Internet Activity: Energy Use
Lord Lilley Excerpts(6 days, 18 hours ago)
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Captain of the King’s Bodyguard of the Yeomen of the Guard and Deputy Chief Whip (Baroness Wheeler) (Lab)
We will hear from the Green Party.
Lord Hunt of Kings Heath (Lab)
My Lords, in wishing to develop their projects, these are the matters that data centre operators have to keep under consideration. If we are interested in the growth of the UK economy, we should welcome the potential in the UK, and build on what has already been achieved, through data centres and through artificial intelligence. We should look at the amount of money that has been spent in those areas and at the number of highly skilled jobs that are being used to employ many good people.
Lord Lilley (Con)
My Lords, will the Minister explain why electricity in this country is more expensive than in any other OECD country?
Lord Hunt of Kings Heath (Lab)
My Lords, I think the noble Lord is in a better position to explain, since that was the position we inherited from his Government. It is our view, as well as that of the Committee on Climate Change, NESO and many other bodies, that the best way to get stability and then reductions in prices is to move fast to clean power.
Electricity Capacity Mechanism (Amendment) Regulations 2024
Lord Lilley Excerpts(1 week, 6 days ago)
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The Minister of State, Department for Energy Security and Net Zero (Lord Hunt of Kings Heath) (Lab)
My Lords, this instrument was laid before the House on 18 November 2024. It seeks to revoke and alter several provisions in assimilated Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity, relating to the capacity market. For ease, I will refer to this as the assimilated electricity regulation. The instrument makes targeted, technical amendments which are intended to support the continued operation of the capacity market, Great Britain’s main mechanism for ensuring security of electricity supply. It does not introduce any practical changes to the operation of the capacity market.
Before outlining the specific provisions of this draft instrument, I will briefly provide some context. Great Britain’s electricity capacity market was introduced in 2014 and is designed to ensure that sufficient electrical capacity is operational and on the system to meet future predicted demand, thereby maintaining security of supply. The capacity market scheme provides all forms of existing and new-build capacity with the right incentives to be on the system to deliver when needed. It covers different types of electrical capacity, including generation, storage, consumer-led flexibility and interconnection capacity.
Through capacity market auctions held annually one year and four years ahead of delivery, the aim is to secure the capacity needed to meet future peak demand under a range of scenarios. This is based on advice from the capacity market delivery body—the National Energy System Operator. Capacity providers which are successful in the auctions are awarded capacity agreements, which range in duration from one to 15 years.
The capacity market was introduced in 2014. Since then, it has contributed to investment in just under 19 gigawatts of new, flexible capacity needed to replace older, less efficient plant as we transition to a net-zero economy. The capacity market was originally approved under European Union state aid rules for a period of 10 years. Following the United Kingdom’s withdrawal from the European Union, a requirement in EU law for approval of up to 10 years was brought into domestic law as part of the assimilated electricity regulation. To date, the capacity market has been successful in ensuring that Great Britain has sufficient electrical capacity to meet demand and continues to be required to maintain security of supply and provide confidence to investors.
On the detail of the instrument, it revokes and alters a number of provisions relating to capacity mechanisms in the assimilated electricity regulation, including Article 21.8, which requires that
“Capacity mechanisms shall be temporary”
and
“shall be approved … for no longer than 10 years”,
and other references to such mechanisms being temporary. The instrument also revokes provisions that either are no longer considered to be necessary or require minor correction following the UK’s withdrawal from the European Union. We are seeking to make these changes so that our post-EU exit legal framework reflects the continuation of current arrangements for maintaining a secure electricity supply, since there remains an ongoing need for the capacity market to ensure sufficient investment in reliable electricity capacity.
Furthermore, following the UK’s withdrawal from the European Union, the domestic subsidy control regime was introduced. The subsidy control regime does not require subsidy schemes to be granted an approval or limited for a specified period. Therefore, the approval requirement in the assimilated electricity regulation does not reflect our post-EU exit arrangements. Of course, it is important that we keep the capacity market under review and there are multiple controls set out in domestic legislation, all of which will be retained. This includes a statutory requirement for my department to review the capacity market regulations every five years, which provides an opportunity to review the need for the scheme. Ofgem also undertakes an independent five-yearly review of the capacity market rules. Furthermore, the Secretary of State can decide not to hold a capacity market auction. These embedded controls all remain as part of the wider domestic capacity market legislative framework.
In conclusion, this draft instrument revokes and alters certain provisions related to the capacity mechanism in the assimilated electricity regulation. This includes a requirement for an approval lasting no more than 10 years, as well as references to capacity mechanisms being of a temporary nature. These changes are being made to ensure that our domestic legislative arrangements reflect the continuation of the capacity market, which is Great Britain’s main mechanism for ensuring electricity security of supply. I beg to move.
Lord Lilley (Con)
My Lords, I want to use this as an opportunity simply to ask a question of the Minister. Why do we not take the advice of Professor Dieter Helm, in his review of energy policy, which was that instead of us providing the capacity mechanism centrally, we require anyone providing electricity into the system—wind generator, solar generator or whatever—from an intermittent source to provide firm power, in other words to pay for some capacity for the times when the wind is not blowing? If that were done, this whole arrangement would be unnecessary. We would have a much clearer idea of the total cost of intermittent energy if the supplier were also paying for some of the back-up capacity that is necessary to meet the occasions when intermittency prevents delivery of the power.
The only argument I have heard against this is that, if you do it wind farm by wind farm, the aggregate amount of capacity would be statistically greater than is necessary to meet the fact that some wind farms will be producing when others are not, but that surely can be overcome by saying that a certain statistical proportion of the necessary capacity should attach to any intermittent generator. Then we would have a more rational, more credible and more manageable system than the one that we have under these regulations.
Earl Russell (LD)
My Lords, this instrument revokes and alters several provisions of the assimilated EU regulations relating to the internal electricity capacity market. The draft regulations make changes necessary for the operation of the capacity market following our withdrawal from the European Union and they revoke the 10-year approval requirements. We do not oppose these changes—I just say that to start with.
Our electricity capacity market was introduced in 2014. The measure is designed to ensure that maximum output is always available and thus that we can maintain sufficient electricity capacity to meet future predicted demand, always ensuring the security of electricity supply. As we have heard, the capacity market covers generation, storage, consumer-led flexibility and interconnector capacity. It is about ensuring the security of this supply at all times. Auctions are held annually, one year and four years ahead of delivery, to ensure that we have supply when we need it and can meet future peak demand in a range of scenarios, based on advice from the capacity market delivery body, the National Energy System Operator.
The capacity market was originally approved when we were part of the EU and was made under the European Union’s state aid rules for a period of 10 years. Following our withdrawal, this requirement was brought in and enshrined in our domestic law as part of the assimilated electricity regulations. The capacity market will continue to be required to maintain the security of supply and investor confidence. This market will be of even greater importance as we seek to decarbonise our electricity generation by 2030 and, at the same time, see an ever-growing increase in electricity demand. The draft regulations revoke the requirement that
“Capacity mechanisms shall be temporary”
and
“shall be approved … for no longer than 10 years”,
and other references to such mechanisms being temporary. The draft instrument also revokes several provisions that require minor correction. As I said, we do not oppose the recommendations in the instrument, but I wanted briefly also to turn to some broader points.
As we seek to reach net-zero carbon generation by 2030 and beyond, the Government have a continued dependency on unabated gas and propose that carbon capture and storage should be used as a key part of our energy mix. Indeed, the clean power 2030 plan has around 35 gigawatts of unabated gas on standby for security of supply, and this requirement for gas capacity will remain throughout the early 2030s until more low-carbon dispatchable power comes on board to replace it. Although required, back-up reserve gas generation that is used intermittently and only when necessary is also very expensive, understandably. The Government have agreed to invest some £22 billion over the next 25 years in carbon capture technology to help make sure that we can have this unabated gas without adding to our greenhouse gas emissions.
The week before last there was a debate in the Chamber on the Science and Technology Committee’s report on long-term energy storage. We have also had a couple of Questions about the Russian shadow fleet and the attack on Baltic power cables. Of course, renewable energy is not always reliable, and everybody knows that it needs to be backed up by a wide variety of other sources to help ensure the security of supply. On that basis, can I ask the Minister about the Government’s proposed energy mix going forward to net zero and beyond? I am a little concerned that we continue to have this requirement: it is basically solar, wind and dispatchable gas backed by CCS and nuclear. Will the Minister say a word about how the Government will keep this mix under continuous review? I encourage them to invest in alternative renewable technologies, such as wave, tidal and geothermal, that are able to provide the dispatchable power that we need. What is the Government’s thinking on that?
We must also ensure that all the wind energy we generate is available and can be used. As I said, there is also a need to radically increase our medium and long-term energy storage, which is available to help us get through periods when other sources of renewable energy are not on tap. I hope that the reforms to the capacity market already announced will help make that happen. More must also be done to reduce demand; as the Government know, the best energy is the energy we never use.
Turning to this SI, I note that, as the Explanatory Memorandum says,
“there is a requirement to review the Electricity Capacity Regulations … at least every five years to determine whether they are meeting their objectives and remain fit for purpose”,
and I note that the Minister said the Government will continue to keep the controls in place. As we are going through such a rapid period of change, we welcome the fact that the Government have brought forward the plan to decarbonise our power generation by five years, but what consideration have they given to the need to review these mechanisms more than every five years? What might trigger that? What is the Government’s thinking on those matters?
Clean Heat Market Mechanism Regulations 2024
Lord Lilley Excerpts(1 week, 6 days ago)
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Lord Lilley (Con)
My Lords, here we have it: 32 pages of regulation to introduce something that some would consider a mere mouse in terms of its impact on this market. After all, it introduces a £500 fine for selling each excess gas boiler, relative to the proportion that is prescribed in the regulation. That £500 is actually quite big relative to the cost of a gas boiler, which is typically around a couple of thousand pounds, even though it is relatively small relative to the cost of a heat pump. None the less, I ask the Minister this: will that £500 fine, which then becomes a marketable instrument, be available to importers? If I have correctly understood how the system will work, someone who exports to this country heat pumps from abroad could sell the certificate that this measure will give them to a domestic producer who has not sold enough electric heat pumps for up to £500—that is a jolly nice subsidy for importers of heat pumps into this country, even if it is not massive.
It is expected that this measure will raise the number of heat pumps sold from roughly 40,500 last year, nearly 3% of the boiler market, to 77,000 pumps—6% of the expected market this year. That is not a huge increase. The Minister said that last year, without the benefit of this measure, the number of heat pumps sold increased substantially. So it will not be a huge increase in the coming year. Why do we think this measure is necessary if these things are proving so attractive and the market is growing anyway? Can the Minister confirm that the 6% target is what is introduced, and that it will continue and persist unless and until he introduces, via further legislation—I also ask him to confirm that this will require further legislation—a higher target?
Failing the introduction of a higher target, any future growth in the market will depend on hopes on the cost of heat pumps coming down as manufacturers find more efficient ways of making them. When I was still in the House of Commons I had a meeting with Octopus Energy, which reckoned that the materials involved in making a heat pump cost about £2,000. Obviously, a huge amount of processing goes into making a heat pump, but it suggested that the potential for bringing down the cost over time was significant. One hopes that will happen. Failing that, the only other thing—we are stuck with the 6% target and this £500 fine—will be the lure of subsidies for consumers to buy heat pumps instead of fossil fuel boilers.
The costs and benefits of the whole procedure are spelled out in the impact assessment. It says the net present value of the costs involved is £195 million. The benefits were put at £220 million, of which those that result from the main purpose of the operation, to reduce carbon, were less than the costs. The total benefit is above the costs only if you allow for the impact it will have on cleaner air. As well as reducing the amount of CO2, which is a very clean thing that we breathe all the time, the reduction in the other impurities put in the air by fossil fuels just about brings it to a net benefit. We are talking about the costs and benefits being roughly the same order of magnitude. Once again, an almost religious fanaticism, which does not take the costs and benefits into account, is driving this policy.
I will make a few observations about the situation in France, because I have a house in France and I observe what is happening there. Two of my French neighbours have installed heat pumps. One in a comparatively small cottage cost over €20,000—not for the pump but for the insulation—all paid by the French taxpayer. Bully for him. Another friend has a rather more substantial old house. It cost the French taxpayer €100,000 to install the heat pump and the necessary insulation. In his case, it would not work for a year because the installers were so busy—because it is free to users—that they would not come back and tell him how to make it work. It took him a long time to find anyone who would. I noticed, when I went round to enjoy his hospitality over the new year, that he had wood fires burning as well.
I sincerely hope that we do not go down the path of subsidising something at the huge costs that the French taxpayer is having to absorb, when the costs and benefits of the whole process, even without subsidies, are so marginal. We do not want to put ourselves as near bankruptcy as the French state is.
Baroness McIntosh of Pickering (Con)
I am grateful to the Minister for setting out the contents of the regulations before us. I am afraid that I share some of the scepticism of my noble friend Lord Lilley. I am grateful to the noble Lord, Lord Hunt, for referring to the warm homes scheme. He is aware of my disappointment that the discount is not going to be revisited, and I say that as honorary president of National Energy Action.
My understanding is that the heat pumps that are the subject of this measure simply are not as efficient as oil-fired central heating. I say that as where I live in the north of England, it is all oil-fired central heating; we are off grid and we cannot use gas. I walked past a surgery in the north of England that did not have just one heat pump; it had fitted three heat pumps, which probably means that one heat pump was not sufficient to generate the heat required.
My understanding—and I would be grateful if the noble Lord, Lord Hunt, could confirm this—is that, without log fires or some other secondary heating, heat pumps heat only to a top temperature of about 16 degrees. If you are retrofitting an existing building, as many of the windows may not be able to accommodate the size of the heat pump or the radiators that connect to it, substantial renovation may be required.
Furthermore, I am grateful to the Secondary Legislation Scrutiny Committee, which highlighted that the starting point referred to by the noble Lord, Lord Hunt, of around 40,500 installations per year is—in its word, at paragraph 56 of its 10th report—“ambitious”. The department expects the scheme to help ensure the installation of at least 77,000 heat pumps a year in existing homes between 2024-25 and 2028-29. I ask the Minister a simple question: is that feasible and realistic?
My noble friend Lord Lilley quoted £2,000 as the cost of an ordinary boiler. I recently got two quotes for a boiler. The boiler itself was not the issue. For the fitting, even that of an oil-fired boiler, you are looking at something in the region of £8,000 to £10,000. I repeat: if you live off-grid in a very rural area, it would be nice to think that heat pumps were an alternative, but, given the state of the current market, I just do not see them as feasible if they heat up to only 16 degrees when, in just the past two weeks, we have regularly had temperatures of freezing or down to minus 10. With those few remarks, I press the Minister to comment on these queries.
Lord Lilley (Con)
They are of course three times more efficient on average—though not necessarily in cold weather. But electricity is four times as expensive as gas per therm.
Earl Russell (LD)
I welcome the intervention and will come back to the noble Lord on his point. During this transition, it will take a huge effort across government and beyond—and beyond the scope of this instrument—to meet the scale of these changes.
The regulations establish the new UK-wide heat market mechanism to promote the development of the market for retrofit installations of heat pumps in existing buildings. The CHMM is to launch on 1 April 2025 and run for an initial period of four years. In the interests of time, I will not go on too much, but there are two big changes from previous proposals. First, they propose to reduce the payment in lieu of any missing heat pump credits to £500 from the first year from the £3,000 proposed by the previous Government. Secondly, the period over which boiler sales are counted has been delayed to give the obligated parties more time to prepare. The Government have said:
“As set out in the consultation response published in November … We have also aligned the periods over which boiler sales and heat pump installations will generate obligations and credits, respectively, providing manufacturers with more time to prepare”.—[Official Report, Commons, Second Delegated Legislation Committee, 13/1/25; col. 4.]
The big change is that the new Minister has engaged and listened to industry and has managed to make some of the adjustments required by working in partnership. This approach has been welcomed by industry. Removing penalties and allowing more time is pivotal to finding common solutions. The approach of giving manufacturers more time to scale up the supply chain and expand sales without penalising customers is good and needs to continue while hitting some very ambitious and fast-approaching targets.
The ongoing relations with manufacturers and industry are clearly key to delivering this policy. How do the Government intend to continue these better relations while making sure that targets are met and that unnecessary costs are not passed on to consumers? I want to make it clear that this is not a boiler tax. The Conservatives, when this was their policy, were very keen that those words were not used to describe it.
Review mechanisms and relations with industry are crucial to delivering this policy. I note that any adjustments would require further legislation and that would change the whole impact assessment. Any increases in the target in future schemes would require further secondary legislation. I note that the Government have said that they will not force consumers and that this is about working in partnership. My worry is about the confidence that the Government have in the ability to deliver the volume of heat pumps required in the time available.
I would like briefly to ask the Minister about some wider points. The cost of getting a heat pump is still a barrier to entry. I welcome the fact that the Government have continued the £7,500 grant, which, to their credit, the Conservatives not only introduced but increased. Since that increase, we have had a remarkable uptake in the number of heat pumps. But, as we have heard, installing a heat pump is about a system-wide change. It is more than just installing a heat pump; often it involves under-floor heating and changing radiators. On average, this seems to be costing consumers at least an additional £5,000.
We have had some conversations as part of the GB Energy Bill about green mortgages. Are the Government considering finding ways that the additional costs, not just of heat pumps but other renewable energy technology, can be added to mortgages? Quality and innovation are clearly important as well, as is making sure that these are good-quality products.
The noble Lord, Lord Lilley, intervened on electricity market reform, and to some extent I agree with him. Our electricity is still very expensive—some of the most expensive in Europe. The Government’s policy is to get people away from gas and on to electricity. What plans do they have to make sure that electricity is affordable and to introduce social tariffs for those struggling to pay their bills?
On disinformation, misinformation and ignorance, according to the Government’s own policy document, only 51% of people in the UK know about heat pumps. There is disinformation and misinformation in this space—for example, that heat pumps do not warm our homes enough—so it is important that the Government have a strong public information campaign for the take-up of heat pumps, about what they are, how they work and what they do.
Finally, heat pumps can save the average household £300 a year, so they would go a long way towards Labour meeting its manifesto pledge. I wish the Government well, but these things are complicated.
Lord Lilley (Con)
I am grateful to the Minister for letting me intervene and for answering a number of my questions. On his point about costs coming down, is he suggesting that they will come down in Britain because they are artificially high to start with, or because we will discover technological ways of producing it that have not been found in continental countries, where they already have large-volume manufacturing? That is one thing.
Could the Minister also respond to another point I made, admittedly in rather garbled form, so I can excuse him for not replying? The correct figures in his document are that the costs of this process are £195 million, while the benefits from reduced carbon emissions are £187 million—less than the costs—but, fortunately, that is supplemented by £34 million of benefits from cleaner air. The whole thing is pretty marginal. Could he comment on the marginality of the cost benefits of this extraordinary regulation?
Lord Hunt of Kings Heath (Lab)
My Lords, surely the point is this: we have to decarbonise our home stock. At the moment, 80% of homes use gas for heating so, as part of our plans towards decarbonisation and moving on to net zero, this is an essential mechanism that we need to take forward. As for the cost-benefit analysis, I do expect the cost of the heat pumps to come down in relative terms, in future. I am not prepared to engage with the noble Lord on the exact whys and wherefores of how that might happen. I just look in history—
Lord Hunt of Kings Heath (Lab)
No. The noble Lord referred earlier to mystical or quasi-religious belief. I regard myself as a high church Anglican atheist, and I do not bring a fervour to this from belief; I think that the rational response to what we are doing, and to the risk of climate change, is so huge that we have to use these kinds of mechanisms and do something about housing and the current use of gas. This is the way that we think we need to go forward, but we will keep it under review and look closely at costs, manufacturing capacity in this country and the public’s ability to ensure that they have good installations. Overall, I commend these regulations to the Committee.
Great British Energy Bill
Lord Lilley ExcerptsMonday 13th January 2025
(2 weeks, 6 days ago)
Lords ChamberRead Full debate Great British Energy Bill 2024-26 View all Great British Energy Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 43-III Third marshalled list for Committee - (9 Jan 2025)
Lord Lilley
“(1A) The Secretary of State must give a specific direction to Great British Energy that it must carry out a review on the use of long duration energy storage by Great British Energy and its projected costs.(1B) The Secretary of State must lay a copy of the assessment made under subsection (1A) before Parliament.”Member’s explanatory statement
This would require GB Energy to carry out a review on the use of long duration energy storage by Great British Energy and its projected costs.
Lord Lilley (Con)
My Lords, I rise to move my Amendment 85I and to speak to Amendment 131 in my name and that of my noble friend Lord Reay. Nature abhors a vacuum and Parliament abhors a blank piece of paper, which is what the Bill, in effect, creates in the way of the GBE company. It is a company that has no clear purpose, limits or functions, so it is our duty to write in some clear purpose and constraints, and that is what my amendments, like many tabled by other noble Lords, try to do.
Amendment 85I requires the Secretary of State to review
“the use of long duration energy storage by Great British Energy and its projected costs”.
Amendment 131 says the Act may come into force only when the Secretary of State has published the review.
The Science and Technology Committee of your Lordships’ House produced a report entitled Long-Duration Energy Storage: Get On With It, which we debated last Thursday. This recognised—indeed, took it as axiomatic—that, if we replace fossil fuels entirely with intermittent wind and solar, we will need storage to meet periods when demand exceeds supply. It will be absolutely essential to have that storage. It is not just short-term storage to cover daily peaks in demand, nor even for the medium-term periods the Germans call Dunkelflaute, when it is cold, windless and sunless, which it invariably is at night; there can also be whole years when supply is below average. So some storage needs to be of long duration.
As well as establishing that there will be a need for such long-duration electricity storage, the report evaluated different technologies providing that storage. It concluded that the best approach would be that, when wind and sun are generating more electricity than we need, instead of turning off the windmills, we should use the excess electricity to electrolyse water to create hydrogen that could then be stored in large salt caverns—largely under Chester, I gather—to be used when needed. The committee acknowledged that, by the time the electricity has been converted into hydrogen and then burned to generate electricity again, about 60% of the energy has been wasted—but that is better than wasting all the excess electricity that would be produced by wind.
Unfortunately, the report of the Select Committee provided only the widest possible range of estimates of the likely need for storage. It is literally almost a priceless report, in the sense that it reaches no conclusions of its own as to the likely price of storage, let alone the amount by which it will increase the price of electricity. So Great British Energy will not be able to rely on the Select Committee’s report and will need to carry out its own review, as specified in these amendments, into the amount of storage needed and its cost.
The Select Committee report does however cite a report by the Royal Society that indicates that the potential scale of costs is huge—the capital costs in particular. It says that the capital expenditure required for wind and solar to meet the increased demand when transport and heating have been electrified will be some £210 billion. On top of that, there will be additional capex for long-duration storage of some £100 billion, and investment to strengthen and extend the grid to reach the storage of an additional £100 billion. So, the cost of storage plus grid strengthening will effectively double the capital costs of a fully renewable generating system based on wind and solar. It is, incidentally, hard to see how that can reduce our electricity costs, as the Government originally proposed and claimed ahead of the election was the purpose of GBE. So I am not surprised that the Minister rejected the amendment from my noble friend Lord Offord requiring Great British Energy to set out how it would contribute to the objective of reducing costs.
Clearly, investments on the scale that the Royal Society envisages should not be undertaken lightly. It is highly unlikely that GBE, capitalised at £8.3 billion, will be remotely capable of crowding in private sector capital of £100 billion just for long-duration energy storage alone.
Indeed, witnesses to the report and noble Lords in the debate cast doubt on whether a credible way could be devised to remunerate private sector investors to make it worth their while to provide the storage capacity. The suggested scheme involves setting a floor and cap for the revenues generated by providers of stored hydrogen when they sell and buy electricity during periods when it is needed. Unfortunately, owners of storage will want to maximise their revenues by arbitrage trading as frequently as possible when electricity prices rise and fall. This may mean that they have insufficient gas when a period of shortage of renewable energy continues for a long time, which is precisely what this long-duration energy storage is intended for.
Those in the debate and, indeed, on the committee who pointed out that this problem exists tended to conclude that the logical option was that long-duration electricity storage would have to be provided and owned by the state. I am not an enthusiast for nationalisation but nor am I a doctrinaire opponent if it is indeed the least bad option, as may well be the case. If it is the case, can GBE be the vehicle that would help create such a state holding company? It scarcely seems credible given its capital base of £8.3 billion and potential investment required of £100 billion. Yet, without long-duration energy storage, it will be impossible to replace fossil fuels by renewables. So, the Government must somehow tell us how, through GBE or otherwise, they are going to finance this long-duration energy storage.
The Royal Society report on which the Select Committee relied made some heroic and barely credible assumptions. The costs and deficiencies of electrolysers and gas turbines needed to convert hydrogen back into electricity would fall dramatically, in some instances by up to 90%, over the period between now and 2050. The report that this amendment would require would also surely have to consider whether it might be more cost effective to defer investment in these technologies until those reductions in costs and efficiency improvements had materialised.
That would mean relying on gas, purely as a backup, for a few extra years, but the extra emissions would be small and negligible in the grand scheme of things. The Secretary of State for Energy Security and Net Zero has already reinterpreted decarbonising electricity production by 2030 to mean that, rather than reducing emissions by 100%, it will involve reducing emissions by only 95%. There is a precedent for anticipating a degree of flexibility. I hope, therefore, that any report that this amendment requires GBE to produce will consider that option.
We should remember that when Dieter Helm analysed the Government’s energy policy, he concluded that we have wasted up to £100 billion of taxpayers’ money so far by investing prematurely in immature technologies rather than waiting until they became sufficiently efficient for us to get advantage from that greater efficiency. These amendments would enable us to know the answers to some of those questions before GBE goes ahead and spends any taxpayers’ money.
Lord Swire (Con)
My Lords, I rise briefly to support the noble Lord, Lord Lilley, who makes some extremely good points in trying to put more meat on the bone of the Government’s proposals. It seems to me in a macro way that the Government’s energy policy is all over the place, not least their new desire to attract Chinese investment—have we not been there before? It is causing great concern, not least now to the Security Service.
That apart, whatever the Government decide to do, they will have to dramatically increase storage, as we have heard today. However, there is precious little in this Bill to tell us how that storage will be dealt with, where it will be located, or how that will be handled by planning. We have just heard that some of the storage will be below ground in Cheshire. Other storage will, of course, be above ground.
Lord Hunt of Kings Heath (Lab)
My Lords, first, I welcome so many Members of the Opposition to our debate and I look forward to their continuing interest in our deliberations going on this evening. I must confess to being somewhat at a loss, because all the points raised in this debate have been raised tonight in other amendments. What we are seeing is clearly a filibuster, and the degrouping of so many of these amendments on Clause 6 is the visible evidence of this. We have already had a debate on energy storage, which the noble Lord, Lord Murray, moved. We have already debated power lines and planning environmental protections, and we have discussed nuclear power, SMRs and AMRs. I simply do not understand. What is the point of having yet another debate on these issues, which amount to Second Reading discussions about the Government’s energy policy? We are debating Clause 6 directions. This is a backstop provision, normal in Bills of this sort in relation to the bodies that we are talking about, and it is quite inappropriate for us to seek to micromanage GB Energy in the way noble Lords have suggested.
Lord Lilley (Con)
My Lords, I am grateful to the Minister for his non-reply to the debate. The answer to his point about whether it is necessary is that it is impossible to overstate the importance of cheap and reliable energy to the economic growth of this country. If the only way we can have reliable energy is by having hugely costly energy, either because, as the noble Lord, Lord Reay, said, to ward off delays as we saw in recent days costs eight or 10 times what it normally costs or because to prevent that sort of risk involves spending hundreds of billions of pounds, that is hugely important. I am very sorry that the Minister, whom I normally praise for his replies, which are usually fulsome and effective and substantive, has avoided addressing those points, because they are crucially important and they have many aspects and it is important that those many aspects be investigated in the course of these debates in Committee. Obviously, I shall withdraw my amendment, but I hope that none the less that we will force the Government to think seriously about these issues before carrying us further down a route which could make our already very expensive energy even more expensive.
Great British Energy Bill
Lord Lilley ExcerptsMonday 18th November 2024
(2 months, 2 weeks ago)
Lords ChamberRead Full debate Great British Energy Bill 2024-26 View all Great British Energy Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 29 October 2024 - (29 Oct 2024)
Lord Lilley (Con)
My Lords, it is a great privilege and pleasure to follow and pay tribute to my noble friend Lord Mackinlay of Richborough. His was an outstanding maiden speech from an outstanding new Member of this House—robust, inspiring, informative, energetic and with a touch of provocation, which he uncharacteristically toned down.
My noble friend Lord Mackinlay is a friend whom I knew before his illness to be as courageous intellectually as he proved to be physically. He is a fighter and a winner, and, mercifully, his lovely wife Kati is also a fighter. We are grateful to her for ensuring that my noble friend is with us today. He entered the Commons in 2015 for South Thanet in a forcefully fought general election, when both Nigel Farage and the comedian Al Murray had the temerity to stand against him. I am glad to say that he saw both jokers off and had the last laugh.
As I rapidly discovered when I got to know him after he entered the House in my last Parliament as an MP, he is refreshingly different from so many of the new intake. He is not just a spad and a PPE graduate, like so many of them; he has a science degree and an accountancy qualification. So he takes into account facts and figures, which is terribly refreshing in Parliament. Noble Lords will find that they have to contend with his facts and figures in debates to come.
My noble friend told me that his mother gave him a piece of advice early on in life: above all, to your own self be true. That he always has been, and it is perhaps one reason, he says, why he did not become a Minister in the House of Commons: he was quite prepared to back up his beliefs with his vote, and clearly the Whips did not think he would cease to do so if they tried to buy him off. But he had more influence in the House of Commons than many who did have a period on the Front Bench, as most of them did during the rapid turnover in the last Parliament. This influence was not least through the Net Zero Scrutiny Group, which I have the privilege to belong to, as well as the Common Sense Group and the European Research Group, in all of which he was an influential person. We look forward with enthusiasm to hearing his combative and well-informed contributions to this House in the years ahead.
I also pay tribute to the noble Baroness, Lady Beckett. She, like me, was President of the Board of Trade, and we presidents must stick together. Probably not all presidents would meet her approval currently, but I have always admired her contribution in the House of Commons over an enormous period of time.
I want to welcome this Bill, which is essentially a prospectus—an incredibly attractive investment opportunity. I use the word “incredibly” advisedly. It is backed by 22 of the most prominent people in this country—members of the Cabinet. True, none of them has ever launched a company before. Indeed, none of them has ever worked in the private sector. But that perhaps gives them a clarity of view which enables them to see investment prospects that have escaped the attention of commercial businesses up and down the country.
The principal promoter of the Bill is of course the Secretary of State, Ed Miliband. It can be said that no company he has been involved with has ever failed—because he has never been involved with any company. He will have the power to issue directions to the board about anything. There is no limitation in the Bill on what he can direct them to do or not to do. He has said, however, that he will use that power sparingly—which will be a disappointment to the board: only rarely will it have his superior wisdom to guide it on the true path.
We are asked to endorse this prospectus before the priorities and strategy of the new company have been published: they will be in due course, but they have not been yet. Investors may be concerned that the Government are putting up costs in the sector in which all the investments are to be made but are saying the prices are going to come down by some £300 per family. Investors might think, “Well, how on earth is it going to make a profit, with rising costs and falling prices?”. But do not worry, the Government have abandoned their promise to cut prices by £300 per family and have rejected all amendments in the other place which would have made that part of the duties of the company, as promised by the Labour Party at the last election. Anyway, as a nationalised company, it will clearly bring the cost control of HS2 and the profit-making capacity of the Post Office to the businesses in which it invests. That must give us all great confidence for the future.
I do not see noble Lords reaching for their chequebooks to invest in this—although clearly the noble Baronesses, Lady Winterton and Lady Hayman, will be, as indeed will the noble and learned Lord, Lord Falconer. They have all welcomed it and they will be putting in their money in—or they would if they could. Sadly, the Government have concluded that they might not be able to attract equity investors into this rather strange company that will not tell us quite what its priorities and strategies are going to be. I think the only previous company that was ever successfully launched like that was the South Sea bubble company, which said in its prospectus that its purposes would be revealed “at a later date”. And it went on to have initial great success—before the bubble burst.
Setting irony aside, this Government have said that, even though they do not expect to be able to attract investors to put their own money into the company, they are going to take £8.3 billion out of the pockets of taxpayers and put it in. But, more than that, they say it is going to crowd in investment several times that amount into the sector. Will it do so? Yes, it will. I am not being ironic here. It will succeed in attracting other companies to invest alongside it, because other companies will know that, if they invest in projects in which Great British Energy has invested taxpayers’ money, the politicians are not going to let those projects fail. That is why they will be attractive to the private sector: because they know the Government will always come and bail them out, because of the embarrassment of failure. That is why—and the only reason why—a nationalised company such as this can crowd in investment from outside. I think we should all realise that that is the case.
It is significant that the Minister, who spoke with great clarity and little conviction about this Bill, did not give any example of any similar nationalised concern that has ever met the expectations that have been raised for it as they have been raised for this. We know that doing the same thing again and expecting a different outcome is supposedly Einstein’s definition of madness. I suspect that is what we are being asked to vote for today.
Lord Lilley (Con)
I tabled a Question some time ago to ask the Government whether they knew of any peer-reviewed science or any science collected by the IPCC which suggested that there would be extinction of the human race if we did nothing worldwide—not as much as we are doing now, but nothing—and they said that there is no such peer-reviewed science. Why does the Minister rely on alarmism?
Lord Hunt of Kings Heath (Lab)
I am not alarmist at all. I rely on report after report showing the consequences. Shall we turn to our own independent Climate Change Committee? The noble Lord supported the Conservative Government over a 14-year period. I did not see that Conservative Government disowning the independent advice they had received. He might as an individual, but I do not think his Government did. Noble Lords opposite, when they run down organisations such as the Climate Change Committee—or, indeed, the OBR, as they seem to now—need to remember that they listened to and reflected on the advice of those bodies during that 14-year period.
I agree with the noble Lord, Lord Cameron, that if climate change is critical, energy security comes a close second. That is, of course, what makes the Bill so important, so I hear what noble Lords are saying. The noble Lords, Lord Offord, Lord Duncan and Lord Bourne, the noble Baronesses, Lady Bloomfield and Lady Hayman, my noble friend Lord Hanworth, the noble Earl, Lord Russell, and a number of other noble Lords have commented on the structure of the Bill, with concerns about a lack of detail and questions about the accountability of GBE to Parliament, how it is to be reviewed, and its relationship with the national wealth fund, Great British Nuclear, the Crown Estate, NESO, and, as the noble Lord, Lord Bourne, mentioned, the Climate Change Committee.
I also say to the noble Lord, Lord Bourne, that the fact that GBE is going to be headquartered in Scotland of course does not inhibit its UK-wide responsibilities. I have noted what he had to say about investment in Wales.
However, I accept that there are a number of organisations here and I will take it upon myself to write to noble Lords, setting out how we think the relationships will work together, as I think that will inform our discussions in Committee. On the structure of the Bill, noble Lords will know that this was laid in the Commons very soon after the election as an early priority of the Government. Because of that, we have focused, inevitably, on the provisions that are fundamental to the establishment of Great British Energy. Clearly, we are still working through some of the policy issues on which we need to come to a view, including, of course, discussing them with GBE and the devolved Governments. That is why the Bill, to an extent, does not have the detail which noble Lords wish to see.
However, I have listened very carefully. We will come to Committee, and I hope I can respond constructively to some of the issues that noble Lords have raised. Equally, I want to ensure that GBE is operationally independent and able to make its own decisions within the structure of the Bill and the strategic priorities laid down by the Secretary of State. We are listening very carefully to what noble Lords have to say.
As I said to the noble Lord, Lord Howell, last week in our debate on energy, I fully accept that our drive towards clean power by 2030 is but one aspect of the decarbonisation of society in this country and the move to net zero. In relation to transport, heating and industrial processes, this is a huge challenge and one which we are committed to achieving. The noble Lords, Lord Offord and Lord Ashcombe, and the noble Baroness, Lady Bloomfield, asked about the clean power target. There are a number of different ways of reading the report from NESO, but it is quite clear that the number one message from NESO was that it is possible to build, connect and operate a clean power system for Great Britain by 2030 while maintain security of supply. I accept that it is very challenging—there is no doubt whatever about that—and the NESO report contains a number of those challenges. However, this is independent advice; it says that it can be done and we believe it can be done. It is very challenging, but it is doable.
On cost, as the noble Earl, Lord Russell, said, the biggest cost is doing nothing. As the noble Baroness, Lady Hayman, said, the Climate Change Committee has said that the net cost of transition will be less than 1% of GDP over the entirety of 2020 to 2050. The OBR has highlighted that delayed action on reaching net zero will have significant negative fiscal and economic impacts and that acting early could
“halve the … cost of getting to net zero by 2050 compared to acting late”.
I noted also the comments of the noble Lord, Lord Ravensdale, on this.
I come to the Bill itself. The noble Baroness, Lady Noakes, and the noble Lord, Lord Vaux, raised that we have partly used the UKIB legislation as a model for some of the clauses in this Bill. The noble Lord and the noble Baroness were particularly focused on the make-up of the board of directors. The fact is that we have brought in clauses from the Great British Nuclear provisions in the Energy Act. The structure very much follows that. We do not think that it was necessary to put into primary legislation provisions in relation to the board, because this will be covered. It is a company, and so will be encompassed within company law, the code of practice and sound corporate governance. GBE will have a chair and a chief executive officer, both of whom will be accountable to Ministers. It will have a board of directors that follows sound corporate governance practice, including the provisions of the UK Corporate Governance Code and those published by the Financial Reporting Council.
We want GBE and the national wealth fund to work closely together. As Great British Energy scales up, we will set out how the two institutions will collaborate and complement each other. On the issue of crowding out investment, surely my noble and learned friend Lord Falconer was right. The whole point about GBE is to speed up the deployment of mature and new technologies but with a focus on where this can complement existing private sector activities.
I must say that the references that the noble Lord, Lord Lilley, made to HS2 and the Post Office were a bit rich, considering the record of the Conservative Government’s stewardship, or not, over 14 years.
I will come on to Clause 3, the objects, which has drawn quite a lot of comment. I say to my noble friends Lady Winterton and Lord Grantchester and to the noble Lords, Lord Cameron and Lord Naseby, among others, that emerging technologies such as CCUS or hydrogen could be very much part of GBE’s portfolio once it is operational. I noted the comments from the noble Baroness, Lady McIntosh, on waste. On Drax, we had a good run on that a couple of weeks ago, although I may not have convinced noble Lords of the Government’s position. I look forward to discussing storage with the noble Lord, Lord Duncan, and my noble friend Lord Stansgate. I also agree with the noble Lord, Lord Ashcombe, on the potential of floating offshore wind.
We, of course, are reluctant to see a list of technologies. Noble Lords sitting on the Front Bench will be readily aware of the list argument, and it is well taken. If you list, you are at risk of excluding other technologies. One must be very careful not to constrain the ability of GBE in its operational independence and its ability to spot the technologies that need supporting. I do accept, with my noble friend Lady Young, that community energy has huge potential in itself and as a way to leverage public support generally for the kinds of changes that we need to see happen. We certainly believe that GBE will deliver a step change in investment in local community energy projects and will work strongly in partnership with local authorities and community groups to deliver this. I know that local authorities would welcome a much stronger partnership to enable this to happen. I take the point from the noble Baroness, Lady Hayman, and my noble friend Lady Young about biodiversity. I look forward to discussing that further with them and in Committee.
I come now to my favourite topic: nuclear energy. First, we want to make sure that GBN can carry on with its work—the technology appraisal of the shortlisted technologies for the SMR programme is particularly important—and that it will work in complementary ways to GBE without there being duplication of effort. I picked up the important contribution from the noble Lord, Lord Ravensdale. I say to the noble Viscount, Lord Trenchard, that nuclear power is not being underprioritised in my department. I need no persuading of the importance of nuclear energy. It acts as the essential baseload, and when it is aligned with gas that, in future, will be abated by CCUS, we will have the right balance to complement the intermittency of renewable energies.
On nuclear and resources, we have just announced a huge resource allocation to Sizewell C to get it over the next two years. We are working very fast towards final investment decisions over the next few months; we have the SMR programme and we are very excited by the potential of AMRs. I very much take what my noble friend Lady Winterton said about the potential of SMR manufacturing in the UK.
A number of noble Lords mentioned the grid and planning and what they described as the roadblocks to developers. I very much take that point. We have already signalled, in parallel with GBE, our intention to reform the planning system to enhance our grid connections. I take the point about the delays to the connection which developers are suffering at the moment. Clearly, we have to do something about that, but GBE’s main priority will be to help developers get through some of the roadblocks and focus on the energies that need support.
I noted with interest the comments the noble Baroness, Lady McIntosh, made about the impact on farmers and on fishing fleets. I accept that consultation and environmental assessments must continue to be made in any more streamlined planning process and expansion of the grid.
My noble and learned friend Lord Falconer and the noble Baroness, Lady Noakes, raised the question of state subsidies and competition law. As an operationally independent company, GBE will be subject to the same legal and regulatory framework as other entities in relation to subsidy control and competition law, such as the Subsidy Control Act 2022. The Bill does not alter that framework.
I hear what noble Lords say on Clause 5 in relation to strategic priorities and the statement. It is unlikely that we will have published the statement of strategic priorities before Royal Assent, but I have listened to what noble Lords have said. I will reflect on that and I am sure we will discuss it further in Committee. Noble Lords seem to be indicating that they would like to discuss it in Committee.
On power of direction, the noble Lord, Lord Lilley, was particularly assertive that the Secretary of State would wish to take almost micromanagement control. I assure him that that is not the intention. It is a backstop, reserve power.
On the annual accounts and reports, there will, of course, be accountability. The chief executive officer will be the accounting officer. The National Audit Office will oversee. Ministers will answer to Parliament. Select Committees can invite GBE in to give evidence. Noble Lords will debate. We will have Questions and more general debates.
I listened to noble Lords and I understand that they have looked at the UKIB legislation. We will reflect on that, but my noble friend Lady Young is right: there is a balance here between due accountability and not putting a load of bureaucratic micromanagement on this organisation, which is not what we want to happen.
I absolutely agree with noble Lords that we must make the most of the supply chain. I picked up the point about skills and managing the transition in the North Sea.
The noble Lord, Lord Alton—my noble friend, if I may call him that—and I have worked together on these issues. I congratulate him on his work and the huge effort that he has made in Parliament, the influence that he has had on legislation, and the help that he gave me around enforced organ harvesting, particularly in Xinjiang province but in China more generally. At this stage, we expect UK businesses, including GBE, to do everything in their power to remove any instances of forced labour from their supply chains. They should not approve the use of products from companies that may be linked to forced labour. I am very happy to talk to the noble Lord about the energy potential of Merseyside, as he suggested, and to discuss the issues that he raised so eloquently.
I have reached the time limit. This has been a very good debate and I am most grateful to noble Lords. I would like to think that contributions were constructive, and I look forward to debating this in Committee.
EV Strategy: (ECC Committee Report)
Lord Lilley Excerpts(3 months, 2 weeks ago)
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Lord Lilley (Con)
My Lords, it was a great privilege to serve on the committee under the noble Baroness, Lady Parminter. Like her, I am no longer in it. Her departure is greatly missed; I suspect that mine, since I was the grit in the oyster on that committee, was much welcomed by its other members. It is also a privilege to follow the noble Lord, Lord Woodley. He made some important points, which I hope I will be able to suggest—probably to other people’s surprise—are not quite as much of a worry as he suggested.
One of the problems with most Select Committee reports is that they tend to be all words and no numbers. Committees show an extreme reluctance to discuss the costs of their proposals to the taxpayer or the consumer. I was originally trained as a scientist; drilled into us was Lord Kelvin’s remark:
“When you can measure what you are speaking about, and express it in numbers, you know something about it. When you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind”.
It may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the stage of science. That is even more true in economics. If you cannot even estimate the costs or benefits of a policy, you can scarcely claim to have advanced to the stage where you can make policy recommendations.
Happily, this report is not devoid of numbers, albeit that most of the important ones are well hidden and the obvious conclusions that might be drawn from them have not always been drawn. I will focus on some of the key numbers in this report, but none of them appear in the initial recommendations. The upfront conclusions on page 4 use all sorts of euphemisms and verbal circumlocutions to avoid mentioning that they will cost money.
Perhaps I might translate what the report actually says. The first recommendation is:
“Tackle the disparity in upfront costs between electric and petrol and diesel cars”.
That means subsidising or, as the noble Lord, Lord Woodley, remarked, penalising the sale of petrol and diesel cars. The second recommendation is:
“Turbo-charge the charging infrastructure rollout”.
That means subsidise it. The third is:
“Ensure charging is reasonably priced, convenient, and reliable”.
That means subsidising fuel costs further. The report goes on to say that
“the Government must explore options for equalising the discrepancy between the VAT rates for domestic and public charging”.
Now there is no conceivable likelihood that the Government will put up VAT on domestic electricity, so that is a call for VAT on public charging points to be reduced, further increasing the subsidy on fuel costs for electric vehicles. I will return to the important fifth point later, but the sixth point is:
“Enhance UK manufacturing and battery innovation”.
That means more subsidies. The seventh is “Invest in UK recycling”—a new area for government subsidies. And so it goes on.
The problem is that the existing level of subsidies is very high, before we add to them from any of the proposals in this report. You have to get to page 33 or 34 to find out how much the subsidies are. They reveal that a privately owned EV is already subsidised, relative to petrol cars, to the tune of £5,000 over 10 years—it actually says £5,000 on page 34 and €5,000 on page 33, but I think the former is correct. However, corporately owned vehicles are subsidised to the tune of £10,000 in just four years. Those are big subsidies, particularly the latter. No wonder the vast majority of sales are to company fleets. If we are to subsidise EVs, it baffles me why the bulk of the money should go to those owned by companies—but so it is.
The main subsidy for private vehicles is, of course, the fact that they pay no duty on their fuel, which is electricity. You have to reach page 36 to find the total costs of this as EVs gradually replace fossil-fuel vehicles. The OBR has pointed out that fuel duties raised £23.4 billion last year, equivalent to £867 per household. That means that, if we forge ahead and succeed in phasing out those vehicles by 2030, we will have created what we might call a black hole in the nation’s finances, heading towards £23 billion as older vehicles are retired and used less.
The committee mentions the important issue of road tax in its fifth recommendation. It simply says that we should:
“Begin an urgent review of road taxation”.
It calls for an honest conversation with the public—quite right. Sadly, the committee did not agree to initiate this honest conversation by honestly admitting that the only option to replace this revenue is to introduce road charging. If we in this House, who do not have to get re-elected, do not have the courage to be honest enough to say that we are going to have to introduce road charging to replace fuel duty, how can we expect the people in the other House, who do have to get re-elected, to broach the subject until that black hole in the public finances is upon us?
The penultimate figure from the report is highly relevant to the decision on whether to phase out the sale of non-EVs sooner or later. There was much criticism of the previous Prime Minister’s decision to postpone the date beyond which sales of fossil fuel cars would be banned—delaying it from 2030 to 2035. There is rather less criticism now. The car companies seem rather relieved he did that, since sales are slower than was anticipated. We were told by the Society of Motor Manufacturers and Traders—which is of course largely a society of traders, and largely represents foreign companies exporting cars to this country—that this had a damaging effect on British manufacturers, who would not have the incentive to develop EVs. However, this ignores the strange nature of the British car market.
We export the overwhelming majority, more than 80%, of the cars we manufacture, and more than 80% of the cars we consume are imported. Indeed, on page 22 of the report you will discover that no less than 97% of the electric vehicles sold in the UK in the last quarter were imported. Most of the EVs produced in this country are presumably exported. So these changing rules only really have a major effect on EVs and other vehicles sold in the UK. Given that 80% of our vehicles are exported, the effect of these rules on our production falls on only one-fifth of the production, 20%. They are mainly affected by the rules of the countries to which they export, so I hope the damage that it does to British manufacturing will be less than the noble Lord, Lord Woodley, fears.
I am reasonably sure that electric vehicles will, eventually, displace petrol and diesel cars without subsidy, when their upfront price comes down to equal that of petrol and diesel cars, when the range of batteries is sufficient so that a normal journey would never require recharging, and when recharging is rapid. Actually, recharging is probably less of an issue than we imagine in this report. For the 60% of people who can keep cars off-road, the normal thing they will do after they use their car and come home is plug it in. The next morning it will be charged. They will not have to stop at the gas station as they would in a petrol car because they will have a fully charged car—so it is actually better. But for the 40% who do not have off-road parking, there is a problem we did not really find a solution to.
When will the price of electric vehicles come down to that of petrol and diesel? In the report, we quote people as saying that
“Other predictions for when average EV prices will meet those of petrol and diesel vehicles range from 2025–27”,
so, apparently, it will be quite imminent. So why are we subsidising people to buy expensive vehicles when they could have them at more or less the same price as the alternatives in a couple of years’ time? It is forecast that, by 2025, the price would be down to about £21,000 for an EV in Europe. Actually, you can get one for £22,000 now in the UK, so they are coming down to a similar price.
We should remember Dieter Helm, the great energy expert, who was asked by the Government to analyse their energy policy. He concluded that the big failure was that we had invested in immature technologies. He said that investing in technologies—which were going to become mature and cheap—when they were still immature and expensive had probably cost us the best part of £100 billion. So why are we encouraging people to do that in the EV market?
I suggest that we should look at this report and the figures, and draw conclusions from them. We might be a little more optimistic than some of the pessimists and a little more realistic than some of the super-optimists.
King’s Speech
Lord Lilley Excerpts(6 months, 2 weeks ago)
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Lord Lilley (Con)
My Lords, I welcome the new Ministers to their posts. I wish them well and sincerely hope that they will succeed in their mission to promote economic growth.
The great advantage of speaking in this Chamber is that we can speak perfectly frankly in the certain knowledge that nothing we say here will ever leak out to the world outside, so I want to take advantage of the privacy of this Chamber to offer some advice to Ministers opposite and to tell them some possibly inconvenient truths that we, or I, certainly would not be allowed to voice on the BBC and which they may not even hear from their officials. That is not to impugn the integrity of officials. My officials over 10 years in government were wonderful. Only twice in 10 years did two very virtuous officials succumb to the “noble lie” temptation of concealing information from me or distorting it because they thought that if I knew the truth I might misbehave. I hope it will be rare in the Minister’s department for that sort of thing to happen, but unfortunately virtuous enthusiasm and groupthink go together, so he may find that it is a bit more prevalent than it was in my days.
I met recently an official from my old department who said that they were initially very disconcerted when I took over, because when they gave me some facts or arguments that they were convinced would be absolutely in line with my prejudices, my instant response was, “But is it true?” I urge Ministers to take the same attitude, not least in this area.
The Government promise that tackling climate change and accelerating the move to net zero will lower energy bills and generate economic growth, but is it true? There is no doubt that cheap energy is a prerequisite for growth. America has proved, relative to Europe, that because it has cheap energy it is growing far faster. Equally, we know that expensive energy kills growth. I became an energy analyst in the early 1970s. In 1974, the quadrupling of oil prices killed growth—the end of Les Trente Glorieuses, as the French say. The 30 years of rapid growth after the war was signalled by that and we had much slower growth thereafter. We tend to forget that, in 2009, the great financial crisis was triggered by a rise in oil prices, and growth worldwide has been slower since then.
I therefore support the production of energy from whatever sources are cheapest for this country—I welcome the removal of barriers on offshore wind, for example—but I am sceptical, to say the least, as to whether the Government’s commitment to double onshore, triple solar and quadruple offshore will give cheaper energy. My scepticism has nothing to do with global warming. I studied physics at Cambridge and did the online course on climate change at Chicago University, so I know that the science of global warming is rock solid. My concern is about the costs and economics of the ways we are trying to tackle it.
I was just as sceptical about the claims that achieving net zero would give us cheaper energy and faster growth when they came from Boris Johnson as when they come in the Labour manifesto—indeed, I never expected to find Boris being comparatively a paragon of honesty and understatement until I read the Labour manifesto.
There is a respectable case for saying that we must incur higher costs and forgo cheap energy to prevent the impact of climate change on future generations, but it is surely unlikely that this will be costless, let alone miraculously provide a cornucopia of cheap energy and rapid growth. I therefore urge Ministers to ask their officials why, if it is cheaper, renewable energy needs subsidies. I urge them to ask why, if renewable energy is cheaper, UK electricity prices have risen in 22 of the 27 years since we started the transition to renewables.
If officials say that new offshore fields will provide electricity at below £50 per megawatt hour, Ministers should ask them why the recent contracts for difference, in March this year, offered more than £100 per megawatt hour for offshore wind fields and £89 per megawatt hour for onshore fields. They should ask too why they claim that gas is more expensive than offshore wind. They have set offshore wind at more than £100 per megawatt hour, yet the DESNZ energy generation costs document of last year shows that the cost of a new gas-fuelled plant, excluding tax, is only £60 per megawatt hour.
How come wind is supposedly cheaper when it is more expensive? They will say, “Oh, it’s because if you include in the cost of gas the social cost of carbon, that raises it”. And so it does; that is a perfectly reasonable argument. But it is generally accepted that the social cost of carbon is about £50 per tonne—that is about £10 per megawatt hour—so gas is still cheaper if we include that. But then the officials will come back and say, “Oh, well, we don’t use the social cost of carbon. We impose a tax called the appraisal tax”. That is the tax necessary to make gas uneconomic, so it is a self- referential conclusion. Ministers should therefore ask them some hard questions about that sort of thing.
Ministers should also ask why officials always quote costs as levelised costs of energy and do not take the advice of Dieter Helm, the leading energy economist in this country who was asked by the previous Government to do a review, and compare firm costs: the cost of providing energy, including some of the cost of providing back-up power—in the case of wind and solar when the wind is not blowing and the sun is not shining. Why not include some of that cost? It is the obvious and logical thing to do.
If the back-up is gas, we have to include not only a share of that back-up cost but the carbon capture and storage that will be necessary to extract the CO2 from the gas in the back-up. Incidentally, I welcome the fact that this Government are proposing to maintain a fleet of gas plants and accept that gas and oil will be needed well into the future. They might also ask officials why they rely on figures from think tanks—and, indeed, their own officials—rather than on the costs of fields, which are produced and published in companies’ documents that are certified by accountants, who would go to jail if they were lying. Those figures show that there is no significant decline in the cost of offshore oil; it remains high, and higher than that of gas.
The second item in the Government’s rosy outlook is that green investment will generate growth. For the sake of argument, let us put aside the impact on growth of higher energy costs. How will the move to green investments produce growth? The noble Lord, Lord Vallance, formerly an impartial adviser and now a Labour Minister, claims in the Labour manifesto that growth will come from selling technology abroad. He says that we can treat this
“like the vaccine challenge … exporting our solutions worldwide”.
However, he says that that will work only if we do it rapidly because
“if we choose to go slowly, others will provide the answers, and ultimately we’ll end up buying these solutions rather than selling them”.
But what are we going to sell to the rest of the world as a result of this great revolution? It is not going to be generators, wind vanes or towers, and it is not going to be batteries. Unless the Government can tell us what it is, we had better invest in things where we have a comparative advantage, rather than one where the rest of the world is overinvesting already.