Renewable Energy: Costs

Lord Moynihan Excerpts

Thursday 14th November 2024 Lords Chamber

[Lord Moynihan (Con)]

My Lords, I declare an interest as chair of Acteon, which operates across global marine energy and offshore infrastructure services. Central to this debate is a clear understanding of the significant distinction between the availability of renewables and hydrocarbons. One leads to the generation of intermittent power; the other to much-needed baseload. While moving to an increasing share of renewables, we always require the availability of baseload.

I had the good fortune, as Energy Minister back in 1990, to introduce the first competitive framework for renewables: the non-fossil fuel obligation, which morphed into the contracts for difference that we have in place today. What it has not led to is a simple trade-off between gas-fired power generation and renewables. Even as we debate today, at this hour—not just last week—our grid status shows that 53% of our power generation is from gas, with wind at 18%. Nuclear at 13% is far too low; the late delivery of SMRs is due to their being stifled by bureaucracy. While gas plants account for about one-third of Britain’s power requirements and are destined to fall to an average of 5% in about 10 years, we still have to retain the capacity of these gas-fired plants as a strategic reserve for windless days like today.

It is worth pointing out that we will not achieve that switch without substantial investment and private sector creativity. The recent NESO report, referred to by my noble friend Lord Frost, finds that the shift to renewables necessary for the Government to reach their flagship manifesto pledge of a clean power system in 2030 will require annual investment of more than £40 billion, with nearly 2,700 miles of offshore electric cables and 620 miles of new onshore cabling.

The alternative to this scenario necessitates storage solutions, and while I agree with the noble Lord, Lord Whitty, that storage technology is improving, there is a long road to travel to reach scalability and affordability. The capex has to be found by the Government if they want to keep the promise made by the Secretary of State Ed Miliband that household bills will fall. Given this reality, it would be irresponsible to turn our back on maximising domestic gas production in the UKCS. A stable fiscal regime for gas production is essential in a highly competitive global market for investment dollars. Norway has a consistent 78% tax rate. If the Government are to follow the Norwegian model, which they began to do in the Budget, the next steps must include further investment allowances. Without them, we face—as we do today—a premature wind-up of the UKCS, leaving gas stranded and substituted not by renewables but by expensive, more polluting, imported LNG, which makes neither economic nor environmental sense.

Renewable energy sources come with massive upfront capital investments which cannot be excluded in any cost comparison. Maintenance, decommissioning, grid costs and life-cycle replacement need to be costed. It is true that the marginal cost of producing electricity from wind or solar, once the facilities are operational, is extraordinarily low. In summary, we have to create a resilient, sustainable energy system which has to underpin energy security. The key, as ever, will lie in the strategic investments we make today, in both technology and infrastructure, and in private sector investment to ensure that we are not merely reacting to market forces but proactively shaping the energy landscape for generations to come. This, I would argue, is a future well worth striving for, and I wish the Government well.