Net Zero (Industry and Regulators Committee)

Lord Hollick Excerpts

Friday 20th January 2023 Lords Chamber

Moved by

[Lord Hollick]

That this House takes note of the Report from the Industry and Regulators Committee The net zero transformation: delivery, regulation and the consumer (1st Report, Session 2021-22, HL Paper 162).

[Lord Hollick (Lab)]

My Lords, I am pleased to introduce this debate. I thank our team, Matthew Manning, Holly Woodhead, Dominic Cooper and Itu Osupeng, for their valuable contribution to the work.

Our work started 18 months ago and our report was published a year ago, just as Russia invaded Ukraine, sparking an energy bills crisis and showing what can happen when a country chooses to weaponise its energy exports. The impact of that invasion on energy security and prices strengthens the need to accelerate the transformation to a net-zero energy system that increases domestic production and reduces our reliance on importing fossil fuels from authoritarian countries. It will also lead to a material reduction in our ongoing energy costs.

The Government have set out a number of ambitious targets, including achieving net zero by 2050 and a decarbonised energy system by 2035, which will require a wholesale transformation of our entire energy system. The Climate Change Committee told us that, to achieve these targets, the level of investment will need to increase from £10 billion a year in 2020 to £50 billion a year from 2030 to 2050. Funding the cost of meeting these targets will rely heavily on the appetite of pension funds, overseas investors, the private sector and individuals to invest, and that depends on the Government putting in place policies to encourage and provide certainty for businesses to make these investments.

We asked the Government to set out a road map to deliver the energy mix they envisage for meeting their targets in a secure way, including setting out the funding structures and business models they aim to rely on. We called for clarity from them on the business model for hydrogen and its role in heating; business models for carbon capture and storage, long-duration storage technologies and small modular reactors; funding to support the energy efficiency of homes and the installation of heat pumps; and a review of the infrastructure challenges to deploying offshore wind. Given the potential for technology to develop in unforeseeable ways, this road map needs to be dynamic and adaptable.

We were told that gas will be needed as an energy source up to 2050. We asked the Government to explain the role they intend for gas in the future energy system, including from our own domestic resources. In their response, they promised a range of initiatives and guidance in 2022, few of which have materialised. We wrote to the Secretary of State in December requesting an update on the progress on 14 of those initiatives, to be provided in time for consideration in today’s debate. Unfortunately, Davos intervened and delayed the response until next week, but the evidence to hand shows that delivery is taking place at a snail’s pace—and this against a background of long lead times to build critical elements of the new energy system. Offshore wind infrastructure can take up to nine years and nuclear power stations can take 15 years or longer.

Then, there is the big question: who pays for the huge upfront capital cost of the transformation in order to provide certainty for businesses and households to budget? Currently, much investment in decarbonising the energy system is funded through charges on bills, including the costs of upgrading the grid and building new nuclear power stations. This funding is regressive, bearing down most heavily on those households that are least able to pay. We urged the Government to consider the full range of funding options, including the UK Infrastructure Bank, the British Business Bank, carbon pricing, co-investment, investment subsidies, investment tax relief and contracts for difference. We called on the Government to reconsider their opposition to the use of government borrowing, given its suitability for financing investments with high upfront costs that are to be followed by attractive returns over the following decades.

We found that the scale of the transformation requires urgent action across the economy and across a range of government departments and public bodies, including regulators. Currently, there is insufficient focus and co-ordination, as well as an absence of decisive leadership in government. We proposed creating an expert task force, following the example of the Vaccine Taskforce, that could take responsibility for strategic planning, departmental co-ordination and the monitoring of delivery by all government departments, agencies and business partners; the USA recently appointed a net-zero tsar to a similar role. We believe that this approach avoids unnecessary bureaucracy and provides the decisive leadership to deliver in a rapidly changing environment. The task force will need to address politically sensitive matters, including public spending commitments, so it must be at the heart of government and report directly to the Prime Minister.

Ofgem, the energy regulator, has an important role to play through its regulation of energy networks and suppliers and, of course, in setting prices for customers. Witnesses told us that Ofgem was overly cautious and slow to approve investments to make the energy system ready for the transformation. We therefore recommend that Ofgem’s duties be amended to include explicit reference to the Government’s net-zero target.

Ofgem must satisfy three main objectives of energy policy: keeping bills affordable, maintaining the security of supply and decarbonisation. Finding a balance between these three sometimes contradictory objectives comes down to questions of priorities and trade-offs that only a Government can decide. Since 2014, the Government have repeatedly promised, but so far failed to deliver, a strategy and policy statement to provide strategic guidance to Ofgem. Earlier this week, the Minister told us that it was “upcoming”, but when will it come?

The Government and Ofgem have the responsibility to inform and provide incentives to the public about the changes that they must make to their domestic energy systems. Consumers will want to spread the high upfront costs of heat pumps, for example, on a long-term contract basis, similar to mobile phone contracts. Electric vehicle batteries and other domestic appliances can be set automatically to operate when electricity is at its cheapest. The provision of these new products should form part of the drive to bring about greater competition between energy suppliers to provide added services.

Ofgem’s recent calamitous attempt to introduce competition between suppliers to promote switching has landed a surcharge on all customers to cover the liabilities, now estimated at £3 billion, of the failed new entrants. Fresh from that debacle, Ofgem has recognised the need to add financial and operational oversight to its regulatory duties, but its regulation must become more flexible to allow innovative products and services into the market. These products will help customers to reduce their energy demand, retrofit their homes—which could reduce energy usage by up to 20%—and introduce low-carbon heating, requiring financial support from the Government. Government needs to take the lead and clearly set out what it expects of the public and energy suppliers and what financial support it will provide to help to pay for the necessary changes and investment in our homes.

The Mission Zero review, chaired by former government Minister Chris Skidmore, was published a week ago. It echoes many of our conclusions, including the urgent need for the Government to develop and publish an overarching net-zero delivery and financial strategy and to establish an office for net-zero delivery. Chris Skidmore calls net zero

“the economic opportunity of the 21^st century”

and proposes 129 recommendations to turbocharge the nation’s climate action. More than half of these recommendations need to be acted on this year. He notes that the UK Government are

“not matching world-leading ambition with world-leading delivery”,

and we agree.

The US, China and the EU are investing heavily in net-zero technology and manufacturing. By contrast, our Government have yet to produce their net-zero industrial strategy. A modest number of investments have been made, but much more is required. Without that investment, we will remain importers of net-zero technology and miss out on the opportunity to create a domestic industrial sector, as the bulk of the significant demand created in the economy to source the new energy system will be spent abroad, only to widen our trade deficit still further. As the Committee on Climate Change noted in its last progress report to government, “important policy gaps remain” and

“Tangible progress is lagging the policy ambition”,


with “little concrete progress” on “cross-cutting enablers” of the transition.

The most important conclusion of these three reports —ours, Chris Skidmore’s and the Climate Change Committee’s—is that action is needed today. There are only 27 years left to undertake a fundamental change in the way that our economy works and to secure our energy supply at significantly lower prices, to the great benefit of all citizens and to provide a welcome boost to economic growth and social investment. The lack of a clear and consistent strategy and policy and the sluggish pace of delivery will lead to delay and missed opportunities. I beg to move.

--- Later in debate ---

[Lord Hollick (Lab)]

I thank all speakers today for their contributions. There is a theme of “Get on with it. Don’t go down the pub”. I think the Government have indicated—the Minister did in his remarks—that after a regrettable delay, we will receive a letter responding to the queries we made. I hope that will be an opportunity to discuss and debate the responses further.

The Minister also indicated that the strategy and planning document and the fairness and affordability work are under way and that we can expect them shortly. He mentioned that there was a consultation process that included the regions to be involved. One of the things that comes through very strongly from the debate and the work we have done is that this is quite the biggest challenge the country has faced. It is on an enormous scale and is going to last 27 years. It is unlikely, I hope, that the same Government will be in office throughout those 27 years, so it is very important that we build a cross-party coalition for this. That is essential if we are to attract investment from overseas. Our reputation as a reliable, safe and predictable country to invest in has, over the past few years, taken a bit of a knock, so it is important that when the Government publish their plans, they reach out across Parliament and across the nations and regions of the UK to get buy-in and to make sure that everybody knows that we are all heading in the same direction. Of course, the details will change and technologies will change and develop, but I urge the Government to hurry up and to make sure that they have consulted and got broad support from the nations of the UK and the other parties, but also that they have reached out to consumers and have them on board.

Motion agreed.