Contracts for Difference (Sustainable Industry Rewards and Contract Budget Notice Amendments) Regulations 2026
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The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, after all that, noble Lords have me all over again for this next one. We had a very interesting and absorbing debate on the last SI, with some very good points made, but I hope that this debate can move to a conclusion with reasonable alacrity. I will make a brief opening statement. These regulations were laid before the other place on 5 February 2026. I remind noble Lords that they still carry the legacy name of the policy, but it is now known as the clean industry bonus.
I will cover three points: first, the purpose and direction of the clean industry bonus in the next rounds of bidding for offshore and onshore wind, AR7, AR8 and AR9; secondly, how the regulations will support the continued evolution of the contracts for difference scheme; and, thirdly, why the clean industry bonus funding for offshore wind will now be conditional on applicants signing up to an offshore wind fair work charter and how we are using the policy to help drive a more strategic approach to skills.
I turn first to the scheme. Contracts for difference remain the Government’s principal mechanism for supporting new low-carbon electricity generation. The CfD has a strong track record in deploying renewables at pace while protecting consumers through competitive allocation. But as the offshore wind sector has matured, it has become increasingly clear that delivering clean power at the lowest cost is not on its own enough. We must also secure the industrial capability and resilient supply chains needed to build and maintain that infrastructure here in the UK.
That is the purpose of the clean industry bonus. It will provide additional CfD revenue support for offshore wind developers that commit to investing in UK supply chains, such as factories and ports, or those that invest in cleaner supply chains overall. Funding is allocated through a competitive process run ahead of the main CfD allocation round, with awards made on the basis of value for money and payments released only when commitments are delivered. The record of this is that, in allocation round 7, £204 million was allocated through the clean industry bonus, crowding in up to £3.4 billion of private investment into offshore wind factories, ports and supply chains across the UK. The scale of investment represents a significant vote of confidence in the UK’s supply chain and a strong return on public funding.
I now turn to the evolution of the scheme. These regulations will make targeted, practical improvements to allocation round 8—the next one coming up—simplifying the process for applicants, clarifying rules on budgets and ensuring that the scheme operates smoothly. In particular, the changes will speed up and streamline elements of the application process, reduce administrative burdens, provide a clearer legislative basis for how budgets can be set and communicated, and clarify the position where delivery is disrupted by events outside an applicant’s reasonable control. In addition, the regulations will update the scheme’s sunset arrangements so that the clean industry bonus may be applied only to a round established before 31 December 2028, unless Parliament wishes to prolong it. It is for AR7, AR8 and AR9. The Government also intend to extend the clean industry bonus to onshore wind from allocation round 9, providing a sensible lead-in period for that smaller industry to prepare.
My third and final point is on fair work and skills. The most significant change for allocation round 8 is that clean industry bonus applicants will need to sign up to the offshore wind fair work charter, a tripartite agreement between unions, business and government that aims to raise the standard of job quality in offshore wind and make jobs in the sector more attractive. The charter builds on forthcoming commitments in the Employment Rights Act 2025, in particular by asking that the offshore wind sector proactively implements voluntary access agreements for trade unions. It also includes a commitment to strive for best-practice health and safety standards that go beyond legal minima.
Our commitment to good jobs through the clean industry bonus does not stop at the fair work charter. We are pressing ahead with a skills investment fund that will help develop the skills needed for the clean energy transition. The idea is that offshore wind developers will pool together skills funding and initiatives rather than relying on individual projects trying to address short-term needs. The Government and the offshore wind industry have agreed that they will work together to set it up by 2027 and that it will be funded by existing developer contributions to the supply chain, not by asking for more money. Once that skills investment fund is up and running in 2027, developers will be asked to contribute to it as a condition of taking part in the CIB.
In conclusion, these regulations build on the foundations laid in allocation round 7. The success of that foundation is in front of us. They strengthen and supply the operation of the scheme and introduce provisions of fair work and skills. I beg to move.
Earl Russell (LD)
My Lords, I note at the outset that on these Benches we welcome the direction of travel as set out in this SI. These regulations aim to modernise the contracts for difference scheme and strengthen the clean industry bonus, previously the sustainable industry rewards, ensuring that our transition to net zero is not only greener but fairer and more locally grounded. We note the figures the Minister gave in his speech about just how much funding this SI can help levy into our green industry and our local green economies.
The Liberal Democrats have long championed the principle of clean industry growth that benefits and serves our communities, so we see the extension of the clean industry bonus framework to all CfD allocation rounds before December 2028 as a welcome and sensible move. Likewise, providing greater flexibility in budgets through new minima and maxima can, if well managed, encourage dynamism and adaptability in fast-changing energy markets. But that flexibility must be balanced, and we must make sure that obscurity does not creep in with that.
The move to express CfD budgets in total sums rather than pounds per gigawatt raises a question for us. How will Parliament and the public track whether these funds are allocated efficiently or indeed equitably between technologies and different technologies in different regions? If the Secretary of State can now set sub-budgets for different technologies, will there be transparent reporting mechanisms showing how these powerfully restrictive levers are used and on what evidence they are used?
The Government’s stated aim is to reward clean energy responsibility and community-based industry practices, and we support that wholeheartedly. Yet these regulations also compress the consultation window for future framework revisions from the original 30 days, I think it was, down to just 10. Are officials satisfied that the timescale is adequate, that it will not push out smaller-scale contractors and that they will genuinely be able to compete on a fair and level playing field?
The introduction of fair work standards for developers seeking the clean industry bonus is also welcome. If the green economy is to deliver social renewal alongside decarbonisation, it must be built on fair pay and secure conditions, with workers having a voice in their workplace. Requiring developers to adhere to the fair work charter negotiated with trade unions is overdue but is a very important and welcome reform. Can the Minister give me a sentence or two about how, when these measures come in, the Government plan to monitor and verify that they are being met? What reporting and monitoring mechanisms will exist, and how can the public have confidence in that?
Turning to the force majeure provision, I recognise why the Government have that clause in the contract, but it raises a question. Who makes judgments on that, and what are the objective criteria for making those judgments? Obviously, the Government want clear safeguards, as do we. We want to make sure this clause does not become a loophole through which binding supply chain commitments can quietly evaporate because of unforeseen circumstances.
The extension of the scheme’s life plan to the end of 2028 feels pragmatic, but it is also modest given that 2028 is not that far away. What are the Government doing to look beyond that 2028 framework, which is only three years away? Also, are they considering putting the clean industry bonus on a statutory footing and extending that timeline?
We welcome these commitments. Although we have a couple of questions, we very much welcome the direction of travel set out in this SI.
Warm Home Discount (England and Wales) Regulations 2026
Earl Russell Excerpts(1 day, 20 hours ago)
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Earl Russell (LD)
My Lords, I rise to respond to the Warm Home Discount (England and Wales) Regulations 2026. As we all know, we are at the start of another fossil fuel price crisis, at a time when individuals and the state can least afford it, so bringing down energy bills and speeding up the deployment of renewables must be an absolute national priority. The renewed crisis in the Middle East has once again exposed families and small businesses to the full volatility of the fossil fuel price market. We support the extension of this scheme, but the questions that we want to ask are around its efficiency and its design for the decades ahead. As I said, we welcome the extension of the scheme to 2031 and the improvement in transparency and data sharing that this instrument introduces.
Community matters, as does recognising that fuel poverty remains a persistent, not a temporary, problem. While I appreciate that this scheme was designed and extended before the present crisis, it will need to operate in its aftermath and the continuing process. The regulations fix the core rebate at £150 for the next five years. We all know how dramatically prices can move even in a single winter, let alone over half a decade. Energy markets are in flux at the moment, and these regulations will need to work over a long period of time. What concrete mechanisms will the Government use to review the adequacy of this £150 rebate during the life of the scheme? Are there any circumstances in which Ministers would consider increasing it—for example, if the fuel crisis continues? Without an automatic or at least a clearly defined review process, are we not effectively asking households in fuel poverty to gamble with their warmth in the face of a possible real rise in prices?
Similarly, we welcome the fact that the aggregate non-core spending obligation will rise under this scheme, but it will rise only modestly, from £78 million in 2026 to £84 million by 2030. Taking into account inflation over those years and the levels of fuel poverty at the moment, if the present fuel crisis continues, is there any intention or ability to revisit that non-core spending figure mid-scheme if economic conditions or energy prices continue to accelerate? Do the Government plan to publish an annual assessment of whether the level of support is still adequate in real terms, rather than waiting until 2031, particularly in light of this real change in circumstances?
Both previous noble Lords spoke about energy debt. Many households across the country are carrying unprecedented levels of energy arrears on their accounts. That continuing level of family debt is a real point of contention and a struggle for households. Against that, the industry-wide cap is to write off debts at a mere £6 million, with a £2,000 limit for individual households. That is absolutely welcome, but many families are already beyond those levels. Can more be done, and will there be a review within this programme? How did the Government arrive at £6 million? What assessment was made of the total scale of energy debt and have Ministers considered whether that cap should be more flexible, in case this crisis worsens?
If the Minister will excuse me, I want to go slightly off-piste. I do not like to do that too often, but I really welcome some of the moves in this SI around data and data sharing. A lot more work needs to be done there so that we can target support efficiently and fairly to those who need it most. I have been looking at some of the work that Stonehaven has done. It has been raising arguments about moving from crude, one-size-fits-all interventions to a more nuanced understanding of household vulnerability, looking at income, health, energy use and property characteristics together and setting up a safeguard score for each household, using better data so that help can be better provided. That would mean we could target bill credits, tailored repayment plans and more generous debt relief to those in most severe need.
I have a couple of questions for the Minister that perhaps go a bit beyond this SI. I really encourage the Government to do more work in this area. As they plan for a continuing fuel crisis, improving data sharing between government departments, moving beyond the DWP alone to include HMRC, health agencies and others, would be a really important exercise, particularly for the future.
I note that the Minister said that he is expecting 98% of these payments to be made automatically, but in volume that 2% is still a large number of households that are falling outside the system and bill support. I would like to see the Government doing more on data sharing, particularly multi-agency.
Far too often, people in fuel poverty are also in different kinds of poverty. There really should be a share-once support register, so I would also like the Government to do more on greater working between different utility providers so that, once someone is on a priority register, information can be shared across utilities and people do not have to give the same information over and over again. That is really important and it is something that we should include in Ofgem’s work with suppliers, but it is still a missing piece. Local authorities and charities often know much more about their local residents and households in poverty, so there is much more to do to make this data available and to include local authorities and charities in this process.
I will be brief but, above and beyond this, I think there is a need for more structural reform around these issues. Others have spoken on this, but we need to decouple electricity prices from gas so that consumers feel the full benefits of cheaper, clean power. I really want the Government to look again at the possibility of taking forward a social tariff if the energy crisis continues. We need to do more to support households struggling with energy and fuel poverty.
We welcome this SI. It is good to see these measures extended, as they are really important, but there is so much going on in this space. We welcome this SI as the start of a conversation, not the end of it.
Lord Moynihan (Con)
My Lords, I thank the noble Earl, Lord Russell, for raising the important issue of data. As I see it—but I am happy to be corrected by the Minister—this SI focuses on matching customers, and the data analysis is exceptionally important. It brings our approach to data up to date, because it enables the Secretary of State to direct suppliers to communicate with matched customers identified through automated data matching, and requires suppliers to provide information on eligibility, the use of automated decision-making and where to find the scheme’s privacy notice.
It goes further—again, I welcome this—in replacing annual fixed spending targets with annual estimates reflecting the number of eligible households on qualifying means-tested benefits. As I see it, and this is important and welcome, the SI addresses the need to recognise that data interpretation is not always 100% accurate. The noble Earl, Lord Russell, mentioned the 2%. I hope that was the reason why, under this SI, late rebate notices can be issued after the scheme year in cases where the Secretary of State is satisfied that a customer did not receive the rebate because of an administrative error by a supplier or, indeed, the Government. Data matching is such an important issue and, as it has been raised in the Committee, it would be helpful if the Minister could give us a little more colour on it.
The second point that has come up in conversation today is the question of affordability and whether the £150 warm home discount is sufficient. I was very grateful for my noble friend Lady McIntosh’s comments on that, which I will come to. Maybe the best way to encourage the Minister to respond is to quote from a couple of third-party commentaries that cover this issue. First, the director of policy and influencing at Independent Age, Morgan Vine, stated:
“We welcome the extension of the Warm Home Discount to 2030/31. The older people on low incomes we speak to tell us it is a vital lifeline that goes some way towards keeping their heating on during the coldest months. However, at just £150, the current value of the Warm Home Discount no longer goes far enough, as energy prices remain stubbornly high. We are urging the UK Government to increase the payment to £400 so it better reflects the real cost of heating a home. This increase needs to be delivered via government funding to avoid the cost being put on energy bills”.
I would be grateful if, in his response, the Minister could comment on this statement from Morgan Vine.
UK Energy Sources and Cost of Energy
Earl Russell Excerpts(5 days, 20 hours ago)
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Lord Whitehead (Lab)
The noble Earl will be aware that the present crisis is essentially a price crisis rather than a supply crisis. I emphasise again that the UK has a strong and diverse range of energy supplies and that the physical supply of fuel to the UK is stable. However, the Government have not been idle in this respect. Among other things, the Government have introduced transitional energy certificates for North Sea and associated producing fields that allow producers to engage in tie-backs, which is the development of fields additional to fields that are already in production. That is completely in line with IEA recommendations on how production can be increased in the not too distant future.
Earl Russell (LD)
My Lords, I welcome the measures that the Government have already taken, particularly around reducing the cost of heating oil. Does the Minister agree that it is important that we work with allies and partners to encourage all involved to stop targeting energy infrastructure?
Lord Whitehead (Lab)
The noble Earl is absolutely right that one of the key issues in the recent escalation has been the targeting by both sides of oil and gas installations. Clearly, this brings into a further spotlight the need to seek an urgent de-escalation of hostilities and the resolution of this crisis by negotiation rather than continued bombing of everyone’s oil and gas facilities.
Renewables Obligation (Amendment) Order 2026
Earl Russell Excerpts(1 week ago)
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Earl Russell (LD)
My Lords, I thank the Minister for his introduction. I begin by recognising that this draft Renewables Obligation (Amendment) Order 2026 makes a specific and, on the face of it, sensible change in the way the renewables obligation is updated over time. By moving from RPI to CPI calculations for inflation, it should slow the growth of RO costs and in turn ease some of the pressures on energy bills paid by households and businesses. As the Minister said, during a new energy crisis when far too many families and households are living in fuel poverty and we are seeing rapid rises in our energy costs, we remain acutely conscious that many are watching every pound being spent on their energy bills. This SI, if everything goes to plan, as the Minister said, would save £1.9 billion over the next 11 years.
We therefore welcome the measures, as they are designed to reduce the cost of energy. However, bringing down bills cannot be separated from maintaining the pace of the clean energy transition and maintaining market confidence and those who finance it. As the Minister said, the RO has been instrumental in building our capacity, particularly for mid-scale onshore wind and solar. Many have made investment decisions years ago based on an understood indexing regime. Can the Minister tell us what assessment has been made of the impact on projects that have had financing assumptions predicated on RPI? How many generators are judged to face material changes to their expected revenues as a result? What modelling has been done to check whether these measures could have a disproportionate impact on those at the smaller end of the generating scale?
There is also, for us, the question of overall approach. From the Government’s point of view, this is a small, important, but technical, pragmatic and consumer-focused change. But, for many in the industry, this is yet another incremental tweak to the legacy schemes. I note that, of the 257 responses to the consultation, most did not support either option put forward, citing a preferred option not to change the system at all, based on concerns around investor confidence, minimal consumer benefit and a need—from their point of view—for financial stability and predictability. Do the Government accept that this kind of piecemeal pattern risks the possibility of further eroding investor confidence? That would not be because any one of the individual changes is huge on its own but because it creates a sense that the rules for existing long-term investments are constantly up for potential revision.
As the Minister said, the impact is £1.9 billion. The measures will curtail the existing revenue for RO generators—reductions of around 1% for the financial year 2026-27, which will rise to 5% by the financial year 2030-31. As we know, these are large-scale, long-term investment decisions, so even relatively minor changes can have, over a prolonged period, quite large and sustained impacts on what were expected revenue returns and investment decisions. The Explanatory Memorandum says that, overall, the department does not expect that there will be a disruptive effect on small generators. What does that mean in practice? How confident is the Minister in that statement? Also, how will this be monitored going forward? I note that there is no statutory review clause here, so how will any unintended impacts or consequences of the SI, once it is passed, be monitored? Furthermore, if there are unintended consequences, would there be a willingness by the Government to look again at these changes, particularly if they happen to impact the smaller schemes?
More generally, is it the Government’s intention, over time, to mitigate remaining RO schemes into contracts for difference-type frameworks? Instead of having this piecemeal approach, is there a more fundamental plan, as part of this framework, to reduce bills? I welcome those measures, but is it not time that there was an overall plan for this, rather than looking at individual orders one by one? Is there not a better way of doing this, agreeing it with the investors and the market, so we can both reduce the cost for bill payers and maintain the investor confidence on which we depend to secure future investment? We generally welcome what is here, although we have a few questions about it. We do not oppose this SI in any way, but we want a bit of clarity on those points.
Lord Moynihan (Con)
My Lords, I am delighted to stand before the Committee in agreement with the noble Earl, Lord Russell, on this occasion. If I may, I will build on some of the questions he asked. Before I do, I declare my interest as the chairman of Acteon, which is a global specialist subsea services company providing integrated seabed-to-surface engineering solutions for the worldwide offshore energy sector, including oil and gas and wind energy.
During the consultation exercise for this order, almost half—48%—of respondents expressed a preference for not going ahead with either option. Many respondents raised concerns about the wide-reaching, longer-term impacts that these changes could have on investor confidence and regulatory stability. What does the Minister believe will be the effect on investor confidence in this sector?
Many argued that indexation changes could raise risk premia and depress valuations, and that they would likely increase the cost of capital on new investments, which could deter future investment and, ultimately, have an impact on consumers. Does the Minister agree with this? If not, why not? Most respondents felt that both of the options proposed by the Government would represent a breach of legitimate expectations based on prior commitments from the Government. Some believed that the proposals could attract legal challenge. Does the Minister consider legal challenge likely? If not, why not?
Some respondents warned that the estimated consumer bill savings from switching to CPI would be modest or otherwise offset elsewhere by increases to the cost of capital of future projects, and few agreed that the switch to CPI is necessary at all. The UK law firm Burges Salmon said:
“A switch to CPI or a temporary freeze to tariff/buy out levels will therefore unnerve everyone involved. Many investors have modeled returns based on RPI-linked revenues over the full support term. Any switch (whether Option 1 or 2) will therefore undoubtedly result in slower growth of support income which may, in turn, impact projected equity returns and dividends and trigger a downward adjustment in NAV estimations of affected ProjectCos”—
that is, net asset values. It went on to say:
“In addition, projects financed with RPI-linked debt may face a mismatch between the generating asset projected revenues and debt liabilities. Coupled with uncertainty around the introduction of an FPC scheme”—
that is, the fixed price certificates scheme—
“it is clear that the threat of sizable and costly changes to renewable support schemes being implemented is increasingly real and one which the industry may fight hard to resist whether by way of legal challenge or robust responses to the various consultation papers”.
What is the Minister’s response to Burges Salmon?
That firm was not alone. Commercial law firm Travers Smith wrote:
“Although many, including generators, investors and financing parties with interests in existing assets benefitting from these subsidies will be relieved that the more drastic ‘freeze-and-realign’ option (i.e. ‘Option 2’) was not taken, the immediate shift to CPI indexation is nonetheless expected to be a blow to confidence and cause headaches across the sector, with investors seeking to protect valuations and dividend capacity against erosion of RPI linked cash flows, and lenders scrutinising headroom and covenant resilience in the context of the risk of refinancing. The timing—as Government seeks to encourage a ramp-up in investment as part of its Clean Power by 2030 plan—is unfortunate”.
I was going to conclude on this point, but the Minister could not resist the opportunity to refer to the current global crisis and the need to “accelerate to homegrown energy” as his solution—that is, accelerate to intermittent power when what we need is, in essence, firm power.
As we know, three-quarters of our wind and solar power is generated through renewable obligation subsidies. This means that, every time electricity is generated, suppliers get the wholesale price, plus higher subsidies than in all other OECD countries outside China—subsidies that signal the direction of future energy prices for consumers. Every time the wind blows, some wind farms get up to three times the market price of electricity. If wholesale prices are £80 per megawatt-hour—they were roughly at that level before the crisis—wind farms are getting two renewables obligation certificates on top of that, at about £70 each. This means that they have been getting £220 per megawatt-hour, which is almost three times the market price for electricity.
As was evident to those noble Lords who were fortunate enough to see the Secretary of State on Sky News this weekend, he used the word “incredible” in most of the sentences that he spoke. Is it not incredible that the Government continue to say that gas is the problem? In the last week, the price of gas, which generates our electricity, has been high, at around £120 per megawatt-hour. But is it not incredible that the renewables on the scheme will always get more than the gas price? Right now, there are wind farms getting up to, as I mentioned, £270 per megawatt-hour because they get whatever the wholesale price is plus the subsidies on top.
Electricity Supplier Payments (Amendment) Regulations 2026
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Lord Fuller (Con)
My Lords, there is a reason why UK energy prices are some of the most expensive in the world. We are starting from a high base and we are increasingly vulnerable. At the moment, our gas prices are six times higher than you might find on an ex-NOLA basis: that is, exported from New Orleans. We are more expensive than the rest of Europe, apart from Germany, which has its own particular industrial problems, and we are increasingly vulnerable because we are trying to run our 24-hour-a-day, 365-day-a-year economy on energy sources that do not work at night or when the wind does not blow. I understand that, and I am not against using renewable energy—we need to have an energy mix—but the way we are going at the moment is to put too many eggs in the renewables basket.
With this statutory instrument, the name is on the tin: it is all about nuclear energy, but the speech that the Minister gave was not really about nuclear at all, but about the mission creep that has led to us having the world’s most expensive industry, whereby we are deindustrialising. Only today, what a shame that the Huntsman Group has announced that the Wilton facility, that last vestige of ICI at Billingham, could be closed. How ironic it is that the obituary of Sir Ronald Hampel, the architect of ICI, was in the Times this week: he must be turning in his grave.
This debate has all been about carbon capture and storage. I did not realise it was going to be, I thought it was about nuclear, but there we are. Carbon capture and storage is expensive, technically challenging and hard to implement. It does not work, it is the most expensive way of doing it and it is unproven. If it were proven, it would be eligible to be discounted against CBAM, but it is not. One of the main things by which this Government want to take carbon reduction on board—they are parroting and trumpeting carbon capture and storage—is ineligible for the headline carbon reduction process. Can noble Lords not see the incompatibility here?
What we have heard so far in this debate, and I know it is early days, is that—
Earl Russell (LD)
This is not a debate. This is an SI about the mechanism for contracts for difference. It is not a debate on energy policy.
Lord Fuller (Con)
I thank the noble Earl, but he will forgive me for having made an introduction, and now I come immediately to the substance, because what we have heard, and it came from the Minister’s mouth, is that this is all about investor confidence. This is about subsidy farming; this is about underwriting the most emitting power station in Britain, Drax, which is responsible for the desecration of huge tracts of forestry on the other side of the world, the shipping costs associated with getting it and its transport to that power station, as if it is somehow renewable. That is a fantasy.
What these regulations underpin is a false economic market that says, “No matter how high the gas price is”, and, my goodness, gas prices are high now, “we’re going to bid up the costs of renewables in an unearned income”. This is financial engineering. We are kidding ourselves that we are doing this for low carbon. We are creating a false market in unproductive assets such as carbon capture and storage. When we invest in carbon capture and storage, and I use the word “invest” advisedly, we are not investing in productive assets that will generate an economic return; we are just burying money, money that we need.
I do not deny that, as a result of this regulation, the authorities—forgive me, there are so many acronyms, I cannot remember them all, the LCCC and so forth—have to be paid for. However, this debate has exposed that it is not just about paying for the authorities, it is about financing a mission creep into all sorts of areas that collectively and cumulatively are driving the cost of our energy. Householders are paying more and industry is paying more—and, candidly, industry is now voting with its feet to go to other parts of the world because it cannot afford all this.
At some stage, we need to draw a line. I am grateful that the Minister has used the word “crisis” to describe the circumstances currently being visited on the Middle East and, by extension, on our own economy. When the facts change, you need to alter your position, and when it comes to this panoply of extra burdens on industry—not least contracts for difference—we need to have a fresh look, because the definition of insanity is doing the same thing over and over again and expecting the outcome to change. This nation cannot afford it, and neither can our industry or our householders. Clearly, we are going to note this statutory instrument, but at some stage the music needs to stop.
Baroness Redfern (Con)
My Lords, it is a pleasure to follow my noble friend and to have the opportunity to speak to this statutory instrument. I support and welcome the update levies to fund operational costs of low carbon and nuclear energy schemes. However, it is the wider context that is my concern: the continued high prices of electricity, which are among the highest in the world for our heavy industry—such as steel, which is truly disadvantaged when having to compete worldwide. Our high-energy intensive industries—not only steel, chemicals and ceramics, which are the industrial base of the UK—are, therefore, left inadequately supported.
We all know that lower electricity costs directly help to retain manufacturing reinvestment and jobs, and support the supply chains, so it is disappointing to see manufacturing jobs moving abroad in the past 12 months. For high-energy intensive industries to compete on a level playing field, confidence must be targeted, building that elusive confidence and bringing the precious private investment into the heavy sector. The Government know they have to develop and go further with serious long-term plans, and possibly introduce a two-way contract for difference to provide a competitive wholesale electricity price to support and restore our British industrial competitiveness for the next decade.
Finally, the Government must support further—rather than undermine—the UK’s wider industrial strategy and growth emissions. I look forward to the Minister’s reply.
Earl Russell (LD)
My Lords, the draft Electricity Supplier Payments (Amendment) Regulations make technical but necessary changes to the levies that electricity suppliers pay to fund three of the UK’s key energy schemes: the contracts for difference—CfD—scheme, the capacity market and the nuclear regulated asset base, or RAB model.
There is a sense of gravity on these Benches in that we fully recognise the role that CfDs have played, since they were introduced by the Liberal Democrats a long time ago, in helping to fund and secure funding for our energy transition. We recognise that these are necessary updates, and we welcome what the Minister has said to introduce these amendments. We welcome the measures that are being taken to ensure that efficiency savings are gained. Therefore, we fully support this SI.
Lord Moynihan (Con)
My Lords, I am very grateful to my noble friends Lady Redfern and Lord Fuller for their contributions. They bring a great deal of expertise to this Committee from a lifetime outside London in places where industries’ success has depended on low energy prices. For them to give up their time and dedicate it to the work of this Committee is commendable, and I associate myself with everything that both of them said.
That helps me in one way because it means that I can be short on this occasion. I will make just make four points. First, Drax has been raised. There are still major issues with Drax, as the Minister knows. Billions have been spent in public subsidies on it. As I recall, it was axed from the S&P green bond index because it clearly did not add to the net-zero objectives of either this Government or the previous one. Indeed, the burning of pellets releases CO2 immediately and does not achieve anything except for carbon debt. That undermines our net-zero goals, not least because the pellets come from the west of Canada; they are brought right the way across Canada and must then be transported to the United Kingdom by boat. The sooner we grasp the nettle and stop biomass burning, the better. In fact, it is unfair even to call it biomass: it is a CO2 pellet-driven wrong solution for Drax. Today, it has contributed a significant amount of electricity generated into the grid—not much less than comes from solar energy in the UK at the present time.
However, these are technical changes—this has been made very clear—and we on these Benches will not oppose them. I would just say three things. One is that the heart of this is, in fact, nuclear energy; look at the introduction and the rest of the statutory instrument. On the nuclear energy policy question, I welcome the fact that the Government have committed to implementing the recommendations of the Fingleton review in order to make nuclear power much cheaper. That is really important; we need to make it affordable, and it needs to be quicker and easier to build. We look forward to receiving the relevant legislation—even if I anticipate that, on that particular Bill, it will be colleagues from the left of the Labour Party and the Green Party who will give the Minister a lot of airtime because there is no doubt that the environmental impact is going to light the red touchpaper of the Labour left and the Green Party, which the Secretary of State has done so much to court.
Secondly, this Government cancelled the previous Government’s full-system cost analysis of the energy system. This statutory instrument highlights that such an analysis is important and would help all of us in this Committee—indeed, all of us in the House—to understand the cost of energy. I ask the Minister to consider reintroducing it, certainly before any further legislation comes before the House.
Finally—I was not going to make this point but I think it is important—I echo the comments made by my noble friends. The Government have not fulfilled their pledge to cut energy bills by £300. Pushing the costs on to tax bills is simply sleight of hand. The truth is that the Secretary of State’s made-up promise to cut bills by £300 has become, understandably, a national embarrassment for the Government, so they have turned to the already-struggling taxpayer for a bailout of £7 billion.
With all that said, I promised to be brief and make only a few comments on this instrument. These are technical changes, and we on this side will not oppose them, but it has been exceptionally helpful for the Committee to hear the comments made by my noble friends and the noble Earl, Lord Russell; I look forward to hearing the Minister respond to them.
Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026
Earl Russell Excerpts(1 week, 5 days ago)
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Earl Russell (LD)
My Lords, I will respond to this SI and the regret amendment in the name of the noble Lord, Lord Moynihan. My noble friend Lady Suttie will respond to the specific points raised in the fatal amendment tabled by the noble Baroness, Lady Hoey.
This order extends the UK trading scheme to cover emissions from carbon dioxide, methane and nitrous oxide from domestic maritime activities for vessels over 5,000 gross tonnage, including in-port emissions, from 1 July 2026. It implements decisions of the UK ETS authority, agreed by all four Governments of the United Kingdom, and has already passed by a substantial majority in the other place. It is part of our broader strategy to decarbonise all sectors of the UK economy and to meet our legally binding 2050 net-zero targets.
To be clear, we support the order and we will not vote in favour of either the regret amendment or the other amendment. We believe, though, that the SI needs to meet three tests: it needs to have environmental integrity, economic fairness and practical deliverability. It must also support the UK’s wider trading interests, including our growing relationship with the European Union. The Liberal Democrats start from a clear point of principle: carbon must be properly priced and the polluter must pay. The UK ETS is a flagship decarbonisation instrument, a cap and trade system that sets a declining cap on total emissions and auctions allowances, each representing one tonne of CO2 equivalent. Tightening that cap over time sends a clear signal to businesses about what they must reduce and by when.
Emissions trading is, in our view, the most effective way to cut total emissions at the lowest cost. It enables the market to identify and invest in the cheapest abatement options, rather than relying solely on prescriptive regulation, and that reduces carbon leakage. Extending the logic to domestic maritime completes a missing piece in the system that already covers power, heavy industry and aviation. Maritime emissions matter. They are a significant and growing source of CO2 emissions. A key barrier to their reduction is that fuel prices do not adequately reflect the environmental costs and therefore reduce incentives for change. Including domestic maritime in the ETS helps to remove the barriers, putting a clear technology-neutral price on emissions from voyages and time spent at berth.
The Government’s impact assessment estimates a central net reduction of around 645,000 tonnes of CO2 equivalent, delivering greenhouse gas savings valued on the central estimate of around £155 million and around £179 million in air quality benefits. Overall, the measure has a positive net social value on the Government’s central estimate of £132 million. That is a measurable gain for people and planet. Consultation material suggests that vessels over 5,000 gross tonnes account for two-fifths of domestic maritime emissions. Is the Minister confident that the scope and the threshold align with our overall carbon budgets?
Our climate policy must also be fair. Costs must not fall disproportionately on those who are least able to bear them. The Government’s impact assessment suggests limited consumer impact: typically 1% for most goods and around 2% for some—
Baroness Butler-Sloss (CB)
I am grateful to the noble Earl, Lord Russell. Can I ask him two things, from a state of ignorance? First, why is Scotland being omitted and Northern Ireland put in? Secondly, we seem to be dealing with an issue on CBAM that was not referred to in the House of Commons. It seems extraordinary that we should be looking at it from a different perspective from the House of Commons.
Earl Russell (LD)
I welcome the noble and learned Baroness’s intervention. The Scotland issue relates to devolved legislation and legislation that Scotland has passed. The issue in relation to the CBAM is in relation to—
Earl Russell (LD)
There is a reduction in place in Northern Ireland. There is not specific legislation around that.
Lord Weir of Ballyholme (DUP)
The noble Lord gave one of his key considerations as a test of economic fairness. Perhaps he could explain to the House how it is economically fair to have an 100% exemption for Scotland but 50% for Northern Ireland. How is that fair?
Earl Russell (LD)
It is not for me to respond to what is a question for the Minister. The Government’s impact assessment estimates central abatement investment of around £22 million, with administrative costs of £179 million over the period. The allowance-purchase cost is largely a transfer to the Exchequer and devolved Administrations, with many operators being non-UK based. Carbon pricing must therefore be matched with a credible transition plan. Without that, this becomes not a nudge for transition but could simply be a tax. However, the Government have announced £448 million for the UK Shipping Office for Reducing Emissions—UK SHORE—between 2026 and 2030, the largest public investment yet in commercial maritime.
Phase 2 will support larger projects through the Clean Maritime Demonstration competition and the Zero Emissions Vessels and Infrastructure competition. That is the industrial policy that must sit alongside carbon pricing. At the same time, the measure is expected, on the Government’s central estimate, to generate around £1.9 billion in allowance-sale revenue: around £95 million a year. Will the Minister confirm that a material share of ETS maritime revenues will be reinvested in maritime decarbonisation, including cleaner vessels, shore power, alternative fuels, and support for local transition in coastal and island communities, rather than simply disappearing? Will the Minister commit to publishing annually how much is raised from maritime ETS and how much is invested in maritime decarbonisation?
The cruise industry is an important and growing part of our economy, calling at some 50 UK ports and making over 2,500 calls a year, supporting tens of thousands of jobs and adding billions to the UK-wide economy. The industry’s concern on ETS is that revenues are not being visibly recycled into cleaner fuels and infrastructure specific to their industry. We only have a handful of onshore connections for cruise liners at the moment, so will the Minister tell us what investment will be made as a result of this scheme to bring shore power, and on what timetable for the cruise industry?
The Government and the UK ETS have done substantial preparatory work, including consultations, a digital monitoring platform and voluntary onboarding since November 2025, ahead of the July 2026 start. The Government’s impact assessment estimates an average administrative cost of around £5,700 per operator per year. This may be modest, but it has real implications for real firms. We recognise that this should reduce over time.
We welcome the formal review at the end of 2028 to assess emissions outcomes, administrative burdens and any needed adjustments to scope or thresholds. We have a number of specific concerns about any plans to expand the scope to international voyages. My noble friend will address the specific issues relating to Northern Ireland aspects. We believe the right approach is to keep these provisions under review and match carbon pricing with practical support, not to abandon maritime decarbonisation. Extending the UK ETS to domestic maritime emissions also helps keep our scheme aligned with greater integration with the EU. In turn, a genuinely linked system will help strengthen our trading relationship.
The fatal and regret Motions both reflect genuine anxieties about costs, competitiveness, and the union, but neither justifies rejecting this order. The suggestion that there is no alternative is not borne out by the evidence. Improved operating practices, routing efficiency and gradual fuel switching all represent viable abatement pathways.
Near-zero emission fuels remain expensive and infrastructure is incomplete. But that is exactly why revenue recycling and UK SHORE matter. The right course is to pair a robust carbon price with predictable investment that keeps the maritime sector on its net-zero path, while keeping the UK economy competitive. To call this measure simply a tax misunderstands how the ETS works. It is designed to minimise the cost of meeting our climate goals, to give business flexibility and to limit carbon leakage: this is a practical measure. It becomes a tax only if the Government pocket the proceeds and fail to reinvest them. Revenue is a byproduct: the purpose is to cap and reduce emissions over time. We are supportive of the extension of emissions trading to domestic maritime. Done well, emissions trading drives real reductions, supports innovation and underpins our net-zero transition.
Lord Dodds of Duncairn (DUP)
I am grateful to the Minister for introducing the statutory instrument in the way that he did, to the noble Baroness, Lady Hoey, for introducing her fatal Motion, and to the noble Lord, Lord Moynihan, for introducing the regret Motion. It is very important that we in this Chamber debate these issues: this matter got 47 minutes in the other place. Often, matters that affect Northern Irish consumers and businesses in a very direct and detrimental way do not get any time at all in the other place. It is therefore all the more important that your Lordships have the opportunity to debate these matters.
The noble Baroness, Lady Hoey, and the noble Lord, Lord Moynihan, have powerfully set out what happened in relation to the Northern Ireland Assembly’s consideration of this matter. This Government are supposed to be pro growth; they are supposed to have the cost of living at the heart of their consideration, and indeed they say that they are pro union and are committed to this through various command papers and policy statements. Thank goodness we are not debating the Windsor Framework edifice today, but it always needs to be taken into consideration, because it was certainly a matter for the Secretary of State when he was interacting with party leaders on this particular issue. This statutory instrument runs counter to all these priorities of the Government, yet they proceed with it nevertheless.
The noble Lord, Lord Moynihan, and the noble Baroness, Lady Hoey, referenced the intense lobbying on the part of His Majesty’s Government, at Secretary of State and ministerial level, to parties in Northern Ireland when it became clear that they were deeply concerned about the effects on Northern Ireland. The introduction of the CBAM argument led Ms Finnegan, the Sinn Féin MLA, to say just this week in the Assembly debate:
“While the challenges facing businesses as part of the changes remain, doing nothing is simply not an option. Failure to implement the ETS would result in the costs being incurred through the carbon border adjustment mechanism”.
That proves that this argument changed minds. This was the deciding argument for Sinn Féin. Interestingly enough, it was Sinn Féin, and the SDLP and the Alliance Party, who succumbed to the arguments of the UK Government. It was an interesting turn of events that those parties succumbed to that type of argument. But that is mainly to do with their total allegiance to anything that advances the cause of the EU, even above the interests of their own constituents, as has been evidenced in many debates in the Northern Ireland Assembly.
I also raise the fact that not only was the CBAM argument introduced at a very late stage but, in messages to party leaders, and certainly my party leader, the issue of the SPS agreement and the EU reset negotiations was also raised, and it was explicitly said that this would be put at risk if this SI was not passed by the Northern Ireland Assembly. These are very serious matters. Raising issues such as these as threats and blackmail, at the last minute and without any proper consideration, as the noble Lord, Lord Moynihan, pointed out in the other place, or indeed when the matter first came before the Northern Ireland Assembly, is totally unacceptable.
It is an outrage that these matters should be considered in this way, especially when we consider what is at stake for Northern Ireland, because this is a discriminatory measure. It is a measure that disproportionately affects Northern Ireland, as has been said. I am not going to repeat all the arguments that have been set out on the economic detriment to Northern Ireland—they have been powerfully set out already—but given our dependence upon maritime transport, it is absolutely clear that this is going to have a knock-on, detrimental effect on businesses, on consumers and on every aspect of life in Northern Ireland.
Electricity and Gas (Energy Company Obligation) (Amendment) (Specified Period) Order 2026
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The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, this draft order was laid before Parliament on 26 January 2026. This Government remain fully committed to ensuring that households, particularly those on low incomes or at risk of fuel poverty, can live in warmer, more energy-efficient homes that are affordable to heat. At the heart of this endeavour lies the new warm homes plan, a comprehensive and long-term strategy to reduce energy bills, alleviate fuel poverty and enhance energy security. We have committed to investing £15 billion—the biggest-ever public investment to upgrade British homes and cut energy bills. Of this amount, £5 billion is allocated to support low-income households.
The energy company obligation—ECO—has played a key part in helping households to reduce their energy bills. The energy company obligation was first launched in 2013. Since its launch in 2022, ECO4 has delivered slightly over 1 million energy-saving measures to approximately 300,000 households. The scheme places an obligation on the larger energy suppliers to deliver energy-efficiency improvements to vulnerable and fuel-poor households that result in measurable bill savings.
While ECO4 has delivered a significant volume of home energy-efficiency improvements, it has not been without challenges, as set out recently by the National Audit Office, among others. There have been widespread, systemic issues in the delivery of solid- wall insulation, which we have taken urgent steps to tackle. We are bringing forward comprehensive reforms to the retrofit consumer protection system to make it stronger, more transparent and more accountable so that this cannot happen again. We expect all installers to ensure that households receive timely and high-quality remediation of any non-compliance identified.
Given these systemic issues and inflation that is still too high, we have taken the considered decision not to replace ECO4, therefore easing pressure on household energy bills. This, in combination with the Government funding 75% of the domestic cost of the legacy renewables obligation, will remove around £117 of costs on average from household energy bills across Great Britain.
This statutory instrument introduces a small and necessary change to the existing scheme by extending the end date of ECO4 by nine months from 31 March to 31 December 2026. This extension provides obligated suppliers with additional time to meet their existing targets and, most importantly, it allows them time to focus on remediation of non-compliant installations. I emphasise that the instrument does not change targets, impose new obligations, or increase supplier costs or consumer bills.
As I conclude, I thank the Secondary Legislation Scrutiny Committee for its consideration of this instrument and for not drawing it to the special attention of the House. The changes made by this instrument, which is in essence a very simple one, are limited but important. By extending ECO4, we are ensuring a stable period of delivery and an orderly closure to the scheme, and are safeguarding consumers. I beg to move.
Earl Russell (LD)
My Lords, I will respond on the Electricity and Gas (Energy Company Obligation) (Amendment) (Specified Period) Order. While appearing to be only a minor adjustment today, this SI is important, as it involves the need to protect the most vulnerable in our society from poorly insulated homes and fuel poverty.
The ECO4 scheme has been a fundamental component of our national strategy to address the dual crisis of fuel poverty and the climate emergency. We have always supported its ambition to reduce the costs of heating for low-income households. This amendment seeks to extend the scheme’s duration by nine months to 31 December 2026. The reasons for doing this require a little bit of scrutiny. The Government say that this extension is necessary for the remediation of non-compliant installations and to ensure the orderly closure of the scheme.
Energy Markets
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Lord Moynihan (Con)
My Lords, I declare my interests as chair of Amey, Acteon and Buckthorn.
This Statement comes at a time when the United Kingdom faces major, unparalleled challenges to its energy supply. For 50 years, under successive Conservative and Labour Governments, energy policy has been built on the four pillars of security of supply, diversity of supply to back that security, stronger adherence to ever-improving environmental measures, and, above all, affordability. On all four tests, this Statement fails, and the current war in Iran exposes that the Government’s energy policy is uniquely vulnerable to international supply chains, unaffordable to industry and households alike, glaringly insecure and unashamedly reliant on putting intermittent power before the firm power needed to keep incubators in our hospitals running 24/7, 365.
The Statement argues that there is no point drilling in the North Sea because all our gas is sold on international markets. Does the Minister agree that this is nonsense? Every molecule of gas we extract from the North Sea goes straight into our pipes, making up around half the UK’s supply. Does the Minister agree with the North Sea operators and OEUK that data already submitted to government details 111 named projects, equivalent to £50 billion of investment, that could be unlocked with tax and regulatory reform? On security of supply, we are increasingly vulnerable. Does the Minister accept that we have one pipeline coming to the UK from Norway alone, which is responsible for 30% of our gas supply? As the eminent economist Dieter Helm stated, is this not a sitting duck for a hostile power or an obvious hit for drones in the North Sea?
Does the Minister agree that onshore economically, the UK is facing the highest industrial power prices in the world, crippling our industry and increasing our cost of living? Does he agree that we are failing our energy-dependent industries because we have unaffordable energy prices? Gone is most of the steel industry. Deeply damaged is the fertiliser industry. Through the imposition of additional energy costs this year, the ceramics industry is under threat, as are petrochemicals and refined fuels.
Turning to capacity, does the Minister agree that we already need twice the capacity, twice the grid and all the batteries and storage we can find, plus many more interconnectors, to service a level of power demand of about 45 gigawatts? We used to meet that comfortably with just 60 gigawatts of capacity. Does he not recognise that all this is because we must have therm power available on days like today when the wind does not blow? Only 16% of our electricity was generated from wind today—only double that from the heavily polluting, burning biomass of 7 million tonnes of wood pellets a year in Drax.
Turning to renewables, does the Minister agree that there was good reason for the late publication of the secret MoU between the Secretary of State and the Chinese Government? It demonstrated that not just our renewable energy policy but our overall energy policy is tethered to China, a country which burns more than 55% of the world’s coal and is building another 400 gigawatts of coal generation. Yet our imports of solar panels are nearly 100% imported from China and demonstrate our serious reliance on a foreign state, not least because, as the Minister said from the Dispatch Box recently, he cannot be sure that the solar panels being installed in our schools are not made by slave labour.
Does the Minister agree with me that we need a policy built on renewables and more North Sea gas—not renewables instead of gas? Does he also agree that energy security and affordability depend on a substantial increase in gas from the North Sea, not imported LNG, which has gone up 40% year on year and which, in its total life cycle, emits nearly twice the levels of carbon compared with North Sea gas? The Government need to secure our own gas reserves, first, by a fiscal and regulatory regime which immediately encourages more tiebacks and greater exploitation of existing reserves, then by a licensing regime which ensures that production comes on stream at the same time as new-build nuclear.
None of what I have said this evening is anti-renewable; indeed, when I was Minister for Energy, I launched the first renewables non-fossil fuel obligation and for many years I was president of the British Wind Energy Association. I have set out a direction through which the UK is more energy secure, not less, with more affordable and environmentally acceptable energy; and through which it is more prosperous, with more jobs for working people, greater economic confidence, higher growth and a lower cost of living.
Earl Russell (LD)
My Lords, I thank the Minister for the Statement on the very serious and fast-moving situation in the Middle East. The recent escalation in the Gulf following President Trump’s deeply destabilising actions risks widening the conflict. Fourteen countries are now directly affected, global shipping supply routes are shut, and once again oil and gas prices have skyrocketed because of geopolitical chaos. With tragic inevitability, the same man who denies the existence of climate change has unleashed another conflict for the control of fossil fuels. If this conflict is not urgently contained, it will shut down oil fields and disrupt global markets, and drive up oil and gas prices, food prices, inflation and government debt alike. We need an urgent halt to the targeting of energy and desalination facilities on all sides.
We have been here before. Despite the progress we are making on our energy transition, the UK remains frighteningly exposed to the harsh economic impacts of global events far beyond our shores. The Energy & Climate Intelligence Unit and E3G estimate that our reliance on fossil fuels has cost this country an additional £183 billion since 2022, because of the increased costs of energy as a result of the war in Ukraine. We cannot afford another lost decade of dependence on global fossil fuels that we neither control nor influence.
While much of the Minister’s Statement is welcome—the co-ordination with allies, reassurance on supply, and commitment to clean power—the real question is whether this Government will now act at the speed and scale the crisis demands. Unlike the last energy crisis, this one includes oil as well as gas. We on these Benches see the Conservatives’ claim that the solution lies in new North Sea licences as the equivalent of trying to fill a swimming pool via a drinking straw. North Sea gas production is down by two-thirds since 2000. It is set to have declined by 97% by 2050, and even with new licences it will decline by 95%.
On oil-related issues, I want to ask about rural constituents who rely on heating oil to heat their homes. Some 1.5 million rural homes and 62% of homes in Northern Ireland depend on it. Prices have rocketed: in some cases, they have nearly doubled. These consumers are the forgotten victims of energy policy, not covered by Ofcom regulation and therefore without price protection and redress. Will the Government now work with the CMA and Ofgem to establish proper oversight, investigate price abuses and ensure that these households are protected?
Disruption to supplies arising from the Gulf crisis has also pushed up the cost of aviation kerosene by more than 80%. What consideration is being given to resilience, as 70% of our kerosene is imported, and how are the Government mitigating escalating costs for consumers and operators alike? On the cost of electricity and gas, we have some stability with the energy price cap, but that is short lived. While our gas supply is more secure than that of oil, gas prices have already reached a 12-month high. There is a very real risk of a renewed cost-of-living squeeze later this year, placing further pressure on families and businesses who are struggling to pay their bills.
The Government must make plans for scenarios where prices stay high and new interventions will be required. Families and businesses deserve reassurance that the Government’s support will not vanish if the crisis endures. I ask the Minister to give that reassurance today. These events bring into sharp relief the deeper issue: the structure of our energy market. Despite our work on renewables, UK consumers remain uninsulated from the global fossil-fuel markets, as our energy market has not been reformed to reflect the increase in renewables uptake. Three years on, we have been told repeatedly that energy market reform is coming. The Government have ruled out the introduction of zonal pricing, but this crisis is a clarion call that urgent action is needed. Why are we still funding crucial decarbonisation and social/environmental levies through household bills rather than general taxation? Moving more of those policy costs into general taxation would help to make the system fairer and more equitable. Will the Government commit to reviewing this balance?
Our gas storage capacity—just 12 days—remains among the lowest in Europe, so will the Minister consider the case for a greater strategic reserve? The price of gas still sets the UK electricity price 97% of the time. Do the Government agree with Greenpeace’s call to bring gas plants into a regulated asset base, creating a strategic reserve administered by NESO to break the link and save customers an estimated £5.2 billion by 2028?
We must double down on the rollout of renewable energy, grid upgrades, long-term storage, diversity of supply and greater energy interconnection with Europe, so that we can gain energy security and price control. Investors need predictability on planning, on grid connection and on the carbon pricing framework. Britain must move to a continuous pipeline of renewable projects: built faster, connected sooner and supported by modernised transmission networks. Every insulated home, every electrified heat pump and every community-scale battery gives us energy independence.
True energy security for Britain will not be won in the North Sea. It will be won on our rooftops, in our grids, in our offshore wind fields and in our insulated homes. If this latest conflict teaches us anything, it is that energy dependence is a choice, and energy independence through clean energy must now become our utmost mission.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
I thank the noble Lords for their contributions this evening and I will attempt to address the questions that they have put to me. I must say, however, to be absolutely frank, that there appears to have been one sensible contribution and one not-very-sensible contribution. I will attempt to answer them just the same, but what I thought we were talking about—and I think we are talking about—is the really difficult situation everyone finds themselves in now as a result of the Iran war: what that is likely to do to energy prices, what the likely effect will be on supplies for consumers and industry, and what we can reasonably do to make sure that we have indeed the security that noble Lords have talked about tonight, for our own supplies for the future but also in such a way that we have a secure future ahead of us as well.
In that context, I would have thought that the particular lesson we should draw from the events of the last few days is that we cannot get away from, for various reasons, enormous volatility in the fossil fuels and gas markets abroad. That itself, for various reasons, directly leads to volatility and difficulty with energy prices and energy supplies and various other things. The lesson surely has to be that we should ensure that we have secure, homegrown energy that is not subject to international volatility in the way that we are finding right now, but is also secure for our suppliers and for our consumers, and builds an industry on the back of that which actually creates jobs and businesses and energy arrangements that are secure for the long-term future.
That, of course, is to continue with the moves towards renewables and low-carbon energy, getting the role of gas as far as possible out of our markets and securing a future where our homegrown energy is not only not subject to dictators and petro states but is entirely under our own control: not only under our own control but under our own control as far as the sources of that are concerned.
We have a number of worries and concerns right now about what no one in this Chamber knows too much about—exactly how long this war will continue. Obviously, one earnestly hopes that the war comes to an end fairly soon or that, as the UK Government are pushing, we have a negotiated diplomatic settlement on particular issues for the future. However, we know that prices are going up rapidly at the moment and that there is a bit of a differential between different areas of the oil and gas economy. For example, heating oil, which is not subject to the energy price cap, is going up rapidly. We have to deal with a number of such issues on different fronts pretty immediately, regardless of the long-term future that should be in place for our energy economy.
As far as customer security is concerned, we have the energy price cap in place. That means that, for three months at least, customers of electricity and gas will have cheaper prices than they had over the most recent period. That is protected to that extent. Heating oil is not as protected; we have seen considerable spikes in that, which are also associated with jet fuel, because they are essentially the same thing—kerosene—and we have seen considerable spikes in that. The UK has considerable reserves of jet fuel but does not have the same reserves of heating oil. We have taken action just today in writing to the CMA and leaders in the heating oil industry to make sure that they keep a cap on prices, that they are not price gouging and that they are keeping their prices as modest as they can.
However, all this depends on what happens over the next period with the progress of the war and whether the Strait of Hormuz will be opened or we are at least in a position such that oil and gas can get through it, so that we can start talking about a reasonably reliable supply for world energy coming through in a way that it is not at the moment. Mark my words: this crisis is not about supply. The UK has ample supplies of gas of all sorts—50% of which is from UK fields, assuming it stays in the country. We will perhaps touch on that. We also have supplies from Norway and of liquefied petroleum gas; three terminals have been built and a number of LPG vessels are on their way to the UK, as we speak.
It is not so much about supply but about price and what happens to it if the war continues for a long time. For example, we take only about 1% of our gas in the form of LPG from Qatar—very small supplies—as most of it comes from other sources. But other forces in the world are trying, literally, to turn those LPG vessels around, so that they go to their parts of their world to supply them with LPG at an increasingly high price.
We are clear that we need to take firm action to make sure that we have the right prices for the future, the ability to protect our own energy interests and the ability to make sure that supplies, which are reliable at the moment, continue to be reliable in the longer term.
One thing this is not about is the idea that we should suddenly start drilling for gas or oil and translating a lot more gas and oil back to the UK, which the noble Lord opposite appears to think should be the next move. First, that would take a very long time to happen. Secondly, as I have previously mentioned, it is not the case that this gas would just come to the UK; it goes all around the world at a world price. It would make no difference to the world price, as we have only 0.7% of global oil and gas production in the UK, in any event. It would make no difference to the outcome. The outcome on which we need to work is to continue with our low-carbon policies to get us off gas as quickly as we can and to secure renewable, low-carbon and firm energy through renewables policy in the longer term, so that we are not dependent on gas and this kind of situation never happens ever again. That is clearly the task ahead of us, so I therefore commend to the House this Statement and what it says about the future, despite the situation that we find ourselves in at the moment.
Carbon Budget 6
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Lord Whitehead (Lab)
It is certainly not true that the pursuit of a low-carbon economy has led to deindustrialisation. The noble Lord need only look at the £60 billion of investment that is coming into the green economy and all that goes with it. Indeed, the low-carbon economy is growing three times as fast as the general economy. Many of the things that are coming in concerning low-carbon energy are very much concerned with industrial plants, grids, new forms of electricity generation and so on, which will not only produce large numbers of jobs but a very sound industrial base for the country.
Earl Russell (LD)
My Lords, to return to the Minister’s original Answer in relation to legal challenges, what assessment has been made of the electric vehicle rollout and boiler replacement mandates and their timeframes, and the Government’s ability to meet the building and transport emission cuts and the sixth carbon budget in good time?
Lord Whitehead (Lab)
On EV rollout, the noble Earl will be aware of what has been put in place for ending internal combustion engine use in vehicles and the phase-out of hybrid by 2035. The rollout of electric vehicles continues unabated, and the number of electric vehicle charging points in this country, currently at more than 80,000, is well on target for what we think necessary over the next period to ensure that the fleet works as well as it should.
Fire and Rescue Services: Clean Energy Projects
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Lord Whitehead (Lab)
My noble friend, to whom I pay tribute for his enormous service in the fire service over a number of years, really ought to be the person who knows what he is talking about on this subject. He refers to the fire in North Hyde a little while ago, which, as noble Lords will know, caused considerable problems at Heathrow Airport in 2025. That was subject to a NESO investigation into the circumstances around that particular fire, which related to faulty maintenance in a substation. As a result of that investigation by NESO, the Government have accepted all the recommendations that were put forward in the report and are working closely with other government departments and the energy industry in implementing the 12 recommendations and 20 related actions, detailed in the Government’s response to that investigation. Among other things, that ensures a joined-up approach across organisations to improve energy resilience, emergency response and recovery. The majority of actions are forecast to be delivered by the end of 2026.
Earl Russell (LD)
My Lords, long-duration energy storage is an extremely important part of our energy transition, providing much-needed stability to our future energy systems. Falling prices and evolving technology are also helping. I welcome the Minister’s response, and we recognise that robust safety systems are in place. However, Ministers have previously spoken of considering additional measures to enhance the regulation of the environmental and safety risks of BESS. Does the Minister feel that more work is needed to reassure the public on public safety concerns?
Lord Whitehead (Lab)
The Government are actively exploring additional measures to manage safety risks on the grid-scale battery energy storage sites. That is important in the context, as the noble Earl mentions, of the substantial expansion that there will be in batteries as an essential part of the UK’s balancing energy system for the future. In August, Defra published a consultation on modernising the environmental permitting regime for industry, which included proposals to include BESS within scope of environmental permitting regulations. The Government are currently reviewing industry feedback and will publish a response in due course. That would require battery developers to demonstrate to the Environment Agency how specific risks were being managed while also providing for ongoing regulatory inspections of battery sites.