King’s Speech

Baroness Moyo Excerpts

Thursday 18th July 2024 Lords Chamber

[Baroness Moyo (Con)]

My Lords, I join the chorus welcoming the Ministers to their new responsibilities. I also very much look forward to hearing the maiden speech of my noble friend Lord Fuller. I know he will make a very great contribution to this House, given his experience in business and as a leader in local government.

We continue to be in an era mired in low economic growth, with GDP growth in the United Kingdom forecast this year to remain stubbornly below the 2% per year mark. According to the International Monetary Fund yesterday, the United Kingdom GDP forecasts are 0.7% for this year and 1.5% for 2025. As a reminder, an economy needs to grow by at least 3% per year to double per-capita incomes in one generation, which is approximately 25 years. That is the route to improve living standards for the next generation.

However, amid those sombre growth prospects, there is now the promise of two supercycles that could propel an era of stronger economic growth and drive opportunity here at home in Britain and globally: generative artificial intelligence and the clean energy transition. In the King’s Speech, His Majesty stated a commitment to a clean energy transition that will lower energy bills for consumers over time. However, it is now becoming increasingly clear not only that these two paths—AI and the energy transition—are closely interdependent but that AI is creating a surge in global energy demand that could meaningfully undermine the clean energy transition, pose a challenge to national energy security, particularly in a deglobalising world, and in fact increase energy prices, creating inflationary pressure and raising the cost of living.

The International Energy Agency forecasts that by 2026—just two years from now—global energy use by AI data centres alone will consume 1,000 terawatt hours. For context, that is more than the total electricity and gas consumed in the United Kingdom in 2023. More specifically, the chief executive of Britain’s National Grid cautioned this year that the grid is becoming constrained and that, here in the UK, power use by AI data centres will increase sixfold in the next decade.

Even before AI’s possible impact on the global economy became apparent, global demand for energy was unmet. That demand-supply imbalance in energy has been explained by world population growth, urbanisation and increases in wealth, as developing economies have converged to higher living standards over several decades. The shortfall in energy supply globally means that, still today, roughly 1.5 billion people around the world have no access to clean, cost-effective and reliable energy. The dramatic increase in energy demand arising from new, transformative technologies—such as artificial intelligence, cryptocurrencies and quantum computing—has real-world implications for the economy, the financial markets and public policy.

For the economy, the AI-energy transition dynamics could lead to greater social inequality. AI hyperscalers—large technology companies that have significant computing infrastructure and resources to support artificial intelligence—have much more flexibility to move their data and storage centres to locations where they can tap into potentially cheaper, cleaner energies, such as generation IV nuclear plants. The question is whether such a trend could leave households relying evermore on conventional forms of energy, which can be more expensive to transmit and distribute. If so, that would entrench energy poverty for households and widen energy inequality, at least between technology businesses and household consumers. Another route to higher prices is that extra demand for energy puts inflationary pressures on renewables, forcing up the full complex of energy prices and thereby harming living standards.

For financial markets, without a meaningful increase in global energy supply, the rising energy demand from AI could add enormous volatility to energy prices. These dynamics are not yet fully priced into either the energy or capital markets. I point here to my register of interests, as I serve on the board of directors of a global energy company.

For public policy, how then does Britain and the wider world face the additional threat of the prospect of energy instability? The pressure of additional energy demand from AI means that Governments must update their understanding of global energy supply-demand dynamics, ensure that energy security is retained in a world of conflicts and geopolitical fissures, and remain steadfast in the clean energy transition. We heard in the King’s Speech of the proposal of a new national champion—Great British Energy—a publicly owned clean-power company that will help the country achieve energy independence and unlock investment in energy infrastructure. The global energy demand-supply dynamics are leading many to think of energy primarily as a public utility, rather than as a commercial enterprise. There is a movement towards the creation of national champions and even discussion in some quarters—dare I say—of the outright nationalisation of energy assets.

Noble Lords will no doubt already be aware that 60% of world energy today is supplied by state-owned enterprises. Such an approach can jar with the market-based system of energy production in many developed and western countries; however, clearly the expense, size, scale and complexity of the clean energy transition means that some state involvement is warranted, at least through thoughtful regulation, subsidies and tax reform.

We must not sleepwalk into a situation where clean energy transition is delayed and even impeded because of uncalibrated new demand shocks. As we legislate, we should be minded that an all-important factor in determining a successful energy transition will be innovation. Therefore, it is crucial that any system and intervention protect, encourage and harness the innovation abilities in the private sector. Only with a vibrant private sector working in partnership with the public sector can we hope to deliver reliable, cost-effective and scalable energy at pace.