Net Zero (Industry and Regulators Committee)

Lord Callanan Excerpts

Friday 20th January 2023 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, I thank the noble Lord, Lord Hollick, for the report from the committee and for securing this important debate. I am grateful also for many of the other contributions. I start by apologising to the noble Lord that the reply from Secretary of State is not with him. It is with the Secretary of State at the moment, who has been away in Davos this week. Nevertheless, it should not have been beyond the wit of government to get the reply to him by this debate. I am also grateful to members of the Industry and Regulators Committee, and to all those who provided written and verbal contributions, which enabled the preparation of such a thorough report.

Like other Members, I am proud that, under this Government, we were the first major economy in the world to enshrine net zero into legislation. We set out in the net-zero strategy a bold vision for a decarbonised economy by 2050 and a net-zero power system by 2035. That shows that we have not lost any of that ambition.

I was very interested in the contribution from the noble Lord, Lord Burns, particularly given his former position. I am tempted to say it is a shame that he is not still in that position, given some of my recent discussions with that department, but perhaps that is a conversation we should have privately. He rightly focused on a road map to net zero. Although we do not yet know what the exact technology and energy mix will look like in 2050, we have a clear plan and a clear strategy for getting there—and, in doing so, we can manage at least some of the uncertainty he mentioned by forging the future ourselves.

We are working to make our clean energy future a reality with many brilliant and innovative British businesses, to help to industrialise emerging technologies, from British-built hydrogen-fuelled aircraft engines to small modular reactors that could each power 1 million homes. We are building on these success stories in the sectors where we already lead the world. Last year we completed the world’s largest wind farm at Hornsea 2, harnessing the high winds of the North Sea to deliver clean, affordable and secure energy for Britain, alongside the second- and third-largest wind farms, which are all in UK territorial waters and all done by us.

In the British Energy Security Strategy, we set out a new ambition: to deliver up to 50 gigawatts of offshore wind by 2030, including up to 5 gigawatts of innovative floating offshore wind. With the support of the offshore wind acceleration task force that we set up to drive forward delivery, alongside some of the measures in the Energy Bill to which the noble Lord, Lord Whitty, and others referred, I am confident we will succeed. It will be a challenge, because we have been so successful at rolling it out in this country that now the rest of Europe wants to do the same, which will of course present some inevitable problems with the supply chain. Nevertheless, it is a challenge that we are determined to meet.

Other noble Lords referred to another key challenge that we face, which, for a secure, cost-effective and low-carbon energy system, is storage. That is why we are committed to deploying enough large-scale and long-duration energy storage technologies to balance our overall energy system. To do that, we are working with industry to develop the best policy to enable investment by 2024. As noble Lords said, we are investing in nuclear, too, to complement the wind, solar, tidal and geothermal energy that we have, and play a vital role in beyond-the-grid applications, including the production of hydrogen and synthetic fuels for future use. Last year, we gave the green light to the development of Sizewell C, with a £679 million investment, which represented the first state backing for a nuclear project in over 30 years. This marks a milestone in a nuclear renaissance for our country as we pioneer new approaches to deliver not just reliable clean energy for Britain but new industries, new skills and, of course, new jobs.

The noble Lord, Lord Bilimoria, pointed to the exciting potential of SMRs, and we are working hard to set up Great British Nuclear and actively engaging industry to develop a delivery model and funding strategy for small modular reactors that addresses market needs, too, providing backing for a technology which, as the noble Lord said, promises to make nuclear quicker, cheaper, and easier to deploy. It is an industry in which the UK is very much at the very cutting edge globally.

My noble friend Lord Reay mentioned the important role of oil and gas. I also recognise, as I have stated many times in this House, the role of our own North Sea gas reserves, to ensure security of supply as we transition to net zero. As other noble Lords mentioned, it is a transition, and we will very much need gas during that transition. This exemplifies our whole-system approach to meeting our net-zero ambitions, where we tackle this most complex of challenges and drive forward technological developments on all fronts. That includes technologies such as carbon capture, usage and storage. The noble Lord, Lord Birt, highlighted the importance of CCUS, which does not just offer a green alternative for our heavy industries and a way of securing our electricity sector through decarbonising natural gas usage but opens up the possibility of delivering negative emissions through greenhouse gas removal.

As the Climate Change Committee has observed, CCUS

“is a necessity, not an option”.

We are determined to deploy it in a way that is designed to drive value for money for taxpaye1rs and consumers. It is a priority for this Government and we are progressing at pace. We will invest up to £1 billion to establish carbon capture and storage in up to four industrial clusters by 2030. The first two clusters have already been selected and, in August, we published a shortlist of associated projects taken forward into the track 1 due diligence phase. Further detail on the track 2 process will be set out later this year.

We are working to deliver the CCUS business models. In November, we published the dispatchable power agreement and, in December, we published the hydrogen and industrial carbon capture business models along with an update on carbon capture and storage network codes. CCUS also provides a way to power up the production of low-carbon hydrogen, a potential fuel of the future where, again, our expertise puts us right at the cutting edge. We have confirmed our intention to proceed with a producer-focused hydrogen business model, which will be critical to unlocking private investment in new low-carbon hydrogen production. We are supporting fuel switching to hydrogen in industry through nearly £400 million in energy transformation funding; we are also working with industry and regulators on hydrogen heating.

The noble Baroness, Lady Northover, noted the role of heat pumps. We are investing here and in the boiler upgrade scheme; I was happy to give evidence on that to the noble Baroness’s committee recently. The scheme provides financial support for the installation of low-carbon heat technology, primarily heat pumps, in homes and small non-domestic buildings to help support the transition away from fossil fuel heating. The scheme offers an upfront grant payment to help customers overcome the high upfront capital cost of low-carbon heating technologies, which will be crucial in the transition away from fossil fuel systems.

This winter has shown us just how important energy efficiency is for bringing down bills for British households. That is why the Government have so far committed to spending £6.6 billion in this Parliament on decarbonising buildings. Much of the work will be led by our new Energy Efficiency Taskforce, further details of which we will announce shortly. This will spearhead a new national effort to reduce energy demand and achieve our ambition to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030.

In his opening speech, the noble Lord, Lord Hollick, recognised the crucial role of investment. Since March 2021, the Government have committed a total of £30 billion of domestic investment for the green industrial revolution. Over the next 15 years, we will work with the private sector to facilitate investment of something like between £280 billion and £400 billion in the power system in technologies such as offshore wind, hydrogen, energy storage and nuclear. Our Ten Point Plan for a Green Industrial Revolution, together with the Net Zero Strategy and the British Energy Security Strategy, are already expected to drive an unprecedented £100 billion of private sector investment and support 480,000 jobs by 2030. Bloomberg New Energy Finance estimates that, in 2021 alone, around £24 billion of new investment was committed in the UK across low-carbon sectors.

Last year, the Government published investor road maps on electric vehicles, hydrogen, CCUS and the aviation sectors. We are committed to publishing a comprehensive update to our Green Finance Strategy in the first half of this year. As noble Lords will know, we are also progressing the Energy Bill, which will help to liberate private investment in clean technologies, protect consumers and reform the UK’s energy system so that it is safe, efficient and resilient.

On the strategy and policy statement, as noble Lords would expect, the Government have prioritised work in relation to high global gas prices recently. We are making progress and have now completed the first-stage consultation with the devolved Administrations and Ofgem. Since the change of government, we have restarted work on the statement and are preparing for a public consultation in the spring.

My noble friend Lord Reay highlighted the critical role of Ofgem. The report also recognises Ofgem’s important role in enabling the net-zero transition. Its primary statutory duty is to protect the interests of existing and future consumers, which of course includes their interests in the reduction of greenhouse gases. The Government continue to maintain that an additional net-zero duty for Ofgem is not necessary.

I agree with the noble Baroness, Lady Donaghy, and others on the Industry and Regulators Committee, about the importance of effective scrutiny and effective governance arrangements. Our current governance arrangements are effective, and we continue to evolve and strengthen our overall approach, taking into account the recommendations of the committee’s report, the Public Accounts Committee, the NAO and other bodies.

I hope that the noble Baroness, Lady Blake, appreciates that I cannot say too much about the Cumbria mine, but I assure the House that I understand the strength of feeling of many Members on that.

The noble Lord, Lord Whitty, commented on energy prices and reflected on how the world has changed since the report was published. Since then, we have stepped in to support the British people and households with unprecedented support to help them to pay their energy bills. On fairness and affordability, the Government’s plan to publish a call for evidence was somewhat superseded by the turn of events and the announcements on energy price support over the last six months, including the decision to suspend the so-called green levies through the energy price guarantee.

The noble Lord, Lord Bilimoria, asked about the programme of hydrogen village trials. In May, the Government and Ofgem announced that Cadent and NGN’s proposals for potential hydrogen village trial locations in the two shortlisted areas, one in Redcar and one in Whitby, near Ellesmere Port, would be developed in more detail. We expect to make a decision on the location of the selected village trial later this year.

The noble Lords, Lord Whitty and Lord Birt, and the noble Baroness, Lady Blake, commented on and noted the publication of the Skidmore report, which was commissioned and welcomed by the Government. We will of course reply to that later this year. The Government remain committed to achieving net zero by 2050 by pursuing a pro-business and pro-growth approach to meeting our target and ensuring that the costs, as well as the benefits, are shared fairly, protecting consumers, workers and businesses. The target remains a government priority, and, as many Members observed, the net-zero transition will provide huge opportunities for jobs, investment, innovation and exports.

We have already achieved a lot on our road to net zero: between 1990 and 2019, we have grown our economy by 76%, at the same time as cutting emissions by over 44%, decarbonising faster than any other G7 country. I know that many noble Lords want to go further and faster, but we should recognise that we have already achieved a lot. The Government will carefully consider the proposed recommendations and will respond to the review later in the year.

The noble Lord, Lord Whitty, mentioned the role of the future system operator. Net zero is creating new challenges for our energy system, and it is crucial that the system is managed in a way that promotes a safe and secure energy system and that the best possible advice is available to inform the many crucial decisions that will be needed. The FSO will also have responsibilities in both the electricity and the gas systems, which will bring together the planning of both systems to drive competition and maintain a robust and secure system during the important transition to net zero. The FSO will be regulated by Ofgem and will provide accountability and a known framework for sector engagement. Its funding will be allocated through the price-control process, also managed by Ofgem. It will serve as an expert body, with comprehensive understanding of the system and its inner workings, adopting a holistic view to achieving net zero while maintaining energy security.

The Government are committed to ensuring that the costs of the UK’s energy transition are fair and affordable for all energy consumers. Recent rises in wholesale energy prices have added pressure to energy bills. The Government understand the difficulties that households and businesses face, and we have taken comprehensive action to support energy consumers. Our focus continues to be on providing robust support for energy consumers: for households, through the energy price guarantee until March 2024, plus further targeted support for the most vulnerable households, and for non-domestic consumers through the energy bills relief scheme until March 2023, and the energy bills discount scheme for the following year.

The Government are extending the energy price guarantee from April 2023 until April 2024 so that the typical household will pay an average yearly energy bill of £3,000— we emphasise that that is an average, not a cap—and are continuing to support UK businesses through the energy bills discount scheme. Alongside support for households and businesses, the Government are working to ensure that energy bills remain affordable in the long term. Our exposure to volatile gas prices underscores the importance of the plan, which I think the whole House agrees will build a strong, home-grown renewable energy sector. The Climate Change Committee agrees that our net-zero strategy and the British energy security strategy represent comprehensive and viable plans for reaching our world-leading target of eliminating our contribution to climate change by 2050, which we are well on the road to implementing.

This Government have a clear vision and a clear strategy for a transformed clean energy system, and the drive to continue that, delivering for the British people.