Surplus Carbon Emissions

Baroness Walmsley Excerpts

Wednesday 27th March 2024 Lords Chamber

[Lord Callanan (Con)]

My noble friend makes a good point. Of course, the international diplomacy element of this is important. The UK alone is responsible for about 1% of worldwide emissions, so clearly we will not make a difference on our own. But as a leading industrialised nation, it is important that we set an example. We liaise extensively with other Governments internationally.

[Baroness Walmsley (LD)]

My Lords, some, though not all, of our success has been to do with the fact that we have dealt with low-hanging fruit such as getting rid of coal—I hope that we have got rid of it completely. The Government now need to turn their attention to the more difficult aspects of reaching net zero. I cite as an example the steel industry, which is very important in Wales and other parts of the country. What are the Government doing to support the British steel industry to reach net zero?

[Lord Callanan (Con)]

I am not sure that I would share the noble Baroness’s characterisation of getting rid of coal as low-hanging fruit. We have been extremely successful and will get rid of coal completely from the UK’s power system this year. We can contrast that with Germany, which is generating 27% of its power from coal this year. It is a great success, and it was very hard won. Of course, there are difficult challenges to face, one of which is steel. There are many other industrial sectors that are also difficult to decarbonise. We are working with all those industries to find appropriate solutions.

Offshore Wind

Baroness Walmsley Excerpts

Monday 11th September 2023 Lords Chamber

[Lord Callanan (Con)]

The bill payer will be very grateful that 7.5 gigawatts of construction is already under way, as we speak. We all want to see more, but at the right price. I understand why industry is urging us to pay more for this. That is understandable and in its commercial interests, but I would have expected most Members of this House to be on the side of bill payers as well. We can do both: we can get a good deal for the bill payer and take advantage of the many gigawatts of potential construction in there, which has either been consented or is under consent. Following a contract being let, it takes three to four years, on average, for the capacity to come on stream. Obviously, the capacity let in previous rounds is coming on stream gradually, as we speak. As I said, we consented to about 7.5 gigawatts in the last round. There will be another auction in about six months and it would take almost that long to pass new legislation.

[Baroness Walmsley (LD)]

My Lords, what assessment have the Government made of the increase in potential of both productivity and profitability for wind power companies to fit turbines to the base of their installations, where conditions allow, to take advantage of tidal energy, which provides a baseload. What support are the Government giving companies prepared to do that?

[Lord Callanan (Con)]

The noble Baroness asks a very good question. Eleven tidal stream projects were consented in this allocation round, totalling about 41 megawatts. The price for that is currently higher but we need to develop this technology. I hope, as has been the case with offshore wind, that if we continue to let more CfDs the price will continue to come down over time. That was one area of the round that was successful.

2030 Emissions Reduction Target: Heating

Baroness Walmsley Excerpts

Tuesday 5th September 2023 Lords Chamber

[Lord Callanan (Con)]

The noble and learned Lord is right. His home area of Scotland will see the installation of a number of transmission lines to help to get power to other parts of the country. This is very important. Ofgem has allowed billions of pounds in the settlement to the DNOs, which will help electricity upgrades, but as he will be aware it is not without its controversial elements.

[Baroness Walmsley (LD)]

My Lords, is the Minister aware that, last year, France installed nearly six times as many heat pumps as the UK? Does he think that a coherent government decarbonisation heat policy, a more effective new-build efficiency regulation, support for a professionalised end-to-end supply chain and independent advice for consumers have anything to do with France’s success? Are the Government planning to adopt any of those strategies?

[Lord Callanan (Con)]

Indeed we are. The situation in France and for ourselves is very different, because France has not had the availability of domestic gas that we have had over the years. Nevertheless, I agree with the noble Baroness’s point: we need to expand the number of heat pumps being installed. In fact, we are already doing many of the measures that she outlined.

Geothermal Heat and Power

Baroness Walmsley Excerpts

Thursday 6th July 2023 Grand Committee

[Baroness Walmsley (LD)]

My Lords, I am delighted that the noble Lord, Lord Cameron of Dillington, has given us the important opportunity of this debate. I will focus my remarks on shallow geothermal, although deep geothermal is also highly efficient and has a low visual impact and no noise or emissions when installed. One cannot say that about wind turbines.

Eighteen years ago, my husband and I built a little wooden house in Aberdeenshire for family holidays. We installed shallow ground source heating, which began my love affair with capturing heat from the ground and cutting electricity bills while contributing to saving the planet. It has never let us down, even when the air temperature was well below zero. At that time, few contractors could install such a system, but we found one—although we used a Swiss heat exchanger as there were no British ones then. The contractor complained that it was hard to get skilled installers and there was no help from the Government to train them.

Today, that technology has developed and is even more important as we aim for net zero. Hydrogen will not be our saviour when we stop burning gas for space and water heating, as it takes six units of electricity to get one unit of hydrogen. In contrast, one unit of electricity will get us four units of heat from the ground.

What is the answer on the scale we need? My family’s individual solution had a higher upfront cost than most people can afford, so others in off-grid locations in rural areas will need some government support. In streets where houses have little or no garden, in terraces where individual air source heat pumps cannot be installed and in blocks of flats, the answer is ground source heat networks, as my noble friend Lady Sheehan said. Networks provide a utility in the street to which homes can connect as easily as connecting to the gas mains. The Kensa Group, the British manufacturer and installer, has just completed a demonstrator project, supplying the first village in the world, Stithians in Cornwall, with its own clean heat network. My noble friend explained how it works. The company is growing and creating many jobs, although the UK is a long way behind France, the Netherlands and Germany, so opportunities for UK growth are being lost. We are well behind the curve again.

Although deep geothermal is currently costly, costs are coming down as technology develops. Pilot schemes are happening in areas with the most potential heat gain, such as Manchester and Stoke-on-Trent, but shallow ground source is appropriate in all locations. Just as wind and photovoltaic technologies were supported by the Government to help them scale up, the ground source industry needs the same. We also need funding for training installers. Crucially, the energy efficiency of ground source will reduce future pressure on the national grid, but only if we realise its full potential. The technology is cost effective in the long term: deep ground source infrastructure will last for 100 years, and shallow for at least 25 years, compared to 15 years for air source. The industry is aiming for subsidy-free growth by the end of this decade, but it needs help now to enable it to get there, just like solar and wind did before, so what can the Government do?

First, when will the Government decide on the future homes standard so that the market knows that no new homes will be connected to gas from 2025 and when will gas boilers in existing homes be phased out? Secondly, despite their lower energy efficiency, gas boilers are still cheaper to run because of the artificially large disparity between electricity and gas prices. The Government could tackle that; will they? Thirdly, most heat pumps will be installed in existing properties, so we need a proper incentive for GSHPs. The current five schemes have poor uptake and are badly designed for ground source. Will the Government work with the industry to develop a scheme to help the GSHP industry become subsidy free by 2028?

The Commons Environmental Audit Committee concluded that the Government were too slow to exploit the potential of geothermal and had not integrated it into the net- zero strategy. Will the Minister respond to that challenge, particularly in light of the need for improving the energy security of this country given recent events? Nobody can take away the heat beneath our feet in our own ground—not Russia, nor China—but we have to exploit it.

Electricity Capacity (Amendment) Regulations 2023

Baroness Walmsley Excerpts

Wednesday 5th July 2023 Grand Committee

[Lord Naseby (Con)]

My Lords, I will concentrate on the Explanatory Memorandum in relation to the capacity market. As I understand it, last winter something did not go quite right in the sense that, at a certain point we had to use coal, which had not been planned for. Perhaps the Minister will correct me if it had been planned for, but my understanding is that it was not planned for. As we look at the coming winter, we have just experienced one of the hottest Junes ever and it is not inconceivable that we could have the coldest winter ever. As I understand it, there is definitely no coal available for this coming winter. Is that right? If the coal is not there, where is the extra capacity to come from?

I also notice that, for some reason, His Majesty’s Government have postponed bringing on small-scale nuclear. A number of us have kept a close watch on Rolls-Royce in particular, which I understand has been ready to get moving on small-scale nuclear, which would be part of a capacity situation. I am deeply concerned—and I am looking for a confident answer from my noble friend—that if we hit a really cold winter this year, we have the capacity for something to come on stream. There would be nothing worse for the United Kingdom as a whole if we found that we needed black- outs and fuel cuts.

[Baroness Walmsley (LD)]

My Lords, I inform the Committee that I have a close family member who works for Ofgem. He is responsible for energy security and has been making plans for next winter, but I have not discussed this SI with him.

The capacity market, brought in by a Liberal Democrat Secretary of State, has been a great success. This statutory instrument aims to continue that success by improving the processes and reducing the administrative burden. We are all in favour of that, especially the flexibility that makes it easier to transfer from capacity market schemes to contracts for difference, where appropriate. However, I have a few questions for the Minister about the scheme in general.

First, how well are the Government succeeding in minimising the use of fossil fuels in the capacity market? What percentage is expected to be clean energy, and within what timescale? I was glad to hear the Minister say in his introduction that there will be an emissions limit on those applying.

Secondly, what is the Government’s aim for enabling demand reduction, and what percentage of bids do they want to see for the demand-side reductions? This is just as important as generation if we are to decarbonise and reduce the potentially enormous grid capacity increase needed to reach net zero. How many of the successful companies in offshore wind round 4 auctions have reached financial close for their projects—that is, they have agreed their financing requirements to deliver the scheme with financial institutions? As I understand it, only one successful bidder has yet managed to reach financial close on their project, so the whole programme of offshore wind coming on stream is coming to a halt.

Moray West offshore wind farm, owned by Ocean Winds and minority shareholder Ignitis Group, has secured £2 billion of non-recourse project finance. Initially, bids were famously low, but with inflation now across the supply chain, perhaps the numbers do not add up for most of the schemes. How are the Government going to solve this? Given the financial situation, can the Minister say whether it is still wise to have most capacity market schemes for only 12-month projects?

I look forward to the Minister’s reply—particularly to the questions about coal.

[Lord Lennie (Lab)]

My Lords, I thank the Minister for setting out the instrument and giving us advance warning that more is to come shortly. The capacity market is at the heart of maintaining a secure and reliable electricity system. It provides all forms of electricity capacity on a system during periods of electricity shortage and stress, such as when it is extremely cold or when the wind is low while demand is high. As the Minister said, the capacity market works by allowing eligible bidders to compete in T-1 or T-4 auctions on a one-year or four-year basis ahead of when they must deliver capacity. A successful bidder is awarded a capacity agreement which requires delivery during times of stress.

As the Minister said, this instrument makes changes to three areas of regulation. First, Regulation 10 of the 2014 regulations obliges the Secretary of State to set out whether capacity auctions are to be held. The change will require the Secretary of State to publish a decision only if the Government determine that an auction will not be held, helping to improve administrative efficiency. Does this effectively enrol a current capacity provider into the scheme automatically?

Secondly, Regulation 34 of the 2014 regulations allows capacity providers to seek termination of their capacity agreement with a view to becoming eligible to participate in the contracts for difference scheme. I think the Minister said that they are mutually exclusive as things stand. Currently, the LCCC, as the counterparty, has to give notice of such an intention. However, it cannot know in advance if the CMU will be successful in its bid for a contract for difference.

This instrument means that notice comes from a capacity provider seeking termination of their capacity agreement in order to become eligible to apply in a contract for difference allocation round. How many capacity providers have thus far been unable to use the process set out in Regulation 34? The Minister may say all of them, but how many would have wanted to use the termination process? Have the Government made any assessment of the impact of this, and will this change be kept under review?

Thirdly, I turn to Regulation 41 of the 2014 regulations. Capacity providers can be financially penalised, as the Minister said, if they fail to provide capacity in times of stress. Currently, the settlement body has 21 days to calculate the relevant penalty and to invoice capacity providers which must pay such penalties. This instrument increases the timeframe to 35 days. Does that mean that penalties that should have been paid were previously missed because they were not calculated in time? If so, could the Minister indicate the value of those? By contrast, is this change expected to increase the number and value of penalties that are enforced? I look forward to the Minister’s response.

Climate Change: Net Zero Strategy

Baroness Walmsley Excerpts

Wednesday 3rd May 2023 Lords Chamber

[Lord Callanan (Con)]

I understand the point my noble friend is making. Of course, we continue to engage with China and India about the folly of building new coal-fired power stations. Incidentally, picking up my last example, because the German Government accepted the advice of the Greens and phased out their nuclear power programme, last year 30% of German electricity was met by coal-fired generation. In the UK, it was less than 2% and next year it will be zero.

[Baroness Walmsley (LD)]

My Lords, here is an area for improvement: I was very disappointed that there have been no further announcements on support for tidal and wave power, even though the predictability of this technology could provide baseload and save on the cost of battery storage and hydrogen storage. So far, only 40 megawatts of this technology has been supported by the Government, equivalent to a medium-sized onshore wind farm. The Government’s contracts for difference mean that they have the opportunity to provide more support for this cutting-edge technology, which really needs support in order for it to scale up and make its contribution to renewable energy. So why are the Government leaving the profits to other countries? This is an opportunity for energy security and for British industry.

[Lord Callanan (Con)]

Again, I am afraid I do not agree with the noble Baroness. There are some exciting prospects and we are supporting early-stage tidal projects. It depends whether she means wave-powered projects or the various barrage schemes, which are extremely expensive and have a lot of environmental implications. The approach that we take through the CfD system is to pick the most effective, cheapest means of decarbonisation, because of course it all feeds back into consumer bills. If we adopted the approach she is suggesting, these technologies are relatively unproven and would add to consumer bills.