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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Michael Shanks)
With permission, Madam Deputy Speaker, I would like to make a statement about support for biomass electricity generation. My apologies to the House for it having to put up with even more of me.
In January 2024 the previous Government launched a consultation on supporting large-scale biomass generators when existing support ends in 2027. That consultation outlined their proposals to continue to support biomass as a
“valuable...form of dispatchable power”.
Since this Government came to office, we have carefully considered responses to that consultation and assessed the case for a new support mechanism. Biomass currently plays an important role in our energy system, but we are conscious of concerns about sustainability and the level of subsidy that biomass plants have received in the past. With that in mind, I want to report to the House on our conclusions about the role of Drax power station in Yorkshire in the years 2027 to 2031.
In coming to the view I will express today, we have taken advice from the National Energy System Operator on questions of security of supply, analysed the effect on consumers of support for biomass versus the alternatives, looked at issues around subsidy and sustainability in the existing arrangements, and considered longer term issues around decarbonisation.
First, on security of supply, we inherited a situation from the previous Government where there was no long-term planning for our energy system and its resilience. In the system we have inherited, large-scale biomass provides around 5% of our annual electricity generation, serving a specific role as a source of firm power. To meet our needs between 2027 and 2031, we could seek to replace Drax with new gas-fired power stations, but in the timescale we have there would be significant risks to relying on that approach. In that context, NESO has advised us that Drax plays an important role in delivering security of supply between 2027 and 2031.
Secondly, on price, we have undertaken comprehensive analysis of the costs of biomass against alternatives. Our central projections show that, on the right terms and in a much more limited role than today, biomass generation at Drax is the lowest cost option, including when compared with gas-fired power stations, for bill payers during this period.
Thirdly, we have looked at previous arrangements for subsidy and sustainability. This Government’s view is that they simply did not deliver a good enough deal for bill payers and enabled Drax to make unacceptably large profits. At the same time, they demanded levels of sustainability that are not now in line with the latest scientific evidence or global best practice, including supply chain emissions well above the European standard. We have concluded that if Drax is to continue to play a role in our power system, these arrangements must urgently be improved going forward.
Fourthly, we have looked at issues with decarbonisation. Our finding is that there is a potential role for bioenergy with carbon capture and storage—or power BECCS—but realistically this will take time to implement and therefore cannot form the primary basis of this decision. On the basis of that assessment, and given the circumstances that we inherited, the clear evidence is that Drax is important for delivering a secure, value-for-money power system in the period 2027-31. But we have also concluded that we cannot allow Drax to operate in the way in which it has before, or with the level of subsidy that it received in the past. On that basis, we have secured heads of terms that will form the basis of a very different agreement with Drax for support during the period 2027 to 2031.
Let me set out the terms of the agreement. First, it will ensure that Drax plays a much more limited role in the system, providing low-carbon dispatchable power only when it is really needed. Drax currently operates as a baseload plant, running around two thirds of the time. That means that it provides power even when other renewable sources are abundant. That must not continue. Under the new arrangement, Drax will be supported to operate only at a maximum load factor of just 27%. In other words, it will operate less than half as often as it does currently. That will be guaranteed by the design of the dispatchable contract for difference that we have agreed. When renewable power is abundant, Drax will not generate, and consumers will benefit from cheaper wind and solar instead.
Secondly, reflecting that change, the contract will deliver much better value for consumers. It will significantly reduce the amount paid in subsidies compared with the previous support mechanism. The new deal halves the subsidies for Drax—equivalent to a saving of nearly £6 per household per year. Furthermore, our analysis shows that the deal will save consumers £170 million in subsidy in each year of the agreement compared with the alternative of procuring gas in the capacity market. I can also inform the House that the deal limits the expected rate of return for Drax to a level below that of monopolies regulated by Ofgem, but while that is our central estimate, unlike the last Government we are not prepared to take the risk of prices soaring in response to volatile fossil fuel markets, so the agreement includes a built-in windfall mechanism, with rates of 30% and 60% that would claw back excess profits made by Drax, guaranteeing a much fairer deal for consumers than in the past.
Thirdly, we will introduce tough new measures on sustainability. We will increase the proportion of woody biomass that must come from sustainable sources from 70% to 100%. We will significantly cut the allowable supply chain emissions to a level in line with the much stricter regulations currently operating in the rest of Europe, and we will exclude material sourced from primary forests and old-growth forests from receiving support payments. There will be substantial penalties on Drax if those criteria are not met, and we will go further to ensure greater confidence that the standards will be met. I can inform the House that we will also appoint an independent sustainability adviser to work with my Department, the Low Carbon Contracts Company and Ofgem to ensure that our monitoring and enforcement measures are robust and keep pace with the science.
To be clear to the House, taken together the measures represent a profound shift from the past on both sustainability and value for money. In that context, this is the right deal for security of supply and price in the period 2027 to 2031, given the circumstances that we inherited from the previous Government. Nevertheless, we recognise the strength of concerns in this House and across the country about the use of unabated biomass. It is not a long-term solution. We are determined that the next time such decisions are made, the Government are not left in the circumstances we have been.
We will do the work that was not done by the previous Administration on strong and credible low-carbon alternatives, so that in four years’ time we will have proper options. To help that process, we are setting up an independent review to consider how options for greenhouse gas removal, including large-scale power BECCS and direct air carbon capture and storage, can assist the UK in meeting our net zero targets and ensure security of supply out to 2050. The review will take representations widely on the issues and report back in due course.
The steps that I have set out are about fulfilling our duty to ensure security of supply and the best deal for bill payers. We have come into office, faced up to the circumstances left by the previous Government, and delivered a step change in value for money and sustainability. The Government will do whatever it takes to deliver energy security, to protect bill payers now and into the future. I commend this statement to the House.
Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
I also apologise, as I am sure that the House is a little fed up hearing the Minister and me this afternoon.
I thank the Minister for advance sight of this statement. In the past few weeks it has been difficult not to feel at least a little sorry for Ministers in the Department for Energy Security and Net Zero. First, their Secretary of State was forced out of hiding to defend a third runway at Heathrow—something that he once said that we could not do because it would make us look “completely ridiculous”. Cornwall Insight has stated that Ministers will miss their clean power target by a country mile, and I think it was clear during the urgent question that they are getting ready to be overruled by the Prime Minister on approval of the Rosebank and Jackdaw oil and gas fields—something that we on the Opposition Benches would welcome.
Now the Secretary of State has sent the hon. Gentleman to the House this afternoon to defend the farce of chopping down trees in forests in Canada, converting them into pellets, shipping them across the Atlantic on diesel-chugging ships and burning them in a power station in North Yorkshire, all in the name of net zero. The Conservative party is under new management, and that means confronting hard truths, so let us get one thing straight from the outset: Drax’s biomass plant is neither clean, nor cheap.
As my right hon. Friend the Member for East Surrey (Claire Coutinho) has said, burning wood from the other side of the Atlantic—releasing more carbon dioxide in the process—and labelling it renewable is a product of a carbon budget system that forces politicians to make perverse decisions. Those decisions result in an extortionate level of subsidy, deliver a bad deal for British taxpayers and bill payers, and make the climate worse. We have started a reset on net zero, and we will not shy away from arguing for a more pragmatic approach that prioritises cheap, stable and reliable energy.
Turning to the details of the statement, naturally we welcome a more limited role for Drax biomass in our power system, but more biomass subsidies are needed only in the short term, because this Government are embarking on a reckless experiment to have a grid based entirely on intermittent renewables at the expense of flexible and reliable baseload power. Drax’s role could be filled with more gas power plants, which are cheaper and cleaner than burning trees shipped in from Canada. Ministers know that burning wood at Drax produces four times the emissions of our last coal power plant, which in turn produces around twice the carbon emissions of gas. We could get that gas from the non-subsidised fields in the North sea, if this Government were not in such an ideological rush to shut down our domestic energy industry.
On cost, the new agreement that the Minister has signed us up to comes with a genuinely eyewatering strike price of £160 per MWh in today’s money. That is higher than Drax’s existing agreement of £138 per MWh. In fact, Baringa’s analysis that Drax put out this morning shows that bill payers will still be paying over £450 million a year in subsidies to burn trees. If the analysis behind the Minister’s promise to cut bills by £300 is anything to go by, we should not rely on him too much. Has his Department carried out its own independent analysis, separate from that published by Drax this morning, to determine what the increased strike price will cost the British people and how that compares to supporting extra gas power in the capacity market?
We welcome the strengthened sustainability criteria, as investigations by Ofgem and the BBC’s “Panorama” have revealed serious questions to be answered by Drax about the import of wood from untouched primary forests in British Columbia. But as the BBC journalist Joe Crowley, who reported on these issues for “Panorama”, stated this morning, more clarity is needed on whether wood from primary forests will be classed as unsustainable under this new regime. Will the Minister confirm that Drax will not be allowed to burn wood from primary forests during any of its generation—not just that which is subsidised? What work is being done to ensure that the new sustainability criteria are actually enforceable?
On sustainability reporting, will the Minister confirm that the Department has received the KPMG report that the Prime Minister said he would look at? Will a copy be placed in the Library? The Minister’s statement has left the door wide open for the introduction of power BECCS after the transition arrangements end in 2031. That proposal to fit first-of-a-kind technology solely for the purpose of meeting our carbon budgets would cost the bill payer up to £40 billion—£1.7 billion a year. That is unacceptable. Will the Minister confirm whether his Department has produced any analysis of what a system without BECCS would cost? Will he rule out keeping this racket going indefinitely, with people’s energy bills rising to pay for BECCS?
Will the Government set a date for the burning of the last tree in a British biomass power station? This Government have been promising us clean, cheap, home-grown energy, but burning trees at Drax is not clean or cheap, and the trees are certainly not home-grown. If the widespread burning of forests is part of the solution to climate change, we have to ask ourselves if that is the problem we are trying to solve.
Michael Shanks
“Under new management,” indeed! The tough thing about being the acting shadow Secretary of State is that it is not, of course, his script that the hon. Gentleman is reading out.
This Government are fixing the mistakes left by the previous Government. I gently point out that eight previous Conservative Energy Ministers stood at this Dispatch Box and—deal after deal after deal—announced a worse deal than this for bill payers, energy security and sustainability. The hon. Gentleman seems to have forgotten that today. In fact, only a year ago—such is my love of his contributions in this House that I have read up on Hansard—he was saying that he had “absolute confidence” in the deal the previous Government made with Drax.
Let me outline why this deal is so different from those his party made in the past. The hon. Gentleman first asked about subsidy and mentioned a figure, which is what it will cost to deliver the necessary dispatchable power. He missed the fact that it is, of course, half of what was paid under the previous Government—nearly £1 billion a year—to Drax. We have halved that amount to lower bills for consumers.
Secondly, the hon. Gentleman spoke about sustainability. We agree on the importance of tightening up the sustainability, which is why we have moved from 70% to 100%. I would gently say, again, that he was quite happy to support public money going into unsustainable biomass year after year when he was in the Energy Department. We have said that we will not pay a penny of subsidy to Drax if there is unsustainable biomass in the mix.
Thirdly, what the previous Government did not do, of course, was any sort of deal to control the runaway excess profits—record profits—that Drax was able to obtain as part of its deal. We have put in place a mechanism to claw back that excess profit so that the people of this country do not pay over the odds for their energy.
Fourthly, I will address the important point about energy security. Year after year, the Conservatives exposed us to the lack of a plan for what the energy system would look like in the late 2020s and into the 2030s. This Government have had to take tough decisions quickly to secure that supply for the future, and that is what we have done. We have decided that running Drax when it was not necessary—when there were clean, cheaper alternatives in the system—will no longer happen. To the hon. Gentleman’s specific point on Drax running less, I say that limited generation times mean that it will run only when we need it for capacity to meet demand in the system. The alternative—he asked for the figure, which I set out in the statement—would be £170 million more every single year.
Finally, on the future of BECCS, we are open-minded at this point on the role it will play. However, I agree that it is important that we come to a decision on that soon. The review we have outlined is about bringing together all the various bits of science that we know are there in different reports and trying to work out a credible pathway for whether power BECCS will play a role in the system. We will make that decision as soon as possible.
I will finish by saying that this is an extremely different deal. It will deliver benefit for the hard-working people of this country, ensure that sustainability is at its heart and protect our energy security in the years ahead.
Madam Deputy Speaker (Judith Cummins)
I call the Chair of the Energy Security and Net Zero Committee.
Bill Esterson (Sefton Central) (Lab)
I congratulate my hon. Friend the Minister on his marathon stint and on the pragmatic and well-crafted analysis of how the Government’s energy policies will address the security of supply and provide the best deal for bill payers. This is in stark contrast to what the Conservatives did, and in particular to what my hon. Friend described as the terrible deal with Drax that they presided over while in office.
Today’s statement is a timely reminder of the challenges with Drax, not least given the news over the weekend of further misreporting of the burning of primary forest. NESO, in its future energy pathway, predicted a reduction in the use of biomass as part of the UK becoming more energy independent. Does the Minister, with his announcement, foresee that the cuts in subsidies and in the reliance on Drax will contribute to the Government’s clean power plan, to energy security and to reducing bills for all our constituents?
Michael Shanks
The Chair of the Select Committee is absolutely right about where Drax, and biomass generally, fits in our wider energy system. What we want to build at pace is a clean power system that takes us off the volatile fossil fuel markets. That is important, but there are short-term issues around ensuring we have the dispatchable power we need when we need it.
The Government have taken long-term decisions, for example in the first funding scheme for long-duration energy storage in 40 years. We hope to see modern new technologies of long-duration energy storage but also some classics from the history books, with pumped storage hydro playing a critical role in the system and delivering the dispatchable clean power we need. But there is a short-term question we need to answer that the previous Government did not have an answer for: how we get to 2031. We can build new gas units. Our analysis and the advice from NESO was that that was more likely to deliver energy security and in the end be cheaper for bill payers, who ultimately pay the bill. Our long-term ambition is to build towards that clean power system. This is an important step to get us the energy security that we need in the system.
Madam Deputy Speaker (Judith Cummins)
I call the Liberal Democrat spokesperson.
Pippa Heylings (South Cambridgeshire) (LD)
I thank the Minister for sharing his statement with us in advance.
Climate change and nature loss are undoubtedly the greatest twin threats we face. While pursuing the clean power by 2030 goal, the Government need to reconsider their decision to indeterminately extend the burning of biomass as part of the energy mix, despite overwhelming evidence that it is neither sustainable nor truly renewable, especially with the threat to virgin forests. The Minister says biomass is vital for energy security, supplying 5% of the UK’s electricity. However, he fails to mention that biomass emits 18% more carbon dioxide than coal and that it takes nearly a century for new trees to absorb those emissions. That is not energy security; it is a carbon ticking time bomb.
We are told by the Minister that NESO advised that Drax was a necessity between 2027 and 2031 to prevent supply risks. That is due to the reckless rowing back by the former Government, the absence of accelerated investment in renewables and the continued investment in Drax as part of their strategy, but what kind of future are we building if it depends on burning forests rather than investing in real renewable energy sources?
On costs, the Minister tells us that biomass at Drax is cheaper than gas-fired power, but we must not forget that past subsidies by the former Government allowed Drax to profit excessively at the expense of bill payers. Even today, despite halved subsidies, Drax’s shares have surged, suggesting that even this deal remains a good deal for Drax and potentially a bad one for taxpayers. We therefore call on the Government to release the 2022 KPMG report into Drax’s subsidy claims, which should have been released under the Conservative Government. Transparency is crucial and the public deserve to know if their money has been misused. I will end by asking: are we looking for home-grown clean energy—
Michael Shanks
I thank the hon. Lady for her questions. Her tone means that I will resist the urge to say that, although I made fun of the shadow Minister for the eight announcements, it was of course the current Liberal Democrat leader who agreed the first support deal for Drax. But we will move past that on to her important questions about security of supply.
The place we want to get to by the end of this period is one where we are not forced into making a decision like this again. It is really important to say that. We have a strong deal that protects bill payers, improves sustainability and delivers energy security, but we want to have options. The truth, as the hon. Lady rightly points out, is that we came into government without those options because of the decisions made by the Conservative party. That is a really important point.
As for the point about excess profits, there was previously no mechanism to claw them back. We made that a key part of the negotiation and we managed to get it into the deal. Even if our estimates are wrong—and the estimates, of course, mean that the profit will be below the level expected of the regulated companies by Ofgem—we can claw back the additional profit from Drax. That is important to the system.
Both the hon. Lady and the shadow Minister raised the question of KPMG’s reports. I know that my Department has seen them and engaged with them, and I know that Ofgem is still engaged in the audit process. I will take those questions away and see what can be done about sharing those reports.
Mr Toby Perkins (Chesterfield) (Lab)
We have a new line from the official Opposition. We are told that they are a firm under new management, but this sounds to me like the same circus, just with different clowns.
The Minister is right to say that the new deal that the Government are putting in place is a far better deal for taxpayers, because the previous deal was an absolute disgrace for taxpayers, but can he tell us a little more about the projections that he has seen? Do they confirm that this deal is the best for taxpayers, even in comparison with gas? How can he be certain of that? We heard a different suggestion from the shadow Minister.
Michael Shanks
My hon. Friend makes an important point. I think we should consider two aspects of the analysis of the importance of Drax to the system. First, in comparison with the counterfactual of building new gas-fired power stations, our analysis is that the deal we have agreed, which involves the use of gas on the system for 27% of the time, costs £170 million less. Secondly, on energy security, the assessment is that even if we wanted to go down that route, there would be risks about whether we could build that capacity in the time that we have.
This is all about the decisions taken by the last Government, who did not look far enough ahead and did not have that capacity on the system. Even if we did want to proceed with new gas stations, there would be questions about whether we could build them in time. This deal is about protecting bill payers, halving the subsidy from £1 billion and ensuring that there is dispatchable power when we need it as we build the clean power system.
As we move towards the 2030s, what comes next is long-term planning for a clean power mix, but also about the long-duration and short-duration storage mixes that will help us to make decisions that are different from the one we were forced to make this time.
Sir Roger Gale (Herne Bay and Sandwich) (Con)
I suppose we shall be told that half a loaf is better than none, but this strikes me as a half-baked half-loaf, to say the least.
The Minister has spent an hour this afternoon lecturing the House about why it was better to import oil and gas from overseas than to extend the production of at least some home-grown material. The bottom line is that, clearly, the Minister has not read the KPMG report, the Prime Minister has not read the KPMG report, and we are still going to pay billions of pounds in subsidy to import pellets created in Canada and then shipped across the Atlantic at God knows what carbon cost. Where, please, is the sense in that?
Michael Shanks
First, let me say that I have spent the last hour answering questions from Members on both sides of the House. I have not lectured anyone. I have, however, stated the facts—for instance, that if oil and gas are extracted from the North sea, they are sold on the open market for whatever price the international markets have at any given moment. That delivers neither energy security nor confidence to bill payers. While Opposition Members may want us to go back to the fossil fuel casino and hope we can play a better hand this time round, I think we should be building a secure power system that delivers both energy security and confidence that we will not be exposed to the price spikes we have been exposed to in the past. If the right hon. Gentleman wants to take that as a lecture, he can take it as such.
On the role that Drax will play, of course we looked at all the assessments around Drax to date. Frankly, we have put in such a robust process on sustainability, and independent assessments of some of that, because of the questions that the right hon. Gentleman raises: we know that there have been questions in the past, and we want to make sure that there are tough penalties if Drax does not comply. Raising sustainability from the level under the previous Government—70%—to 100% means that we will not pay a penny of subsidy if Drax fails the sustainability tests that we have set out for it. That protects consumers right across this country and delivers the dispatchable power that we need.
Alex Sobel (Leeds Central and Headingley) (Lab/Co-op)
I thank the Minister for his statement. I have met women from the southern United States and British Columbia who live next door to primary forests that have been cut down by Drax so that wood pellets can be burned in Yorkshire. As we know from the BBC’s “Panorama” and Ofgem, Drax has utilised primary and old-growth forests. Drax cannot be trusted to ensure that the sustainability requirements that the Minister has put forward will be met. What powers and audit trail will the new independent sustainability adviser utilise to ensure that Drax is burning 100% sustainable wood and not ruining the lives of people in North America by using primary forests?
Michael Shanks
My hon. Friend makes an incredibly important point. The sustainability criteria are important, but he is right that making sure they are met is important too. This is a contract for difference agreement and we will work with Ofgem to work out exactly what its role is as the regulator, but to go above what has been in place before, we have announced that an independent adviser will work with my Department, the Low Carbon Contracts Company and Ofgem to make sure that the latest science and the latest awareness on different elements of biomass are key in our decision making, and that there is a real audit trail in place. The other really important thing is that there is now no room whatsoever for Drax not to comply with the sustainability criteria. Its compliance must be 100%, and there will not be a penny of subsidy for anything that is not sustainable. That is important, and the audit trail will be part of that work.
Bradley Thomas (Bromsgrove) (Con)
Will the Minister agree to publish the full, comprehensive analysis of the cost of providing support to Drax versus the alternatives?
Michael Shanks
Transparency is important, so I am very happy to publish what we can. Elements of that analysis, such as details of how Drax runs its power station, will be commercially sensitive, so I will have to look at exactly what can be published. I know that NESO has today published a summary of its advice, to give clarity on its view on the security of supply questions. I am happy to take the hon. Gentleman’s point away and write to him.
Barry Gardiner (Brent West) (Lab)
Drax has exploited UK taxpayers for far too long. It has lied about meeting sustainability rules, burned 1 million tonnes of wood from primary forests, gagged whistleblowers with non-disclosure agreements, and pretended that it could sequester carbon from replanted forests in time to meet our 2050 targets. Today, the Government have brought that a stop. They have debunked Drax’s lies, cut its subsidy, and set a clear and sensible exit strategy that will maintain security of supply. After 15 years of campaigning, I welcome this breakthrough for honesty and common sense.
Will the Minister now look at the role of Ofgem in all of this? Just this weekend, when it was informed of the other break in proper reporting of sustainability, it replied, “That is the same issue as we’ve dealt with before.” What would he say if a policeman said that about a serial murderer?
Michael Shanks
On the start of my hon. Friend’s question, I agree. This Government were deeply concerned about sustainability practices at Drax and, frankly, about the level of subsidy that was part of the deal negotiated by the previous Government. We inherited a dire situation in terms of long-term planning for our energy security. What we have sought to do with this deal is answer all those questions—on sustainability, on security of supply, on excess profits and on the role of Drax in the system for dispatchable power, which is important.
On the role of Ofgem, I know that the audit of some of Drax’s practices is still under way. I am rightly not privy to the details of that, because it is Ofgem’s review, but we have a wider review of the role and remit of Ofgem under way at the moment, and I think that would be an opportunity for my hon. Friend to feed in his thoughts on the future of Ofgem.
Chris Law (Dundee Central) (SNP)
Biomass burning has always been a sticking plaster, and it has allowed successive Governments to claim green progress while continuing to emit immense amounts of CO2. The public were promised £20 billion a year of green investment, but instead we are getting less than 6% of what is needed. When will the UK Government commit to significant direct investment in long-term energy storage such as pumped hydro storage and green hydrogen production, so that the UK can move past burning forests for its energy?
Michael Shanks
I agree with the hon. Gentleman’s point, and I reiterate that we wish we were not in the position we were in when we came into government, whereby this was the only option that would deliver security of supply out to the early 2030s. We have sought to get the best possible deal for sustainability and for bill payers, but I agree that we need to be building what comes next.
Last year we announced that, for the first time in 40 years, the Government would be funding long-duration energy storage, and I have held a number of meetings with developers on pumped hydro and also on new, modern forms of long-duration energy storage. There are some really interesting, innovative ideas out there. Ofgem is currently putting in place the technical specifications for the cap and floor scheme, and we want to get that rolling as soon as possible. From all my meetings with developers in Scotland, I know that there is huge potential around pumped hydro in particular. They are waiting for certainty from the Government in order to move forward, and we are determined to give them that.
Olivia Blake (Sheffield Hallam) (Lab)
Reports show that Drax has behaved appallingly, and under the last Government it seemingly had pretty free rein. I welcome the fact that this settlement includes a drastic reduction in subsidy, an upping of sustainability in supply chains to 100%, and a windfall tax principle that will deliver value for the British bill payer. I also welcome the further consultations the Minister has outlined, but this raises the question: why were the last Government unable to get anywhere near to this deal?
Michael Shanks
I am tempted to say that we will have to ask the Conservatives that question, but they are under new management, so they do not know why the previous Government that they were all Ministers in made the decisions that they did. The truth is that for far too long—under, I think, eight different Conservative Energy Ministers—they signed off deal after deal with Drax with uncapped profits and nowhere near the sustainability criteria that they should have had, letting Drax do whatever it wanted with that power station. We have put a stop to that. Let us be really clear: we have halved the subsidy, taking £6 off every single bill in this country every single year, we have increased sustainability to 100%, and we are delivering the energy security this country needs, but we should not have been in the position on coming into office where there were nowhere near enough long-term plans for the future of our energy system.
Martin Vickers (Brigg and Immingham) (Con)
I think I detected one item of agreement between the Minister and his shadow, which was that there needs to be a long-term solution and this is not a short-term fix. Surprisingly, there seems to be little support from the Government Benches for Drax, which plays a major part in the regional economy. In my own constituency, Associated British Ports invested £150 million in the facility to import the biomass, and a significant number of my constituents will be involved in the supply chain. Can the Minister give an assurance that he will bear in mind the impact on the local economy as we move forward to a longer-term solution?
Michael Shanks
The hon. Gentleman makes an important point, although I would gently point out that the shadow Minister and I agree on a lot more than he likes to pretend—or I like to pretend, perhaps. The hon. Gentleman is right to say that we are aware of the importance of the jobs at this particular power station and in the supply chain, and we will be working with Drax on what that looks like. We are of course changing the role that Drax will use the power station in Selby for, and I will ensure that I have those conversations about the supply chain. I would be happy to speak to him more about that in due course.
Luke Murphy (Basingstoke) (Lab)
The Minister should be commended for ending the terrible deal negotiated by the previous Conservative Government, which led to higher bills, excess profits and poor sustainability standards, but it is worth saying again that there seems to be no end to the Conservatives’ rank hypocrisy on energy policy. In government, the then Secretary of State for Energy Security and Net Zero, the right hon. Member for East Surrey (Claire Coutinho), signed off planning consent for the Drax carbon capture project, saying that
“the public benefits…outweigh the harm.”
The shadow Minister, the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie), has now come to the Dispatch Box to decry the costs, while the right hon. Member for East Surrey also opposes Drax. Has the Minister considered capturing the burning hypocrisy of Conservative Members, because it seems to be a truly inexhaustible resource?
Michael Shanks
My hon. Friend makes the point for me. He forgets, of course, that the Conservatives are under new management, so it is all fine—we just forget everything that happened in the last 14 years and move on. Of course, we have had to pick up the pieces from the last 14 years, and while the Conservatives will not take responsibility for those decisions, we have grasped the challenges and are moving forward as quickly as possible.
The truth is that not only did we inherit an energy system without the long-term planning it should have, but Drax did not have a deal that was good for the climate, good for energy security or good for the hard-working people of this country, who paid year after year for the subsidies that the previous Government negotiated. We have halved the subsidy every year, putting money back into people’s pockets and, of course, making sure that any excess profits come back to the Exchequer.
Lee Anderson (Ashfield) (Reform)
The net zero madness coming from this place is truly staggering. Bearing in mind that this power station used to burn coal from a coalmine less than 20 miles away, we are now transporting wood from 3,000 miles away. We are paying over £10 billion in subsidies for this power station, and it is producing four times more CO2 than a coal-fired power station. Can the Minister explain how this is contributing to net zero?
Michael Shanks
I was not aware that it is the Reform party’s policy to reopen the coalmines—
Michael Shanks
That is good to know.
I am proud that, as a country, we have moved past coal-fired power generation, which is incredibly destructive for our environment. We closed the last coal power station, at Ratcliffe-on-Soar, last year. Its workforce proudly recognised the role they played in powering the country for many years, while also recognising that the drive to net zero is important. While we are building a clean power system that delivers energy security for the future, the Reform party would take us back to the stone age.
Johanna Baxter (Paisley and Renfrewshire South) (Lab)
I thank the Minister for his statement and the strict new sustainability rules imposed on Drax, which will mean that we do not pay a penny for unsustainably sourced biomass. Can he give the House a bit more detail on the role of the independent adviser? Their work to hold Drax to account will be critical to ensuring that this deal progresses.
Michael Shanks
The point of having an independent adviser is that, while the role of the Low Carbon Contracts Company as the counterparty to the contract for difference we have agreed and the role of Ofgem as a regulator are incredibly important, we think there is also a role for someone independent to make sure they are analysing the particular questions about biomass and sustainability, while also having an eye on the science as it moves forward.
Part of the challenge is that, over the years, the sustainability information we have, and the types of forestry and where the biomass comes from, have changed. The adviser will play an important role in advising my Department, Ofgem and the Low Carbon Contracts Company on this deal in the years ahead. It is important to say that we want to make sure we also have an independent review of what the future looks like, so that in five years’ time we are not looking at the same decision as we are now.
Sir Julian Lewis (New Forest East) (Con)
I welcome the Minister’s emphasis on energy security. Can he give us some idea of the timetable for when the first small modular nuclear reactors—preferably ones built by Rolls-Royce, which has expertise in this area thanks to its excellent work for the Royal Navy—will be commissioned?
Michael Shanks
The right hon. Gentleman will not draw me into the ongoing competition on small modular reactors, but he has made the case for his preferred company.
Last week, the Prime Minister announced that we have a new commitment to reviewing the 2011 planning statement so that we can have much more new nuclear across the UK. That is particularly important because previously there were only eight designated sites. Small modular reactors, of course, open up possibilities right across the country, and we want to see much more of that. We are moving as fast as possible to make sure these reactors are under way, and I hope that we can move at such a speed that the Scottish Government will change their objection to having small modular reactors in Scotland.
Joe Morris (Hexham) (Lab)
The news of a windfall tax on Drax was welcomed by people across my constituency. Will the Minister assure me that this will be the end of grotesque profits going to Drax at the expense of the taxpayer?
Michael Shanks
I can give my hon. Friend that assurance. We have significantly reduced the ability of Drax to make profits, but we have also ensured that if there are excess profits, they are clawed back on behalf of the British people. The additional rates of 30% and 60% in the mechanism that we have designed will ensure that any unexpected profits are clawed back. That was not the case under the eight previous Energy Ministers in the previous Government who signed off deals on Drax year after year. This is a new way of operating that protects our energy security, as well as protecting the hard-working people of this country.
Carla Denyer (Bristol Central) (Green)
Drax is a clean energy scam that has been handed £6 billion by successive Conservative Ministers since 2012, when that money should have been spent on getting energy bills down. The Minister rightly cites past excess profits and I believe he said specifically that the new contract will allow Government to claw them back. Will the contract allow clawback of previous excess profits and remedy the past misspending of public money? Or will the clawback apply only as we go forward into the future, in which case that is still throwing good money after bad, just slightly less of it?
Michael Shanks
We do not have a mechanism to claw back past profits from any company—that is not something that Governments are able to do. What we can do is move forward with a fair system that reduces the subsidy considerably, and has excess profit mechanisms and a windfall tax in place to ensure that if the company generates additional profits, we can claw that back for the British public, which is important. The level that we have agreed in the deal brings the subsidy down to a considerably lower level—half what it was under the previous Government.
Tom Collins (Worcester) (Lab)
I welcome the revision of Drax’s role in our energy system, reducing biomass and ensuring that where it is used it displaces gas, not excess wind and solar. However, we also need to find new low-carbon forms of dispatchable power, backed up by long-term energy storage at scale. Hydrogen is a strong candidate for that. By moving fast, the UK can reduce costs and regain our early-mover advantage. Will the Minister work with industry at pace to ensure the opportunities around hydrogen are known, explored and exploited?
Michael Shanks
My hon. Friend is right that one of the really important outcomes of the new deal is that instead of cheaper wind and solar power being displaced by Drax when it operated with baseload capacity, Drax will only operate when we need it on the system. That means that the cheaper, cleaner power sources that we are building in abundance, of which we want to see much more in the years ahead, can generate and deliver cheaper power for the people of this country. On my hon. Friend’s wider point, it is important that we explore the role that hydrogen can play in the system. We are looking at a number of different technologies at the moment. Just last week, I met some investors looking at the future of the gas system to take forward some of those questions, and I am happy to discuss that further with my hon. Friend in the future.
Dr Andrew Murrison (South West Wiltshire) (Con)
The Minister said that he is looking for
“strong and credible low carbon alternatives”
to burning biomass in order to generate electricity. Will he ensure that those alternatives do not include so-called energy from waste plants, since burning waste is as dirty as coal? And will he follow Scotland and Wales in placing a moratorium on the construction of new waste incinerators?
Michael Shanks
The right hon. Gentleman is right that we want “credible low carbon alternatives”. I will look at the specific points he mentions, but we do not see such generators as key to the review we want to undertake. We want to look at carbon capture and other technologies and, crucially, how we store some of the renewable energy that we are generating in abundance that we cannot use at times of peak demand, including long-duration energy storage and, increasingly, short-duration energy storage batteries that are powering more than they have done in the past. I will look at the specific points the right hon. Gentleman raises.
Alistair Strathern (Hitchin) (Lab)
The last Government’s deal with Drax was not just shocking value for taxpayers, leaving us all on the hook for subsidising sky-high profits during a cost of living crisis, but bad news for the environment, with real concerns about the sustainability of Drax’s supply chain. As the Government rightly take a measured approach to ensuring that we protect not just bill payers but workers as we seize the benefits of the green transition, what assurances can the Minister give my constituents that this will be a far better deal for our country?
Michael Shanks
My hon. Friend is right that this is a good deal, in the short term, to ensure security of supply into the early-2030s, which was key to NESO’s advice on the basis of security of supply. In the process, however, we have sought to halve the subsidy that Drax was given by the previous Government and deliver on the sustainability criteria, taking that from 70% to 100%. This is a good deal for the people of this country.
My hon. Friend also touched on the important work we need to do in the broader energy space to deliver energy security. That is why clean power 2030—our sprint to deliver decarbonised power—is so important, delivering good jobs in supply chains across the country.
Sammy Wilson (East Antrim) (DUP)
This statement should be a warning to all those across the House who are cheerleaders for renewable energy. Let us not forget that, in 2010, Drax power station was the poster boy for green energy policy. Of course, it turned out that instead of green energy, it has produced more CO2. We have chopped down natural habitat 3,000 miles away to bring it and burn it in a power station in England, and consumers pay the grand total of £1,000 million a year for the pleasure of doing so.
The Government have not learnt from that lesson. Only this year, we have had a similar mistake made with wind energy, where the Government have given a subsidy six times what the price of gas would be. Will we find a Minister in 15 years’ time standing again at the Dispatch Box to apologise for a waste of public money, high electricity prices and environmental disaster?
Michael Shanks
After an urgent question and a statement, I hope that I will not still be standing here in 15 years’ time, and I suspect the House will support that. Let me be really clear. I do not remember Drax being the poster child for the clean energy transition. I have outlined clearly why this decision is important in terms of energy security, but we wish that we as a Government had had more options. Unfortunately, those options were not there, so we have made the best of a difficult situation to get an incredibly good deal that delivers value for money, improves sustainability and delivers on energy security. In the 2030s, I want to see our clean power system delivering cheaper bills and industrial manufacturing jobs across the country. I hope that, in 15 years, the right hon. Member and I will have a conversation about how that is delivering for our constituents.
Tom Hayes (Bournemouth East) (Lab)
The shadow Secretary of State talked about being under new management, and I suspect that he will be saying the same thing in a few months after the inevitable bloody coup. I commend the statement, which will do some really important things, including: capping Drax’s output; a windfall tax on Drax; millions saved by halving subsidies paid for by my constituents; and the forcing up of sustainability. It is a pragmatic solution to a disastrous inheritance. Does the Minister agree that this will be a better deal for taxpayers and consumers for our energy security and our environment?
Michael Shanks
My hon. Friend summarises the importance of the deal clearly. We have limited the expected rate of return for Drax to a level below that of monopolies regulated by Ofgem. We have halved the subsidies provided to Drax that were in every single deal from the Conservative party, year after year, saving £170 million each year of the agreement. We have introduced a windfall tax with 30% and 60% rates to be clawed back should Drax have excess profits. We are delivering on energy security and on tougher sustainability requirements, but at the heart of the deal is better value for money for the hard-working people of this country.
Paul Waugh (Rochdale) (Lab/Co-op)
Drax has been a greenwashing con that has ripped off the British public for far too long, so I welcome the statement. The Minister and the Energy Secretary have done more than eight previous Tory Energy Ministers, and indeed one Lib Dem Secretary of State. I welcome the move to slash the subsidy for Drax and to enforce 100% sustainability targets on its supply chains. But when the Minister talks about a windfall mechanism, may I gently urge him to call a spade a spade? This is a windfall tax on Drax and we should be proud of saying so.
Michael Shanks
At the risk of getting into trouble with those responsible for tax matters, I simply say that this is a windfall mechanism that does exactly the same thing, and it does exactly what the Conservatives failed to do in 14 years, which is to ensure that there is a good deal and good value for money for the British public, delivering on energy security and, crucially, getting us to a point where our clean power plan for 2030 delivers energy security, climate leadership and jobs right across the country. It is the ambition of doing something different in this country and doing it fast, and we are committed to delivering it.