full capacity but must be turned on and off at short notice brings a cost in reduced efficiency and revenue. The cost of paying operators not to shut their power down as a result of this lack of efficiency—the so-called capacity market—is currently £1 billion a year. The OBR says it will rise to £4 billion in three years’ time.
The other kind of intermittency, which is less well known, is the reverse: what happens when the wind blows and the sun shines when we do not need the power generated. Under current arrangements, that involves us paying the renewables producers not to produce and to turn their kit off to avoid grid instability. That costs £2.5 billion per year, which is expected to rise to £3.5 billion in three years’ time.
It bears noting that the more renewables we produce and build, the bigger these figures will get. The more we rely on renewables, the bigger the problem when we have the wrong kind of weather, and the bigger the concomitant costs are going to be. That is why it is a simple fallacy, though a seemingly widely believed one, that building more renewables reduces costs and brings more security. It is surely clear that the reverse must be true.
Finally, there are the wider knock-on costs, most notably in the plans for what NESO calls “demand management”: rationing of energy if the grid cannot supply enough energy to meet demand. This will come either by compulsion—for example, in plans to reduce supply to industry in such circumstances—or by price rationing to consumers, or both. The NESO plan for demand management is slated to cover, by 2030, five times as much potential demand as now—that is, about 10 gigawatts.
Now noble Lords may say, as people do, there have always been differential energy tariffs. Indeed, some of us are old enough to remember things like Economy 7, from the 1980s. But that was differential pricing to stimulate demand in the night-time, when supply was high but demand was low. This is the reverse; this is a plan for us to put up with differential pricing to reduce demand, when it is demand that is high and supply that is low. That is quite different, and it necessarily imposes an economic cost on industry and the consumer, for they cannot use energy when they want to use it and may have no warning of the fact, either. It is hard to quantify that cost, but it is clearly potentially significant. It should be factored in to the cost of running an intermittent renewables system, but it is not.
The only attempt that I am aware of by government to quantify some of those wider costs—though not all of them, for some are still excluded—was made by the then BEIS in 2020, in its document entitled Energy Generation Costs 2020. This showed, even on the imperfect measures being used, that both offshore and onshore wind were on average likely to be more expensive than modern gas power stations, even allowing for some of the implausible assumptions that I discussed earlier.
Let us try to bring all this together. We have a significant discrepancy—disagreement, call it what you will—in assessments of the levelised costs of renewables. In the case of offshore wind, it is a discrepancy amounting, potentially, to up to £100 per megawatt hour. The high levels of subsidy we are paying in various forms suggest that production costs are in fact quite a lot higher than acknowledged. There are also wider costs to the grid—£3 billion to £5 billion in the current year, growing in future—and to the economy, hard to quantify but definitely present in the various kinds of inefficiencies created by an inefficiently working electricity supply system. In short, one side of the argument sees low levelised costs and believes that they will fall further; the other, with which obviously I associate myself, sees costs that are not falling and that require high and growing levels of subsidy and complexity to make the whole system work properly.
This situation is deeply unsatisfactory. The Government are about to embark on a dash to decarbonise the electricity grid according to an assessment that is based on certainly disputable direct costings, and which will be heavily contested and simply fails to take into account many of the wider costs and consequentials. This really is not good enough; the country is owed better.
I recognise, of course, that when the Minister responds he may not have the information he needs to reply fully to some of these detailed points, but I hope he might do so in writing, and perhaps at the same time encourage his Permanent Secretary to reply to Professor Hughes’ letter, which I mentioned earlier.
I say all this not to make a political point. We really need to understand better the real cost of renewables to the consumer, the Government and the economy. If it turns out that I am wrong and the costs really are low and falling, that will be excellent news for us all. I am doubtful about renewables not on some ideological grounds, but because they seem to me extremely expensive in their own right and to come with many additional costs and security risks too. I have not yet seen the evidence that would persuade me otherwise.
I finish on this point. With this in mind—and I am not sure the Minister will leap with alacrity on what I am about to say, but I hope he might respond anyway—the Government should consider establishing some form of expert committee on this subject, made up of officials and experts from the department and bodies such as NESO and the Climate Change Committee, with a red team of outside experts to provide challenge, to look on a totally transparent basis at the evidence and the costings, and to see how close it could get to a common view. This would seem to me the best way of getting at the reality and an assessment that might command a bit more consensus than the current situation does. Whatever this country’s future energy policy may be, we surely all want it to be established on the best possible analysis and the best possible knowledge. I look forward to the debate today and to the Minister’s response.
Lord Whitty (Lab)
My Lords, I appreciate the noble Lord, Lord Frost, starting this debate. He did so in the way I anticipated he would, repeating what was said in the debate a couple of weeks ago. Rather than following him into his arguments, the House needs to recognise that even if the costs of renewables, including of construction, carbon capture and storage and so forth, prove to be double the estimates made under the previous Government—and which are still supported by the Conservatives and by the new systems operator—they would still be substantially cheaper than the estimated cost of gas.
Of course, the electricity price in this country, contrary to what the noble Lord has said and to what the noble Lord, Lord Lilley, said the other week, is higher than in other countries at various points because it is based on the price of gas. We have to pay the world price for gas, which went up considerably. It does not matter whether the gas is from the North Sea or from overseas: that gas price determines our electricity supply. The mechanism is explicit and implicit.
The real problem with our attempt to move to net zero is that we have failed to do certain complementary things, and on that I would largely agree with the noble Lord. We have failed to develop storage, switching capacity and aspects of the grid. We have failed to provide an offshore grid so that different arrays and wind farms can land at one place, rather than creating a planning problem in different parts of the country. On the other hand, we have failed to develop nuclear power or to return to nuclear power early enough. We have also failed to develop the long-term investment in tidal and wind power, which we have plenty of around our coast and which would not be intermittent. But that is very different from denying the whole ability to provide at relatively cheap cost predominantly renewable energy and to get back on to the trajectory, around which there was a degree of political consensus a year or two ago.
There are other problems, as well, with the policy so far. Effectively, we have failed to produce a supply chain for renewable energy in this country to any great extent. Most of the blades and paraphernalia for wind farms come from abroad. I applaud the Prime Minister’s announcement a few days ago on investment in manufacturing blades in Hull. I hope that that is only part of a new industrial policy that takes into account the need to provide alternative employment through training, retraining and recruitment of those who hitherto worked in areas that were supportive of North Sea activity, so they have jobs in the new industry. The actual techniques used in the jobs are not that different, so retraining can relatively easily be done; but we also need a new generation who can support the renewable energy sector.
I do not think that the noble Lord makes the case for changing significantly our trajectory, but he does make the case for ensuring that these back-up arrangements are in place and provide jobs and income for this country’s businesses and workforce.
The other reason I put down my name for this debate is my deep anxiety that, while it is obviously right to query costs, particular technologies and their effect on employment and business within Britain, what are essentially queries about particular projects—whether on who pays for it, the environmental impact of, for example, solar farms on agricultural land, or the total cost—have been used by some people to support what appears to be a growing international degree of ending the consensus on climate change. Some of that is reflected in what is going on in Baku now and the near failure of the COP process so far. We need to get back to that consensus, with all-party support for the trajectory that, a few years ago, seemed to be agreed by us all.
Baroness Hayman (CB)
My Lords, it is a pleasure to follow the noble Lord, Lord Whitty, and to agree with him particularly on the last point that he made. There are difficult decisions to be made; we need transparency and we need critical analysis of individual projects and policy decisions that will influence how we go forward. But we had the advantage in this country, and it is one reason why we became such a leader, of basing those decisions on a fundamental agreement across parties of the huge significance of the issues relating to climate change and the opportunities that there were both to save the world—that sounds very dramatic, but it is not necessarily incorrect—and to hold back and stem the potentially disastrous consequences of global warming by taking action now.
I am getting ahead of my speech and I have not declared my interest, which I do now. I also congratulate the noble Lord, Lord Frost, on again directing the House’s attention to these issues. However, I fear that today he has asked us to take a very narrow focus on the cost of renewable energy and the effect on energy costs in the UK. I do not dispute that these are important issues, but I will not spend my precious four minutes going into the arcane debate about the latest LCOE figures from DESNZ or the implications of the latest strike price from AR6 CfD.
I simply say to the noble Lord that he puts a very gloomy interpretation on these figures, and he says that they are disputed. I do not dispute that he disputes them. However, there is a weight of opinion—academic, scientific and international—that suggests that his interpretation is wrong. If we look at the latest reports of the NESO, which he referred to, the CCC, the IEA and the International Renewable Energy Agency, and the excellent briefings we got from the Grantham Institute, the ECIU and the UK Sustainable Investment and Finance Association, they do not take the same view of the costs as he does.
My fear is not only that the noble Lord, Lord Frost, has got his sums wrong—and possibly, some would say, not for the first time—but that we focus only on the narrow issue of the debate today. We run the risk, as Oscar Wilde told us, of seeing
“the price of everything and the value of nothing”.
There is value in the transition to renewables, beyond the savings to consumers, which I believe are there. There is value in terms of energy security, sustainable jobs for the future, this country’s economic performance and our ability to lead in this area in the future. I hope that other noble Lords will go into more detail about that value later in this debate.
The Lord Bishop of Norwich
My Lords, I am grateful to the noble Lord, Lord Frost, for securing this debate at the time of COP 29. It is a pleasure as always to follow on from the wise words of the noble Baroness, Lady Hayman. I speak as the lead Bishop for the environment and as a member of Peers for the Planet.
I would like to ensure that there is reflection in this debate on the cost of not embracing renewable energy, especially as a global neighbour. Under even the most optimistic scenarios, the planet will experience warming above 1.5 degrees. The predictions for people and planet are stark. Ours is the generation that simply must move off our reliance on fossil fuels and embrace a new, cleaner, more resilient energy future.
We know the data. We know that climate change knows no international borders. We know that those being most impacted by adverse weather events are the poorest in the world. We know that those nations are least resilient as they are least able to afford mitigation and adaptation to protect their populations. We know that climate change is leading to more health problems, more migration, more conflict and more war. The cost of this is in the trillions—as well as the huge human misery that results. The UN has estimated that moving to renewables could save the world up to $4.2 trillion per year by 2030 as we reduce pollution and climate impacts. By the UK investing in renewables, we are investing in the technological development that will see costs decline over time. That is ultimately good for us, the consumers of electricity. It also contributes to the technological development that is needed across the world as it becomes more affordable.
We have made international commitments about our carbon emissions, and I welcome the recent announcement by the Prime Minister at COP 29 that we will reduce them by 81% by 2035. Let us not underestimate the importance of having international leadership in this area. We make these commitments because we know that it will contribute to the well-being of the planet, but it is also in our domestic interest. The lesser the impact of climate change, the less our national security risks, the better our public health, the more secure our food supplies and the more progress we can make restoring our native biodiversity.
Last year Pope Francis, in Laudate Deum, his short follow-up encyclical to the much-lauded Laudato Si’, wrote:
“We must move beyond the mentality of appearing to be concerned but not having the courage needed to produce substantial changes”.
I urge His Majesty’s Government to consider our global responsibilities as part of the cost-benefit of renewable energy, and I hope that other noble Lords feel able to as well.
Lord Howell of Guildford (Con)
My Lords, I declare interests, both for past energy issues—I was at one stage the Secretary of State—and as an adviser to Mitsubishi Electric, which is one of the biggest producers of equipment and kit related to moving to a clean energy world. I congratulate my noble friend Lord Frost on securing this debate, which is very well timed. It comes not only during COP 29 but after a very good debate last week, promoted by my noble friend Lord Lilley. It also comes before we debate, on Monday, the Great British Energy Bill, which, as far as I can understand it, is going to confuse things even more among many agencies. Still, we will have to live with that for the moment.
This is of course a question of pace and process. It is an honour to come after the right reverend Prelate but, with respect, the issue is not really whether there is a problem and we address it. The issue is whether we address it in a way which slows it down and creates a pushback, diverting us from the real task, or whether we focus on what we are trying to do, which is to reduce or slow down the rise in methane and CO2 emissions, which are going to lead to a very great world disaster. At the moment, methane emissions are rising faster than ever; CO2 worldwide is rising faster than ever. That at least raises the question of whether we are doing the right thing now, when clearly some action is needed.
We also need to create a rendezvous with reality, of which there is little sense in this debate, and counter a tide of misinformation—some of it unconscious and some of it conscious disinformation—about what should be done now and which way we should go. There are also some rather cuckoo recommendations from really quite senior bodies about flying more slowly, which sounds extremely dangerous to me, or eating less beefsteak. For some people, that may be necessary, but generally that seems a rather bad addition to the nation’s health.
I am very pleased that our own Library here in the House of Lords has put forward an excellent briefing, in which it has corrected, rightly, a very important and basic issue about this whole discussion. It is the matter of the confusion, in assessing where we go next, between electricity generated, as at present, and total energy use. Those are very different things. Last year, the former, according to the Office for National Statistics, produced about 19% of total energy use and renewables were about half that. Of that 19%, about 51% was green electricity of all kinds, including nuclear, wind, sun and all the rest. That leaves renewables providing about 9% or 10%—not 50%—of the total energy that we use in this economy at present. It is the remaining 90% that we now have to focus on.
There are a number of reasons why it may not be quite as bad as that and a number of reasons why it might be much greater. Energy efficiency will reduce growth; interconnectors will help us out; local generation and tidal will help us out as well. The prospects are also for a huge increase in energy demand in this country, which we will have to meet by nuclear, when we have made no moves so far beyond Hinkley, which is turning into a pretty bad outfit altogether. There are also the costs of storage and having much more nuclear power at Sizewell, which will be a great mistake. We need six new switching stations, a new grip on pylons and an entire makeover of the National Grid system. None of these things appear to be going forward very fast and we therefore face the fact that we will have huge electrical growth for which someone will have to pay, and it will cost a great deal more.
Lord Hain (Lab)
My Lords, in October 2006 Professor Nicholas Stern, a former chief economist at the World Bank, later introduced as the noble Lord, Lord Stern, vividly briefed the Cabinet on the looming climate crisis. His central message was that the costs of combating it will be high, but the costs of not doing so will be immeasurably higher. How right he was and how wrong the noble Lord, Lord Frost, is. As the right reverend Prelate the Bishop of Norwich said so eloquently, the science and the devastating effects of global heating are indisputable, as extreme weather—chaos, droughts and mega-floods—batters the planet, most recently in Spain.
Renewables are getting much cheaper, gas more expensive and nuclear power incredibly more expensive, especially with its decommissioning and waste storage costs. The Nuclear Decommissioning Authority has estimated the future costs of the nuclear decommissioning mission at a colossal £105.3 billion, significantly taxpayer funded. Offshore Energies UK also reports spiralling costs and a dramatic hike in the decommissioning costs for oil and gas platforms and plugging oil and gas wells, costing taxpayers over £16 billion from a 2021 Tory-funded deal. In March 2023, independent research showed that, since 2015, the last Conservative Government gave £20 billion more in support to fossil fuel producers than to renewables.
There is no doubt that generating electricity from nuclear power costs significantly more than generating it from solar and wind. Then there is the enormous untapped potential of marine energy: notably, the very low-cost tidal power from the Severn estuary, with the second highest tidal rise and fall in the world, which has never been harnessed and surely must now be.
Britain’s dependence on fossil fuel markets controlled by autocrats such as Vladimir Putin has left us vulnerable to energy price spikes, as well as the escalating costs of the climate emergency. That is why our Labour Government have committed to delivering clean, homegrown energy by 2030, meaning electricity based on renewables, nuclear and clean energy technologies that we control at home, rather than fossil fuels sold on volatile international markets. Last week, the National Energy System Operator—NESO, referred to by the noble Lord, Lord Frost—published an independent, expert analysis showing that clean power can lead to cheaper and more secure electricity for households. A wide range of groups from business leaders to trade union leaders, the International Energy Agency and leading UK and international companies, such as National Grid, Scottish Power and SSE, have backed this.
We need Labour’s pro-energy security, pro-growth, pro-jobs, pro-climate and lower cost policy to tackle the climate emergency with real urgency. Prioritising green, clean renewable energy is about choosing investment over decline, new skilled jobs over low productivity ones, growth over stagnation, and cheaper over more expensive consumer prices—or, as the noble Lord, Lord Stern, might have said to the Cabinet meeting that I attended in 2006, investing in the short term to save over the longer term.
Lord Moynihan (Con)
My Lords, I declare an interest as chair of Acteon, which operates across global marine energy and offshore infrastructure services. Central to this debate is a clear understanding of the significant distinction between the availability of renewables and hydrocarbons. One leads to the generation of intermittent power; the other to much-needed baseload. While moving to an increasing share of renewables, we always require the availability of baseload.
I had the good fortune, as Energy Minister back in 1990, to introduce the first competitive framework for renewables: the non-fossil fuel obligation, which morphed into the contracts for difference that we have in place today. What it has not led to is a simple trade-off between gas-fired power generation and renewables. Even as we debate today, at this hour—not just last week—our grid status shows that 53% of our power generation is from gas, with wind at 18%. Nuclear at 13% is far too low; the late delivery of SMRs is due to their being stifled by bureaucracy. While gas plants account for about one-third of Britain’s power requirements and are destined to fall to an average of 5% in about 10 years, we still have to retain the capacity of these gas-fired plants as a strategic reserve for windless days like today.
It is worth pointing out that we will not achieve that switch without substantial investment and private sector creativity. The recent NESO report, referred to by my noble friend Lord Frost, finds that the shift to renewables necessary for the Government to reach their flagship manifesto pledge of a clean power system in 2030 will require annual investment of more than £40 billion, with nearly 2,700 miles of offshore electric cables and 620 miles of new onshore cabling.
The alternative to this scenario necessitates storage solutions, and while I agree with the noble Lord, Lord Whitty, that storage technology is improving, there is a long road to travel to reach scalability and affordability. The capex has to be found by the Government if they want to keep the promise made by the Secretary of State Ed Miliband that household bills will fall. Given this reality, it would be irresponsible to turn our back on maximising domestic gas production in the UKCS. A stable fiscal regime for gas production is essential in a highly competitive global market for investment dollars. Norway has a consistent 78% tax rate. If the Government are to follow the Norwegian model, which they began to do in the Budget, the next steps must include further investment allowances. Without them, we face—as we do today—a premature wind-up of the UKCS, leaving gas stranded and substituted not by renewables but by expensive, more polluting, imported LNG, which makes neither economic nor environmental sense.
Renewable energy sources come with massive upfront capital investments which cannot be excluded in any cost comparison. Maintenance, decommissioning, grid costs and life-cycle replacement need to be costed. It is true that the marginal cost of producing electricity from wind or solar, once the facilities are operational, is extraordinarily low. In summary, we have to create a resilient, sustainable energy system which has to underpin energy security. The key, as ever, will lie in the strategic investments we make today, in both technology and infrastructure, and in private sector investment to ensure that we are not merely reacting to market forces but proactively shaping the energy landscape for generations to come. This, I would argue, is a future well worth striving for, and I wish the Government well.
Baroness Whitaker (Lab)
My Lords, it is an education to follow the noble Lord, Lord Moynihan. It is an obvious truth that we should note the costs of any national policy and we are grateful to the noble Lord, Lord Frost, for giving us the opportunity to debate it. I congratulate him on his timing. COP 29 provides an international context for what is manifestly an international problem: the climate change emergency.
We must also factor in to the national calculation the benefits of the policy and the costs of not adopting it, as has been mentioned. We should do this for the long term as well as the short term. I shall focus on the long term, but it is unarguable that there will be short-term costs—whatever they are—in moving to reliance on renewables. A key issue is who is to bear them. We shall need to consider the split between public funds and consumer and upfront private sector expenditure.
Industry thinks long term, and the chief executive of CorPower, which has pioneered the first commercial wave energy device in Portugal, said:
“I believe that there are, today, several key trends in renewable energy which can be considered megatrends. One of them is … cost reduction”.
He describes this trend in solar energy as being
“even in places where the solar irradiation is quite low”.
I think the UK might find itself here, and in wind energy and eventually marine energy.
NESO, referred to by my noble friend Lord Hain, considers that the economies it mentions, after the shift to a clean-power system, come from offsetting benefits from the eventual fall in the price of electricity, the cessation of dependence on volatile international gas prices, and improved efficiency measures. I regret that there simply is not time in four minutes to break down the figures. We should also find a way to include the so far unquantified but clear gains in energy security and health which will come with renewables.
If we can ensure that our national strategy invests fairly and equitably in short-term costs, the profits of the companies involved will yield tax, as will the jobs that they provide, together with more consumer spending power. There is already an example in the joint venture project to supply decarbonised heat to buildings across Westminster from the Thames, the Underground and the sewer networks. It will cost £1 billion: an investment that is certainly a significant short-term cost but a measurable long-term significant gain in reducing energy bills.
We must put into our equation the likely costs of unimpeded climate change from the overuse of fossil fuels: extensive floods in the UK, homes abandoned from rising sea levels in the UK, lives lost from extreme heat—probably also in the UK—and the international disruption caused by the effects of climate change on people fleeing ruined habitats.
Finally, I put one request to my noble friend the Minister. Wave energy is the Cinderella of renewable energy, but it has huge potential, especially when combined with offshore wind, not least for reducing battery storage costs. The contracts for difference scheme does not give it a fair chance at present, because it has not yet achieved the scale-up reductions of the more established tidal energy schemes. Will he consider giving it its own ring-fence, so that all the research now producing results can be speeded up?
Baroness Finn (Con)
My Lords, I declare my interests as set out in the register, specifically my chairmanship of Project Tempo, a non-profit organisation which researches public attitudes towards the energy and climate transition. I thank my noble friend Lord Frost for this important and timely debate.
My right honourable friend the leader of His Majesty’s Opposition is right that we need to tell the truth. Over the last few years, successive Governments have set more and more ambitious emissions reduction targets, without a plan for how to meet them. We urgently need an honest debate about the different pathways to decarbonising our economy. The road is paved with trade-offs, and we must choose which ones to make.
I want to make two observations. The first is that British voters overwhelmingly support the ambition of getting to net zero. Project Tempo’s research shows that the public care about protecting the environment and want us, as a country, to do the right thing. However, it also shows that public support for green policies declines dramatically when individuals are asked to pay for them through higher energy bills, prices or taxes.
The second observation is that British energy prices are going in the wrong direction, and have been since well before the war in Ukraine. Data from the energy department shows that between 2010 and 2023, domestic electricity bills almost doubled in real terms, and data recently published in the Financial Times showed that the UK’s industrial electricity costs were among the highest in the world, more than four times those of the United States or China, and significantly higher than those of all other G7 economies. This is a profound challenge.
Our globally uncompetitive energy costs not only damage our productivity and economic growth, they risk undermining public support for the transition. If people come to associate green policies with higher bills, it will become much harder to maintain the public support that we need to reduce emissions and tackle climate change. That is why I was worried to read last week that the Institute for Fiscal Studies has said that Labour’s plans for clean power by 2030 will see green levies rise by an average of £120 per household by the end of the decade. The recent report from the National Energy System Operator also suggested that energy system costs could rise as a result of Labour’s plans.
We ought to pursue the mix of technologies that will reduce energy bills, protect national security and drive growth in our economy. Unfortunately, the Government’s policy will do exactly the opposite. Their ideological rush towards accelerated targets will send prices higher and exclude the development of other forms of clean energy such as nuclear, which would help us hedge the costs involved in decarbonising the grid. Can I press upon the Minister the importance of new nuclear and ask him to set out briefly the position on the Wylfa plant in Ynys Môn?
We must tell the truth about the challenges we face, not pretend that inconvenient facts do not exist. The reality is that many of the Energy Secretary’s current plans entail borrowing enormous amounts of money and spending it on subsidising technologies which are not otherwise viable on the open market, or on importing more products from China. Before the election, the then Opposition promised that their plans would cut consumer energy bills by £300. That claim—which they continue to stand by—is bogus. My fear is that false promises such as that, and their general rush to accelerate the transition, risk undermining the very environmental action which so many of us wish to see. I look forward to hearing how the Minister will address these legitimate concerns.
Lord Elliott of Ballinamallard (UUP)
My Lords I welcome the opportunity to speak in this important debate and I thank the noble Lord, Lord Frost, for securing it. The renewable energy system stems from the climate change issue, so we cannot look at one in isolation without the other. I am interested in the noble Lord, Lord Frost, saying that there is no consensus around some of the figures and costings. I assume that that is because some of those estimates are just guesstimates at a high level, as opposed to having any significant background to the figures.
I am concerned about climate change, as I am sure most in this House are. I want to see renewable energy and I support it, but it all comes at a cost. We have to devise that cost in a practical manner and not just set targets that cannot be achieved. In Northern Ireland, we have set targets that I do not believe are achievable—in fact, we have missed all our early targets on climate change.
It also comes sometimes at an environmental cost. In the early 1950s, a renewable project—a hydro-plant—was built at Ballyshannon, in the Republic of Ireland, using the water that flows from Lough Erne in County Fermanagh. That has had huge environmental challenges, not least in that it has decimated the salmon and eel industries in Lough Erne. The salmon, eel and other fish trying to get back up through the hydro-plant have been slaughtered. They have been cut and killed by the blades of the hydro-plant, and that has reduced the number of fish stocks within Lough Erne. This has been a huge environmental disaster in County Fermanagh, so we need to be careful about how we do this. Just a few years ago, hundreds of thousands of eels were trapped in that hydro-plant and killed. That is a huge loss to the environment in County Fermanagh and to Lough Erne.
We do not always have sun shining and wind blowing, so we need to find other back-up mechanisms. I accept that other aspects, such as wave energy, might be more reliable. We need to do this in a managed way. In Northern Ireland, we had the renewable heat incentive, or RHI, which turned out to be an absolute disaster. We cannot now invest in further renewable incentives in Northern Ireland; we are pouring money back from the Executive every year, simply because we are not allowed to utilise that funding while the RHI is still in place. It has been a disaster not only for the Government and the Executive but for many of those genuine users who have invested millions of pounds into projects that they now cannot make pay, and who are returning to conventional types of heating such as oil and coal. We need to be careful in what we do and how we do it. That is why we should not rush into issues that are not reasonable.
Last December, I attended a seminar led by government and executive officials in Northern Ireland. We were told that, by 2027—in just three years—it will cost government departments in the small area of Northern Ireland £2.3 billion to implement climate change policies up to that point, and that is not to talk of what it will cost businesses, ordinary householders and the public.
Lord Browne of Madingley (CB)
My Lords, I refer the House to my relevant interests as set out in the register.
I would like to make four related points on this topic and its wider context. First, in the UK, the cost of supplying electricity from renewable sources such as wind and solar is far below the cost of supplying it from generators using oil, coal, gas or nuclear fission. However, there are many assumptions in these average calculations, notably for financing, location and risk. In my long experience, these will cause different analysts to come up with different estimates, but in almost all cases the results are the same: namely, that renewable energy sources are the cheapest today.
Secondly, the cost of renewable power has come down by at least 60% over the last decade. That is a result of economies of manufacturing scale and improvements in technology. Both these effects will continue. There is no reason why, for example, the efficiency of solar cells could not improve by 50%. The cost of battery capacity has shrunk by over 80% and it will continue to decline. That is important because it now makes it possible to have long duration storage of electricity supply, removing the uncertainty of sunshine and wind.
Renewables will be a significant contributor to the transition to clean energy sources. Their continued cost-effective deployment is vital to avoid the impacts of climate change. They are not the only source of climate mitigation, but they tell a story which needs to be repeated in other technologies. Their continued improvement and deployment in the UK give us credibility in the energy transition industry. We must not let go of this position.
Thirdly, no improvement or deployment can happen automatically. It requires research and development, from fundamental science to the engineering of how to grow an innovation to a commercial scale. The UK’s grip on many of the needed intellectual and practical scientific components is strong. If continued to be aggressively developed, this could become the source of significant growth, both domestically and as a source of export earnings.
Fourthly, the UK will need to pull together all its resources to compete in the areas likely to have the highest commercial impact and the lowest cost deployment. It will need to demonstrate that our innovations are scalable. That will best be done if the UK creates a national energy institute. It must consolidate in one place the best minds to work on problems that need access to many different scientific, engineering and economics disciplines. It must attract the best of the best, because it is a centre of excellence, much as has happened in the life sciences at the Francis Crick Institute and the Laboratory of Molecular Biology. It will need to be based in a city which already attracts the best people and has an appropriate platform of scientific and technical support. Given its track record in energy, Cambridge must come high, if not top, of the list of those candidates.
I make these four points to make a single overarching comment: that we need access to the best, lowest-cost and highest-impact technologies, not just now but in the future. We have low-cost renewables; we must not throw away the chance of having other low-cost technologies here in the UK to have low-cost, secure and clean sources of energy for generations to come.
Lord Moynihan of Chelsea (Con)
My Lords, I thank my noble friend Lord Frost for calling this debate and for his excellent opening remarks. I call attention to my register of interests.
Each day, the direct and indirect cost of renewables expands upwards and outwards, with subsidies, constraints, payments, curtailment, demand-side response, artificial inertia, and on. There have been rising prices every year from 2002 to 2020, at a time when—contrary to the assertion of the noble Lord, Lord Whitty—gas prices were broadly flat. Now, we have the highest electricity prices in the developed world.
This week Ed Miliband claimed that renewables are cheaper than fossil fuels and that the price of electricity will go down by £300. These assertions generated widespread derision. The Centre for Policy Studies called them “nakedly dishonest”, saying that
“the £300 figure is pure garbage”.
I am afraid that the noble Lord, Lord Browne, just made a similar assertion.
We are told that net zero can be achieved at modest cost, but behind almost all those claims are the assertions of DESNZ, which are, unfortunately, divorced from reality. My noble friend Lord Frost mentioned experts discrediting DESNZ’s figures. The findings of others, including Dr Aldersey-Williams of Robert Gordon University and the independent energy consultant Kathryn Porter, are also completely inconsistent with DESNZ, yet its figures are treated as gospel throughout our institutions. The Climate Change Committee uses them and NESO’s claim that the Secretary of State’s plan is affordable depends on them. If current costings, rather than those of DESNZ, are applied to the Royal Society’s recent study on a net-zero grid, the overall cost rises, arguably, to an unaffordable level.
We are basing public policy on hopeful predictions that have little grounding in reality. Policymakers should surely demand to know what net zero would cost, using real numbers. It is unforgiveable that successive Governments have failed to prepare a cost-benefit analysis of net zero that is based on real, hard data.
Several weeks ago I told your Lordships’ House that
“net zero is a religion”.—[Official Report, 24/10/24; col. 774.]
How else can one interpret its proponents’ head-in-the-sand approach? Entire industries have been destroyed in this country—cars, aluminium, steel, North Sea oil—and for what? China’s carbon emissions are already five times the emissions of the entire European Union. India is about equal to the EU but rising fast. We ourselves are a rounding error. Why pursue this extraordinary destruction of value in our economy, spending huge random amounts that will not—as the noble Baroness, Lady Hayman, put it—“save the world”?
The Government should be honest about their fudge, delegitimise those who created it and start again with credible, disinterested analysis as to what the real cost is, what it might be in future, whether we can afford it and what the overall impact on the country and the economy will be. Remarks in the recent debate implied that we must not concern ourselves with the cost, because we have to do this to save the planet. That is emotion-based, not calm and fact-based, reasoning. We must accept that, at some given level of cost, we would want to decide that net zero was unaffordable. We must find out, using facts and assertions, whether net zero’s cost takes us into that unaffordable territory.
To conclude, I hope that the Government will consent to my noble friend Lord Frost’s request for a speedy inquiry into what the costs really are and whether their expected impact on the nation is affordable. I do not believe it is.
Lord Rooker (Lab)
My Lords, I am voluntarily involved in a small Archimedes screw on the River Teme, generating electricity at Ludlow.
Given that the UK cannot build railways as fast as the Victorians, I am on solid ground in my belief that clean electrical power by 2030 is a non-runner. The UK is world class in setting targets, which is not the same as delivering actions. Last week’s report from the National Energy System Operator is claimed by some as saying it is all possible—that is pie in the sky.
What is expected in the 1,873 days until 1 January 2030? The list has to be delivered—all of it, simultaneously and in full. Market reforms need to unlock £40 billion a year in investment. Onshore wind capacity has to double. Battery capacity connected to the grid has to grow fourfold. Solar capacity has to be tripled. The high-voltage grid has to be upgraded and expanded twice as much in the next five years as we have seen in the past 10 years. Carbon capture and storage targets have to be achieved using technology that has not yet been delivered at scale. We have to contract as much offshore wind power in the next one or two years as we have seen in the past six years. We need a fourfold increase in the flexibility of demand using smart meters that actually work. When the wind drops and the sun does not shine, batteries and pump storage hydro will have to be there to compensate. The nuclear plants will be required as back-ups.
That will all have to be delivered at pace, on time and at the same time—come off it. This is the UK in 2024, not the UK of the Lunar Men 250 years ago at the start of the Industrial Revolution. The UK no longer has a culture of building or people like Isambard Kingdom Brunel.
I have never yet heard a Minister address the issue of intermittent renewables. Who pays for the intermittency? It is never addressed. Huge amounts of kit cannot be manufactured in the UK. There is an international shortage of substation transformers and the ships needed for offshore installation. There is a massive shortage of homegrown skills to make all this possible.
I keep hearing that planning has been dealt with. Really? I know I am alone in this, but I see pylons and wind turbines across the countryside as truly majestic. Not everybody agrees, but burying the grid at sea is far less secure than having it where you can see it. We know that the massive undersea cables for the world wide web have been interfered with by Putin’s Russia. A lot of these doubts have been set out in detail by many people, including Professor Dieter Helm in one of his blogs. Nothing has changed since then except the Government and the creation of NESO.
Let me be clear: I am not a climate sceptic—I was the first Minister ever to speak on the Climate Change Bill, for the simple reason that I introduced it in this House in 2007. It is 1,873 days and counting.
Lord Swire (Con)
My Lords, I crave the House’s indulgence for largely lifting the comments I will make from a contribution to a debate we had in February this year. I was going to make a few rather politically pris comments until I discovered that, in February, the Minister who answered was a Conservative Minister. Rereading his answers, I found them as unsatisfactory as some of the things I have heard since.
I congratulate my noble friend Lord Frost on what is a timely debate. I will limit my remarks to a very narrow part of it: the costs of transmitting the renewable energy that we are debating. There is absolutely no consensus on these costs at all.
I do not share the sentiment—although I understand it—expressed by the noble Lord, Lord Rooker, about the “majesty” of a whole new generation of pylons marching across our countryside. In fact, that is when the public will begin to lose their enthusiasm for renewable energy. There are other ways of doing it, but we first need to address some fundamental questions. Why are we locating substations for bringing offshore renewable energy onshore, when countries such as Holland and Belgium are planning vast offshore substations? They are absolutely huge. Why is it current UK policy that, instead of pooling the power from the 18 or so wind farms around the country and having limited interconnectors, the National Grid is offering an individual connection to each offshore wind farm? It is completely unthought through and unnecessary.
On the subject of burying power lines versus not burying them, the technology is ever-changing, and some of the figures that have been bandied about by National Grid and others are simply unrecognisable. The noble Lord, Lord Rooker, is right: we do not build things very well any more. If you look back to the 1850s, when we carried telegraph traffic across the transatlantic cable, we were one of the first to do that, and five years later, Sebastian Ziani de Ferranti designed the first high-voltage underground mains cable, which he used to connect the Grosvenor Gallery to Deptford substation, and which carried 10,000 volts. These were all highly innovative and revolutionary acts of engineering. But we can do the same now; we need to have a debate about the various costs of ploughing in and trenching power lines. The new technologies are there, and we know that the environmental benefits of burying power lines in terms of reducing outages, the effects on the flora and fauna and bird life, and the visual impact as well on our landscapes are there and need to be factored into any cost-based analysis.
There was some question about the cost of burying power lines, particularly in East Anglia, and that is a good example. The National Energy System Operator, which formed part of the former National Grid, maintains, on the power lines which it is proposing to build overland in East Anglia, that if that timeframe was to slip to 2034, an underground cable system would come in £600 million cheaper than using pylons. So, we need an honest debate about the various costs, but I urge anybody who is keen on increasing the amount of renewables transmitted to this country to think very carefully about how we do that if we are to carry the public with us.
Lord Oates (LD)
My Lords, I welcome this debate and I thank the noble Lord, Lord Frost, for initiating it. It follows our recent debate initiated by the noble Lord, Lord Lilley, and it feels a bit like it is a band reunion with some of the stars missing. We rehearsed a number of arguments from last time.
The noble Lord, Lord Frost, protests that his position is not ideological, but I am afraid that I do not really buy that. He told us in his speech the other week:
“In my view, we are not in a climate emergency”.—[Official Report, 24/10/24; col. 769.]
I think science would beg to differ from that. I am all for us having the most open debates; we should have had greater debates on these issues, particularly at the time that we adopted net zero. That was the right thing to do, but we did not have sufficient debate. However, it is important that those debates seek to illuminate rather than to obfuscate the issues, and I fear that that is often what the noble Lords, Lord Frost and Lord Lilley, organisations such as the Global Warming Policy Foundation and others seek to do, a bit like what the tobacco industry sought to do, confusing all the science—and we all know the cost of that.
The noble Baroness, Lady Hayman, quoted that old adage about knowing the price of everything and the value of nothing. But in a way, the noble Lord, Lord Frost, disputes the price of everything but he knows the cost of nothing. We heard very convincingly from Lord Browne about the realities of these costs. We know that from the figures that are provided by the Government, which I have heard some noble Lords on the Official Opposition Benches disputing, but which were quoted by the noble Lord, Lord Lilley, in his speech last week or the week before. What he did not do was compare like with like; he took one figure which he had taken off the carbon price on gas and compared it with something else which was not in the graph and which told a completely different story. That is not very illuminating.
The noble Lord, Lord Hain, described the noble Lord, Lord Stern, speaking at a Cabinet meeting some years ago and making clear that the costs of inaction were much greater than the costs of acting: that the costs of combating climate change would be high—that is true—but the costs of not doing so would be higher.
The noble Lord, Lord Frost, did not talk at all about the external costs of burning carbon fuels. We have known a long time about those impacts. In fact, as long ago as 1965, in a report from the President’s Science Advisory Committee to President Lyndon Johnson, that council warned that the burning of fossil fuels
“may be sufficient to produce measurable and perhaps marked changes in climate”
by the year 2000. As we know from internal papers of Exxon, the oil company, which were exposed by Inside Climate News, the oil companies knew about this very well themselves. In May 1981, an internal memo from Exxon stated:
“We estimate now that the doubling time”
for CO2 in the atmosphere
“is about 100 years. This permits time for an orderly transition to non-fossil fuel technologies should restrictions on fossil fuel use be deemed necessary”.
The memo went on to predict a
“3°C global average temperature rise and 10°C degrees at the poles if CO2 doubles … Major shifts in rainfall/agriculture … polar ice … melt”.
A number of presentations, documents and memos internally in those companies, with the American Petroleum Institute, which made clear the dangers of globally catastrophic effects.
However, we know what happened. After that time, companies such as Exxon, which had been very forward-looking in research on the impacts of carbon dioxide, suddenly changed their leadership on that and went about the process not of continuing to research—it closed down its research on that—but seeking others to do research to try to undermine climate science, the very climate science some of which they had pioneered. It is very much like big tobacco. We need to bear that in mind. Those costs were known about, and if we had acted earlier, the costs we would be dealing with now would be much easier.
The noble Baroness, Lady Finn, quite rightly talked about costs to households. We have to think about how we move into this transition, which is why it is so important that we have the real facts available and that we do it in a way that is as fair and has as least impact as possible on individuals. However, as she may know, average household expenditure on energy actually fell between 2013 and 2020. A lot of that was to do with measures that had been taken in the coalition Government through the levies in terms of energy efficiency of people’s homes and reducing energy consumption, and that should be a key area that we focus on.
The right reverend Prelate the Bishop of Norwich made the important point that the most vulnerable and the least resilient nations are likely to be the most impacted by climate change. On the costs, the noble Lord, Lord Lilley, last week stated:
“If continuing to do nothing … were likely to result in the extinction of the human race, or even its immiseration, almost no costs would be too great to avoid it”.
However, he went on to say that he had put down a question to the Government some time ago about
“whether they knew of any peer-reviewed science, or science produced by the Intergovernmental Panel on Climate Change—whose job it is to consider the science—which forecasts that, if we do nothing over the coming centuries, it will lead to the extinction of the human race or even its immiseration”.—[Official Report, 24/10/24; cols. 795-96.]
But he did not actually ask that question. What he asked was whether there was any peer-reviewed science which said that the human population would be exterminated within the next century, and of course he got the answer, no. Again, it is this obfuscation of the actual facts.
When I think about the external costs, I think about some of the kids I taught many years ago in a school in Zimbabwe, which I mentioned last time. Shortly after my father died, that school, very movingly, sent me a photograph of a playground it had built and dedicated to his memory. At the bottom of the slide there is a six year-old little girl with a big smile—it is a beautiful picture. I think of that person, who has contributed almost nothing to the carbon in the atmosphere, but who will be one of the people most impacted by what we do, and to whom we have a moral obligation.
In a post on Facebook, one of the pupils I had previously taught was not talking about climate change; he was explaining why the school was named after St James. The Anglicans had this habit of naming a mission after a saint, but also adding the area where the mission was situated. In our case it was St James Zongoro. The name Zongoro is from the river, but the river is slowly dying because of climate change. That river is dry most of the time. They cannot feed their fish ponds any more, and they are increasingly impacted by severe weather events. It is those vulnerable people who are one of the reasons why we have to continue with this. We have been a leader in renewable energy; we should continue to be so, and we should be honest and open about the costs of doing that, the benefits and the values.
Lord Offord of Garvel (Con)
My Lords, it is a pleasure to wind up this interesting debate on energy on behalf of the Opposition. Indeed, it is the second such debate we have had in the last two weeks, with a third to come on Monday as we begin the discussion on GB Energy.
It is worth framing this debate in the context of the new Government’s stated ambition on this topic, which is to make Britain a clean energy superpower. They are now bringing forward specific proposals for cheaper zero-carbon electricity by 2030, accelerating to net zero.
It is worth reflecting again on the consensus that exists on net zero: that we have set a target of 2050; that at the moment the majority of our power—roughly three-quarters—comes from hydrocarbons and a quarter from non-hydrocarbons; and that our objective, over one generation, is to flip that on its head so that a maximum of a quarter comes from hydrocarbons, which will be green hydrocarbons, and three-quarters from non-hydrocarbons.
As to what that mix, or matrix, might look like, we have used words in the past such as a “balanced scorecard”. We have also discussed the fact that 2024 may not be the right moment to accurately predict what will make up that matrix or scorecard. We know the direction of travel, but as the noble Lord, Lord Browne, has mentioned, technology is advancing rapidly and costs will move accordingly. Therefore, there will be a debate to be had on how we move forward and in which area.
It is interesting, therefore, having set that scene, to think about the specific proposals we will be considering next week, because this is the first concrete step on this Government’s journey to that end. The keyword here is “accelerating”. A number of noble Lords have already expressed concern about this concept of accelerating, and why and how we do that.
Coming before us will be the Great British Energy Bill, and the Budget committed £8 billion of funds as a key enabler of the zero-carbon electricity target of 2030, which has been brought forward by five years. The NESO report has described the ambition to achieve zero-carbon electricity by 2030 as “immensely challenging”, requiring the UK to double its onshore wind capacity and triple its solar power; and it will depend on flexible power demand—a euphemism for rationing.
That is quite a considerable statement by NESO, and a number of experts have raised concerns that this is going to be too aggressive. In fact, as we know, the analyst Cornwall Insight says that we are on track to get 44% from renewables, but that decarbonising the electricity grid completely would require getting to 67%. That is a long way off, and we estimate that that will cost an extra £50 billion.
I think the point the noble Lord, Lord Elliott, was making is this. These are great targets to have, but the Scottish Government, for example, have had to roll back very considerably on targets that were set, it would appear, more for grandstanding than in reality. I think we all agree that we do not want to set false targets that we cannot achieve, when we have an opportunity to do this in the right way and in a considered fashion.
Turning to the Great British Energy Bill that is coming up next week, I am concerned that the Government may have to manage public expectations on this matter. I gained some direct understanding of this a couple of months ago when I was in Irvine for the BBC’s “Any Questions?” The audience was convinced that GB Energy will be a new low-cost energy supplier, and was quite taken with the figure being bandied around of £300 per household. Rightly or wrongly, this is now in the public domain. In reality, as we will next discover week, GB Energy is simply an investment fund that will channel £8 billion of taxpayers’ money into renewables, principally offshore wind farms.
That may or may not be the right thing to do, but at the moment that sector is well invested in by the private sector. There is already £35 billion of private sector money in offshore renewables, projected to rise to £60 billion. This is a well-functioning market, so why does the taxpayer need to put £8 billion into a sector that is already well invested in?
If we take the £300 per household and multiply it by 28 million households, by compete coincidence that comes to £8 billion. Therefore, one has to double one’s money in five years—by 2030. Renewables is a low return on investment category, in the region of 5%, whereas hydrocarbon is a high return on capital category, in the region of 20%. The private sector has been investing renewables over a 20-year period and does not contemplate doubling its money in the space of five years, so why would the taxpayer expect to be able to do something different and double the money in five years? It is, frankly, beyond me, and we will get to the point where these numbers will be interrogated and will need to be backed up.
It has also been asked whether, if there is a spare £8 billion going and we are told that money is tight, the taxpayer should be considering getting rid of some of the bottlenecks in the system. Should we be thinking about some of the plumbing, for example? Should the money be invested instead in the national grid?
The national grid was built in the 1960s and ’70s, when energy was generated in coal-fired power stations in Scunthorpe and had to be sent to Orkney, which was considered a remote region and therefore had to pay more for its energy. Today, the majority of the wind farms are off Orkney and now send energy back to Scunthorpe, but at the moment the pipes do not allow for that to happen. There is no storage capacity in the meantime, which is why we have this ridiculous concept of curtailment payments and subsidies to switch off wind farms when the wind blows and keep the gas-fired power stations open when the wind does not blow. Given this, a lot of thought needs to be put into how we proceed.
As the noble Baroness, Lady Finn, said, the real issue is that our electricity is too expensive. Our energy in the UK is too expensive. The cost of living crisis has been driven largely by the fact that basics—energy, housing and transport—are too expensive in the UK. Any Government of any shape or form should be working hard to bring down these costs. Why should it be that UK consumers are paying 43% more than French consumers in domestic usage and 83% more than the French in industrial usage? That should be the focus of government activity, rather than piling into a sector that is already well covered by the private sector as things stand. If we see the likes of the OBR saying that the levies will rise by £3 billion, which is £100 per household, and if the IFS is correct that these levies are fundamentally raising prices for consumers, I do not understand how that ties in with the narrative of any Government saying that we need to make the lives of our citizens better by urgently bringing energy prices down and not up.
I conclude by coming to the precise events on this issue that we saw in the other place last week, when the Government voted against an amendment to cut bills by £300, which they had promised would be a strategic priority for Great British Energy. That might be the wrong number, but can we please have some analysis on what the number will be? Why did the Government vote against an amendment that would hold them to their word if, at the end of the day, that is to the detriment of the British consumer? I am sure that we will get into this next week. When we come to the Second Reading, I will ask the Minister to confirm that these energy policies will cut energy prices as promised, and by how much.
The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)
My Lords, it is a great pleasure to respond to this morning’s debate and I congratulate the noble Lord, Lord Frost, on initiating it. We have had an interesting discussion on many of the challenging issues that we face around energy. This is our third debate because, although the noble Lord was not present for it, we had one on electric vehicles, which covered many of the same issues. As the noble Lord, Lord Offord, said, we look forward to the Second Reading of the Great British Energy Bill on Monday.
I welcome the interest. It is so important, on an issue that is of such critical importance to our country, that your Lordships are making a real effort, debating some of the difficult challenges that we face. Clearly, there are different views. I agree with the noble Lords, Lord Frost and Lord Whitty, and the right reverend Prelate about the apposite nature of the debate happening at the same time as the discussions in Baku. I also take the right reverend Prelate’s point about our international responsibilities, which we very much understand.
In essence the noble Lord, Lord Frost, has argued today and in previous debate that he sees the net-zero consensus as breaking down. He has said previously, although he did not cover it much today, that he disagrees that investment in net zero will make us richer. He thinks that we should unwind and invest in gas and nuclear. I agree about nuclear. I note his detailed analysis of the costs of renewables. I will ensure that he receives a considered response. I have a response that I could read out, but it might be better if I wrote to him, with a copy to all Members of your Lordships’ House, since it is technical in nature. I get the substance of what he is saying. He will understand that I do not think the consensus was quite with him. There are clearly many different interpretations of the costs, not least, as noble Lords have said, the costs of not taking action. That is one of the great dividing lines between us. It was discussed by my noble friend Lord Hain, the right reverend Prelate and the noble Lord, Lord Oates, whose speech was about the costs of not taking action.
It is interesting that the noble Lord, Lord Frost, made no reference to climate change, as far as I can recollect. I find it very difficult to debate this without taking climate change as the context in which we develop these arguments. I say to the noble Lord, Lord Moynihan of Chelsea, that I see net zero not as a religion but as a rational response to evidence that is becoming clearer and clearer. The noble Lord, Lord Offord, said that he disagrees with the pace at which we are going—I understand that—but he does not resile from net zero. I do not want to waste your Lordships’ time repeating what other noble Lords have said about the impact of climate change. Clearly, it is with us. I took over the Climate Change Bill from my noble friend Lord Rooker in 2008. When we were debating it, it was almost an academic exercise in whether climate change was real. It was a future threat, but now it is with us. The noble Lord, Lord Oates, is so right about what is now happening. It is not a religion but a rational response to say that we have to take action and speed it up as quickly as we can.
I agree with the noble Lord, Lord Frost, that this requires a lot of investment. We cannot get away from that. I know that some noble Lords opposite are saying that the OBR, the Committee on Climate Change, my own department and NESO are all part of a blob. I hesitated to use the word, because it gives Michael Gove credibility and I think it is a word that is very disrespectful to many people who are doing the right thing—but noble Lords know what I mean. You cannot just dismiss the conclusions of those august, independent institutions. Their broad consensus is that we have to go down this route.
I quote the Committee on Climate Change:
“the net costs of the transition (including upfront investment, ongoing running costs and costs of financing) will be less than 1% of GDP over the entirety of 2020-2050, lower than we concluded in our 2019 Net Zero report”.
The party opposite has started to criticise the OBR, which is unfortunate, but it highlighted that delayed action on reaching net zero will have significant negative fiscal and economic impacts, which would be as true for Northern Ireland as for the rest of the UK, as the noble Lord, Lord Elliott, raised. Do we ignore or just dismiss this? I suggest not; that is the basis on which we make progress.
The National Energy System Operator has produced a report; I have realised that noble Lords can find evidence in it to support any case they wish to put forward, but I think that the substance of what it says is significant. It says that an
“investment programme averaging £40 billion or more annually”
can support “economic and job opportunities” across the UK.
I will briefly mention levelised costs to the noble Lord, Lord Frost. As the noble Lord, Lord Oates, suggested, he may not be comparing like with like, which is part of the problem of having a rational debate on the true cost of energy. For instance, you can have a levelised cost of electricity for offshore wind, which reflects the average cost to build and operate a plant, but it cannot be equated to the strike price. The strike price represents the price needed over the contract for difference for a project to be commercially viable, factoring in revenue, market and policy considerations. There are other points that I could make on that, but I think it best that I circulate a paper so that all noble Lords can see that.
I come to the issue that the noble Lord really raised. He agrees with net zero but thinks that we are going too fast. He and my noble friend Lord Rooker and the noble Lord, Lord Elliott, suggested that the 2030 target is unrealisable. We can look again at the NESO report, but it depends how you interpret it. I interpret it as saying that that is very challenging. I do not think anyone has resiled from that; of course it is challenging. It involves plumbing, as the noble Lord said, and there are issues with the planning system at the moment about the grid and what needs to happen, but we are working very fast to try to resolve some of them. I say to my noble friend Lord Rooker that we may not be of the same measure as the members of the original Lunar Society, in our great city of Birmingham, but we believe that we can meet those targets.
To the noble Lord, Lord Swire, I say that of course pylons are not popular. We understand that. I was interested in what he said about potential alternatives, although he will understand that the figures we have so far suggest that they are much more expensive at the moment. In the end, we have to make connections to the grid much quicker and we have to invest in and see an extension of the grid. This is inevitable and it will sometimes involve unpopular decisions. I accept that.
In relation to public opinion on the cost of energy to householders, the noble Lord, Lord Moynihan, made his point very well. I gently say that most of these costs actually occurred under previous Governments, over a long period. The decisions that we are taking now will have an impact—there is no question about that—but noble Lords need to accept that that was an inevitability given what needs to happen to start to invest in the move towards clean power.
The noble Lord, Lord Howell, was absolutely right when he said that this is but one part of the story. The decarbonisation of heating, transport and industrial processes represents an immense challenge too, as we go towards 2050. This is very well understood, and our debate on electric vehicles two weeks ago brought that home to your Lordships.
The noble Lords, Lord Howell and Lord Moynihan, the noble Baroness, Lady Finn, and others mentioned nuclear. I say to the party opposite that, when I was doing this job between 2008 and 2010, we had just taken the decision to go back to new nuclear and were in firm discussions about Hinkley Point C and its siting, the skilled jobs required and the supply chain. I understand that the final investment decision did not take place until 2017, so there was an awful lot of delay. There have been other issues too. The cost of the project was underestimated and there was an unrealistic assumption that taking a technology from France and putting it into Hinkley Point C would not involve design changes because of our approach to regulation.
In July, I went to see Hinkley Point C, and I met the chief executive yesterday to talk about progress. It is fair to say that considerable progress is now being made. It is the largest construction in the UK, if not in Europe. It is immensely impressive, and 65% of the value of the supply chain went to UK companies. Another point is that, when Sizewell C is developed and we get to final investment decisions, which I hope will be in the next few months, it is going to be a replica above ground of Hinkley Point C, so all the lessons that have been learned will be translated. Huge progress has been made between the first and second reactors.
Noble Lords will understand that I am very passionate about the role of nuclear. It provides the essential baseload and deals with some of the issues that noble Lords have mentioned. The issue of intermittency is well understood, and it is part of the cost of what we seek to do. Our approach is to take nuclear as the essential base load.
I think the noble Lord, Lord Moynihan, was a bit unfair about progress. The technology of the SMR programme is being appraised by Great British Nuclear at the moment, and I hope that over the next few months we will begin to see progress there. There is clearly great potential with AMRs as well. We are all excited by what is happening in the US and the link between the major media companies’ data centres and potential AMR technology, and I want the UK to be part of that.
On Wylfa, I understand its potential. We will come to decisions over the next few months.
A number of noble Lords mentioned oil and gas and the North Sea. I understand the potential that it still has, because we are still going to need gas and the flexibility of gas. We want to develop carbon capture, usage and storage to make sure that it is abated gas, which means that we wish to see an orderly transition. We are working, and will work, very closely with industry in relation to the North Sea.
Other technologies have been mentioned: the noble Lord, Lord Moynihan, mentioned hydrogen and the noble Baroness, Lady Whitaker, and my noble friend Lord Hain mentioned wave energy technologies. I readily acknowledge that all that may have a role to play. Essentially, we are ever-open to people coming forward with ideas and new technologies, but, at the moment, we think that in reaching clean power we need to focus on offshore wind, onshore wind and solar, alongside ensuring that the nuclear programme speeds ahead as quickly as it possibly can.
The noble Lord, Lord Frost, did not discuss this today, but implicit in what he says is his doubt about the impact on the economy of investing in renewables. The evidence we have is that many jobs will become available in future because of what is happening and our drive towards clean power. We reckon that 640,000 people are employed in the UK in what are described as green jobs, and that number is going to grow as we accelerate to 2030. We have an office for clean energy jobs that is going to focus on how we can develop the skilled workforce.
On the nuclear side, the national Nuclear Skills Taskforce has estimated that, by 2030, we need an extra 40,000 people. If the programme goes well and we have a continuous number of nuclear power plants being developed, that figure could go well over 100,000 by the 2040s. We are talking about high-quality, well-paid jobs in all these sectors.
In relation to the North Sea, many of the skills being used there are translatable. We want to make sure that happens as smoothly as possible.
Lord Howell of Guildford (Con)
My Lords, in a very interesting speech, the Minister said just now that, in the next few months—those were his words—some decisions will be made on the smaller end of modular reactors and so on. My understanding from Great British Nuclear is that no decision will be made before 2029. Is this a new position being taken up? If so, that is extremely encouraging.
Lord Hunt of Kings Heath (Lab)
I hope I have not just announced a new position. The position is that they are now going through a technology appraisal, which will take a matter of months. At that stage, the Government will then have to make decisions about what will happen in the future and on the funding, and we will have to have discussions with our friends in His Majesty’s Treasury in relation to that. Before that, I hope we will be having discussions about a final investment decision on Sizewell C.
I am in danger of overrunning. I thank the noble Lord, Lord Frost, again. This has actually been a very interesting debate, although he did not anticipate consensus. I am going to disappoint him on his request for yet another committee. I have picked up the suggestion by the noble Lord, Lord Browne, of an energy institute—without commitment, I should say, but it is very interesting. I am grateful to the noble Lord, Lord Frost, for instituting such an interesting debate.
Lord Frost (Con)
My Lords, I do not want to detain your Lordships’ House for long. I thank every contributor today for the care with which they have presented their case, and I am grateful to the Minister for his thorough winding up. I did not really expect him to pick up my suggestion, and indeed he did not. I look forward to his full response to some of the points that I raised.
We have heard an extremely interesting set of speeches. If I might be allowed just one reflection, on those that we have heard from proponents of the transition, it is that I detected perhaps a reluctance to tackle some of the specific details of costs and numbers that I mentioned but rather appeals to authority and nebulous assertions about the costs of not acting in relation to our global responsibility and credibility in this regard. I feel that is a little unsatisfactory as a basis for transforming our entire energy system, which is why I suspect we will need to come back to this and related subjects before long in the future. Meanwhile, I commend the Motion to the House.