Electricity Supplier Payments (Amendment) Regulations 2026
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Earl Russell (LD)
My Lords, the draft Electricity Supplier Payments (Amendment) Regulations make technical but necessary changes to the levies that electricity suppliers pay to fund three of the UK’s key energy schemes: the contracts for difference—CfD—scheme, the capacity market and the nuclear regulated asset base, or RAB model.
There is a sense of gravity on these Benches in that we fully recognise the role that CfDs have played, since they were introduced by the Liberal Democrats a long time ago, in helping to fund and secure funding for our energy transition. We recognise that these are necessary updates, and we welcome what the Minister has said to introduce these amendments. We welcome the measures that are being taken to ensure that efficiency savings are gained. Therefore, we fully support this SI.
Lord Moynihan (Con)
My Lords, I am very grateful to my noble friends Lady Redfern and Lord Fuller for their contributions. They bring a great deal of expertise to this Committee from a lifetime outside London in places where industries’ success has depended on low energy prices. For them to give up their time and dedicate it to the work of this Committee is commendable, and I associate myself with everything that both of them said.
That helps me in one way because it means that I can be short on this occasion. I will make just make four points. First, Drax has been raised. There are still major issues with Drax, as the Minister knows. Billions have been spent in public subsidies on it. As I recall, it was axed from the S&P green bond index because it clearly did not add to the net-zero objectives of either this Government or the previous one. Indeed, the burning of pellets releases CO2 immediately and does not achieve anything except for carbon debt. That undermines our net-zero goals, not least because the pellets come from the west of Canada; they are brought right the way across Canada and must then be transported to the United Kingdom by boat. The sooner we grasp the nettle and stop biomass burning, the better. In fact, it is unfair even to call it biomass: it is a CO2 pellet-driven wrong solution for Drax. Today, it has contributed a significant amount of electricity generated into the grid—not much less than comes from solar energy in the UK at the present time.
However, these are technical changes—this has been made very clear—and we on these Benches will not oppose them. I would just say three things. One is that the heart of this is, in fact, nuclear energy; look at the introduction and the rest of the statutory instrument. On the nuclear energy policy question, I welcome the fact that the Government have committed to implementing the recommendations of the Fingleton review in order to make nuclear power much cheaper. That is really important; we need to make it affordable, and it needs to be quicker and easier to build. We look forward to receiving the relevant legislation—even if I anticipate that, on that particular Bill, it will be colleagues from the left of the Labour Party and the Green Party who will give the Minister a lot of airtime because there is no doubt that the environmental impact is going to light the red touchpaper of the Labour left and the Green Party, which the Secretary of State has done so much to court.
Secondly, this Government cancelled the previous Government’s full-system cost analysis of the energy system. This statutory instrument highlights that such an analysis is important and would help all of us in this Committee—indeed, all of us in the House—to understand the cost of energy. I ask the Minister to consider reintroducing it, certainly before any further legislation comes before the House.
Finally—I was not going to make this point but I think it is important—I echo the comments made by my noble friends. The Government have not fulfilled their pledge to cut energy bills by £300. Pushing the costs on to tax bills is simply sleight of hand. The truth is that the Secretary of State’s made-up promise to cut bills by £300 has become, understandably, a national embarrassment for the Government, so they have turned to the already-struggling taxpayer for a bailout of £7 billion.
With all that said, I promised to be brief and make only a few comments on this instrument. These are technical changes, and we on this side will not oppose them, but it has been exceptionally helpful for the Committee to hear the comments made by my noble friends and the noble Earl, Lord Russell; I look forward to hearing the Minister respond to them.
Renewables Obligation (Amendment) Order 2026
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Earl Russell (LD)
My Lords, I thank the Minister for his introduction. I begin by recognising that this draft Renewables Obligation (Amendment) Order 2026 makes a specific and, on the face of it, sensible change in the way the renewables obligation is updated over time. By moving from RPI to CPI calculations for inflation, it should slow the growth of RO costs and in turn ease some of the pressures on energy bills paid by households and businesses. As the Minister said, during a new energy crisis when far too many families and households are living in fuel poverty and we are seeing rapid rises in our energy costs, we remain acutely conscious that many are watching every pound being spent on their energy bills. This SI, if everything goes to plan, as the Minister said, would save £1.9 billion over the next 11 years.
We therefore welcome the measures, as they are designed to reduce the cost of energy. However, bringing down bills cannot be separated from maintaining the pace of the clean energy transition and maintaining market confidence and those who finance it. As the Minister said, the RO has been instrumental in building our capacity, particularly for mid-scale onshore wind and solar. Many have made investment decisions years ago based on an understood indexing regime. Can the Minister tell us what assessment has been made of the impact on projects that have had financing assumptions predicated on RPI? How many generators are judged to face material changes to their expected revenues as a result? What modelling has been done to check whether these measures could have a disproportionate impact on those at the smaller end of the generating scale?
There is also, for us, the question of overall approach. From the Government’s point of view, this is a small, important, but technical, pragmatic and consumer-focused change. But, for many in the industry, this is yet another incremental tweak to the legacy schemes. I note that, of the 257 responses to the consultation, most did not support either option put forward, citing a preferred option not to change the system at all, based on concerns around investor confidence, minimal consumer benefit and a need—from their point of view—for financial stability and predictability. Do the Government accept that this kind of piecemeal pattern risks the possibility of further eroding investor confidence? That would not be because any one of the individual changes is huge on its own but because it creates a sense that the rules for existing long-term investments are constantly up for potential revision.
As the Minister said, the impact is £1.9 billion. The measures will curtail the existing revenue for RO generators—reductions of around 1% for the financial year 2026-27, which will rise to 5% by the financial year 2030-31. As we know, these are large-scale, long-term investment decisions, so even relatively minor changes can have, over a prolonged period, quite large and sustained impacts on what were expected revenue returns and investment decisions. The Explanatory Memorandum says that, overall, the department does not expect that there will be a disruptive effect on small generators. What does that mean in practice? How confident is the Minister in that statement? Also, how will this be monitored going forward? I note that there is no statutory review clause here, so how will any unintended impacts or consequences of the SI, once it is passed, be monitored? Furthermore, if there are unintended consequences, would there be a willingness by the Government to look again at these changes, particularly if they happen to impact the smaller schemes?
More generally, is it the Government’s intention, over time, to mitigate remaining RO schemes into contracts for difference-type frameworks? Instead of having this piecemeal approach, is there a more fundamental plan, as part of this framework, to reduce bills? I welcome those measures, but is it not time that there was an overall plan for this, rather than looking at individual orders one by one? Is there not a better way of doing this, agreeing it with the investors and the market, so we can both reduce the cost for bill payers and maintain the investor confidence on which we depend to secure future investment? We generally welcome what is here, although we have a few questions about it. We do not oppose this SI in any way, but we want a bit of clarity on those points.
Lord Moynihan (Con)
My Lords, I am delighted to stand before the Committee in agreement with the noble Earl, Lord Russell, on this occasion. If I may, I will build on some of the questions he asked. Before I do, I declare my interest as the chairman of Acteon, which is a global specialist subsea services company providing integrated seabed-to-surface engineering solutions for the worldwide offshore energy sector, including oil and gas and wind energy.
During the consultation exercise for this order, almost half—48%—of respondents expressed a preference for not going ahead with either option. Many respondents raised concerns about the wide-reaching, longer-term impacts that these changes could have on investor confidence and regulatory stability. What does the Minister believe will be the effect on investor confidence in this sector?
Many argued that indexation changes could raise risk premia and depress valuations, and that they would likely increase the cost of capital on new investments, which could deter future investment and, ultimately, have an impact on consumers. Does the Minister agree with this? If not, why not? Most respondents felt that both of the options proposed by the Government would represent a breach of legitimate expectations based on prior commitments from the Government. Some believed that the proposals could attract legal challenge. Does the Minister consider legal challenge likely? If not, why not?
Some respondents warned that the estimated consumer bill savings from switching to CPI would be modest or otherwise offset elsewhere by increases to the cost of capital of future projects, and few agreed that the switch to CPI is necessary at all. The UK law firm Burges Salmon said:
“A switch to CPI or a temporary freeze to tariff/buy out levels will therefore unnerve everyone involved. Many investors have modeled returns based on RPI-linked revenues over the full support term. Any switch (whether Option 1 or 2) will therefore undoubtedly result in slower growth of support income which may, in turn, impact projected equity returns and dividends and trigger a downward adjustment in NAV estimations of affected ProjectCos”—
that is, net asset values. It went on to say:
“In addition, projects financed with RPI-linked debt may face a mismatch between the generating asset projected revenues and debt liabilities. Coupled with uncertainty around the introduction of an FPC scheme”—
that is, the fixed price certificates scheme—
“it is clear that the threat of sizable and costly changes to renewable support schemes being implemented is increasingly real and one which the industry may fight hard to resist whether by way of legal challenge or robust responses to the various consultation papers”.
What is the Minister’s response to Burges Salmon?
That firm was not alone. Commercial law firm Travers Smith wrote:
“Although many, including generators, investors and financing parties with interests in existing assets benefitting from these subsidies will be relieved that the more drastic ‘freeze-and-realign’ option (i.e. ‘Option 2’) was not taken, the immediate shift to CPI indexation is nonetheless expected to be a blow to confidence and cause headaches across the sector, with investors seeking to protect valuations and dividend capacity against erosion of RPI linked cash flows, and lenders scrutinising headroom and covenant resilience in the context of the risk of refinancing. The timing—as Government seeks to encourage a ramp-up in investment as part of its Clean Power by 2030 plan—is unfortunate”.
I was going to conclude on this point, but the Minister could not resist the opportunity to refer to the current global crisis and the need to “accelerate to homegrown energy” as his solution—that is, accelerate to intermittent power when what we need is, in essence, firm power.
As we know, three-quarters of our wind and solar power is generated through renewable obligation subsidies. This means that, every time electricity is generated, suppliers get the wholesale price, plus higher subsidies than in all other OECD countries outside China—subsidies that signal the direction of future energy prices for consumers. Every time the wind blows, some wind farms get up to three times the market price of electricity. If wholesale prices are £80 per megawatt-hour—they were roughly at that level before the crisis—wind farms are getting two renewables obligation certificates on top of that, at about £70 each. This means that they have been getting £220 per megawatt-hour, which is almost three times the market price for electricity.
As was evident to those noble Lords who were fortunate enough to see the Secretary of State on Sky News this weekend, he used the word “incredible” in most of the sentences that he spoke. Is it not incredible that the Government continue to say that gas is the problem? In the last week, the price of gas, which generates our electricity, has been high, at around £120 per megawatt-hour. But is it not incredible that the renewables on the scheme will always get more than the gas price? Right now, there are wind farms getting up to, as I mentioned, £270 per megawatt-hour because they get whatever the wholesale price is plus the subsidies on top.
Lord Whitehead (Lab)
First, I thank noble Lords for their valuable contributions to this debate. The Government have listened carefully to the concerns expressed, particularly in relation to investor confidence, which I will come back to in a moment, to policy stability and to the long-term credibility of the UK’s renewable support schemes.
In considering the valuable and detailed contributions from noble Lords, I must say one thing to start with. The noble Lord, Lord Moynihan, is tempting me into a widespread debate about energy changes, energy prices and so on, but I kindly suggest that that is not the subject of our discussion this afternoon. The points that he makes are certainly ones that need replying to, and I hope that replies are being undertaken—but of course we are undertaking those replies at a time of energy crisis, and indeed a period of great volatility and uncertainty. That perhaps underlines why it is a better idea for the long term to have homegrown sources of energy that are not volatile and which can actually inform what is happening in the domestic market without inevitable consequences on the international market. The move towards renewables and low-carbon energy sourced from within the UK is a very effective way of doing that in the long term.
Lord Moynihan (Con)
I absolutely do not want to start a debate this afternoon, because we will unquestionably have plenty of opportunities in the future to cover this ground, but there is nothing more secure, in terms of our security of supply, nothing that creates more firm power, than our natural gas in the UKCS, which is much cheaper and far less polluting than importing gas from Qatar or liquefied natural gas from the United States. That reserve is critical, and if there is one lesson that comes out of this crisis, it is that we should maximise that reserve for our own country, for our own people, in exactly the same way as the Norwegians are doing at the moment for their people—unless the Minister thinks that the Norwegians are hopelessly wrong and should have shut in their basin, which he may wish to say. I think that our differences on this subject are worthy of future debate, but I think it is important to place them on the record.
Lord Whitehead (Lab)
I thank the noble Lord for placing that on the record. The Norwegian basin, of course, is far less mature than the UK basin, and indeed the Norwegian system works on substantially the same basis of international pricing as the UK system as far as gas is concerned.
The noble Lord has used the word “incredible” on several occasions. It was incredible, over the years, how much gas we were exporting from UK fields, even at a time when it was absolutely necessary to have the maximum supplies bought and used in the UK. Indeed, even during the Ukraine invasion crisis, there were still substantial exports on to the international market of gas that had come into the UK in the first instance. It is also the case, of course, that as far as marginal cost pricing is concerned, gas still makes the market over 65% of the time, so the whole market is still informed by international gas prices and international gas market-making in a way that is inimical to the stable, homegrown future energy that we need to import so that those positions are no longer taken.
Lord Moynihan (Con)
To place it firmly on the record, Norway and ourselves share the same basin in the northern North Sea, delineated by a median line. Geology does not recognise a median line, which is why in 1990 we were, broadly speaking, producing about 2 million barrels a day each, and in 2010 we were, broadly speaking, producing about 4 million barrels a day each. Today, we have gone right down to 400,000 barrels, and the Government are driving it down lower, while the Norwegians are going north of 4 million barrels.
My second point is that yes, the Minister is absolutely right that the Norwegians are exporting it to the international market. They do that because they can satisfy their domestic demand from hydroelectricity. As a result of that, however, they have managed to set up a sovereign wealth fund that assists their healthcare and their social security. The money they are earning is fundamentally important to the success of their economy. If we had done the same thing, we would have been in a far stronger financial position and would be able to take significant tax receipts to the Treasury to assist us with the many other challenges that the Government face.
Lord Whitehead (Lab)
The noble Lord is exactly right about a sovereign wealth fund, and it is our joint regret that the UK did not pursue that path many years ago. However, that is not the fault of the current Labour Government, as those actions were taken many years ago. He is right to point out that we would be in a much better position had that path been taken, but we did not take that path. We are where we are and we need to move on from that in terms of homegrown energy of a different form.
I am anxious to make progress with the business in hand, and I am pleased to see the overall welcome for these measures from both sides of the House. I will very briefly deal with one or two concerns that were raised. For example, on the concern about the effect of these measures on investor confidence, the future investment is of course not going to be carried out through the renewables obligation. As I mentioned, the renewables obligation is a sunset measure: indeed, it closed to new entrants in 2017. We are therefore talking about the remaining years of this measure, not the years in front of us of future and present measures, which we are undertaking in order to expand and stabilise the renewables and low-carbon world. Investor confidence will, therefore, be determined by how those measures are working.
In any event, the path that was taken to not freeze the RO, but to relate it to CPI rather than RPI, actually continues to allow RO to grow, albeit at a slightly lower indexed case. Therefore, in terms of the returns that those historic companies thought they were getting as far as the RO is concerned, there is not a great deal of difference—especially since we are so far past the point at which new entrants were accepted to the scheme.
As for legal challenges, we have been very scrupulous in making sure that we have received full advice, and that we are well entitled to make these changes. It is difficult to see how a legal challenge on the basis of not liking the changes very much might succeed, as opposed to a legal challenge on the basis of making the changes in the first place.
The noble Earl, Lord Russell, asked whether there could be a more comprehensive measure as far as future ROs are concerned, and this is something I have been quite interested in doing myself. It would involve trying to move RO recipients on to a CfD contract, which can be done in various ways. I suggest that if we did that forcibly, it would probably result in a legal challenge, but there are other ways of making the change.
Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026
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Lord Moynihan (Con)
My Lords, I am grateful to the Minister for introducing this SI, to which I have tabled a regret amendment. I also echo all the comments made by the noble Baroness, Lady Hoey, on the role of the Minister. I will speak both to my regret amendment and to the noble Baroness’s fatal amendment.
There are two important issues regarding this SI, which places a carbon tax on the ferries that service principally Northern Ireland but also the Isle of Wight. First, as this House knows, the arguments for a statutory instrument must be identical in both Houses of Parliament and, in this case, in Northern Ireland, Scotland and Wales as well. They are expected to be consistent in substance and fact. Neither has been applied on this occasion, as was evidenced in the debate in Northern Ireland this week.
My concerns are twofold. The first is procedural: frankly, there has been a total lack of respect for the House of Commons and the Northern Ireland Assembly. The second is political: this is nothing more than a carbon tax on those who rely, for their livelihoods and travel, on the ferries captured by this legislation. Unlike the European scheme, it is not hypothecated with revenues invested in decarbonisation. Instead, as has been pointed out, it is the Treasury that pockets the proceeds, with no benefit to the environment, nor, most importantly, to the people of Northern Ireland. It is just another carbon tax to make Northern Ireland in particular less competitive than like-for-like companies in GB.
On 13 January this year, the SI was introduced in both Houses. On 3 February, it passed the House of Commons without reference at any point to the implications of the EU CBAM. However, when debated on 3 February, the good news in another place was that this SI had nothing to do with the EU CBAM. If it had, it would have read differently, and the impact assessment would have shown a range of options outlining what would happen to the emissions trading system under the EU CBAM.
Energy Markets
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Lord Moynihan (Con)
My Lords, I declare my interests as chair of Amey, Acteon and Buckthorn.
This Statement comes at a time when the United Kingdom faces major, unparalleled challenges to its energy supply. For 50 years, under successive Conservative and Labour Governments, energy policy has been built on the four pillars of security of supply, diversity of supply to back that security, stronger adherence to ever-improving environmental measures, and, above all, affordability. On all four tests, this Statement fails, and the current war in Iran exposes that the Government’s energy policy is uniquely vulnerable to international supply chains, unaffordable to industry and households alike, glaringly insecure and unashamedly reliant on putting intermittent power before the firm power needed to keep incubators in our hospitals running 24/7, 365.
The Statement argues that there is no point drilling in the North Sea because all our gas is sold on international markets. Does the Minister agree that this is nonsense? Every molecule of gas we extract from the North Sea goes straight into our pipes, making up around half the UK’s supply. Does the Minister agree with the North Sea operators and OEUK that data already submitted to government details 111 named projects, equivalent to £50 billion of investment, that could be unlocked with tax and regulatory reform? On security of supply, we are increasingly vulnerable. Does the Minister accept that we have one pipeline coming to the UK from Norway alone, which is responsible for 30% of our gas supply? As the eminent economist Dieter Helm stated, is this not a sitting duck for a hostile power or an obvious hit for drones in the North Sea?
Does the Minister agree that onshore economically, the UK is facing the highest industrial power prices in the world, crippling our industry and increasing our cost of living? Does he agree that we are failing our energy-dependent industries because we have unaffordable energy prices? Gone is most of the steel industry. Deeply damaged is the fertiliser industry. Through the imposition of additional energy costs this year, the ceramics industry is under threat, as are petrochemicals and refined fuels.
Turning to capacity, does the Minister agree that we already need twice the capacity, twice the grid and all the batteries and storage we can find, plus many more interconnectors, to service a level of power demand of about 45 gigawatts? We used to meet that comfortably with just 60 gigawatts of capacity. Does he not recognise that all this is because we must have therm power available on days like today when the wind does not blow? Only 16% of our electricity was generated from wind today—only double that from the heavily polluting, burning biomass of 7 million tonnes of wood pellets a year in Drax.
Turning to renewables, does the Minister agree that there was good reason for the late publication of the secret MoU between the Secretary of State and the Chinese Government? It demonstrated that not just our renewable energy policy but our overall energy policy is tethered to China, a country which burns more than 55% of the world’s coal and is building another 400 gigawatts of coal generation. Yet our imports of solar panels are nearly 100% imported from China and demonstrate our serious reliance on a foreign state, not least because, as the Minister said from the Dispatch Box recently, he cannot be sure that the solar panels being installed in our schools are not made by slave labour.
Does the Minister agree with me that we need a policy built on renewables and more North Sea gas—not renewables instead of gas? Does he also agree that energy security and affordability depend on a substantial increase in gas from the North Sea, not imported LNG, which has gone up 40% year on year and which, in its total life cycle, emits nearly twice the levels of carbon compared with North Sea gas? The Government need to secure our own gas reserves, first, by a fiscal and regulatory regime which immediately encourages more tiebacks and greater exploitation of existing reserves, then by a licensing regime which ensures that production comes on stream at the same time as new-build nuclear.
None of what I have said this evening is anti-renewable; indeed, when I was Minister for Energy, I launched the first renewables non-fossil fuel obligation and for many years I was president of the British Wind Energy Association. I have set out a direction through which the UK is more energy secure, not less, with more affordable and environmentally acceptable energy; and through which it is more prosperous, with more jobs for working people, greater economic confidence, higher growth and a lower cost of living.
Earl Russell (LD)
My Lords, I thank the Minister for the Statement on the very serious and fast-moving situation in the Middle East. The recent escalation in the Gulf following President Trump’s deeply destabilising actions risks widening the conflict. Fourteen countries are now directly affected, global shipping supply routes are shut, and once again oil and gas prices have skyrocketed because of geopolitical chaos. With tragic inevitability, the same man who denies the existence of climate change has unleashed another conflict for the control of fossil fuels. If this conflict is not urgently contained, it will shut down oil fields and disrupt global markets, and drive up oil and gas prices, food prices, inflation and government debt alike. We need an urgent halt to the targeting of energy and desalination facilities on all sides.
We have been here before. Despite the progress we are making on our energy transition, the UK remains frighteningly exposed to the harsh economic impacts of global events far beyond our shores. The Energy & Climate Intelligence Unit and E3G estimate that our reliance on fossil fuels has cost this country an additional £183 billion since 2022, because of the increased costs of energy as a result of the war in Ukraine. We cannot afford another lost decade of dependence on global fossil fuels that we neither control nor influence.
While much of the Minister’s Statement is welcome—the co-ordination with allies, reassurance on supply, and commitment to clean power—the real question is whether this Government will now act at the speed and scale the crisis demands. Unlike the last energy crisis, this one includes oil as well as gas. We on these Benches see the Conservatives’ claim that the solution lies in new North Sea licences as the equivalent of trying to fill a swimming pool via a drinking straw. North Sea gas production is down by two-thirds since 2000. It is set to have declined by 97% by 2050, and even with new licences it will decline by 95%.
On oil-related issues, I want to ask about rural constituents who rely on heating oil to heat their homes. Some 1.5 million rural homes and 62% of homes in Northern Ireland depend on it. Prices have rocketed: in some cases, they have nearly doubled. These consumers are the forgotten victims of energy policy, not covered by Ofcom regulation and therefore without price protection and redress. Will the Government now work with the CMA and Ofgem to establish proper oversight, investigate price abuses and ensure that these households are protected?
Disruption to supplies arising from the Gulf crisis has also pushed up the cost of aviation kerosene by more than 80%. What consideration is being given to resilience, as 70% of our kerosene is imported, and how are the Government mitigating escalating costs for consumers and operators alike? On the cost of electricity and gas, we have some stability with the energy price cap, but that is short lived. While our gas supply is more secure than that of oil, gas prices have already reached a 12-month high. There is a very real risk of a renewed cost-of-living squeeze later this year, placing further pressure on families and businesses who are struggling to pay their bills.
The Government must make plans for scenarios where prices stay high and new interventions will be required. Families and businesses deserve reassurance that the Government’s support will not vanish if the crisis endures. I ask the Minister to give that reassurance today. These events bring into sharp relief the deeper issue: the structure of our energy market. Despite our work on renewables, UK consumers remain uninsulated from the global fossil-fuel markets, as our energy market has not been reformed to reflect the increase in renewables uptake. Three years on, we have been told repeatedly that energy market reform is coming. The Government have ruled out the introduction of zonal pricing, but this crisis is a clarion call that urgent action is needed. Why are we still funding crucial decarbonisation and social/environmental levies through household bills rather than general taxation? Moving more of those policy costs into general taxation would help to make the system fairer and more equitable. Will the Government commit to reviewing this balance?
Our gas storage capacity—just 12 days—remains among the lowest in Europe, so will the Minister consider the case for a greater strategic reserve? The price of gas still sets the UK electricity price 97% of the time. Do the Government agree with Greenpeace’s call to bring gas plants into a regulated asset base, creating a strategic reserve administered by NESO to break the link and save customers an estimated £5.2 billion by 2028?
We must double down on the rollout of renewable energy, grid upgrades, long-term storage, diversity of supply and greater energy interconnection with Europe, so that we can gain energy security and price control. Investors need predictability on planning, on grid connection and on the carbon pricing framework. Britain must move to a continuous pipeline of renewable projects: built faster, connected sooner and supported by modernised transmission networks. Every insulated home, every electrified heat pump and every community-scale battery gives us energy independence.
True energy security for Britain will not be won in the North Sea. It will be won on our rooftops, in our grids, in our offshore wind fields and in our insulated homes. If this latest conflict teaches us anything, it is that energy dependence is a choice, and energy independence through clean energy must now become our utmost mission.
Carbon Budget 6
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Lord Whitehead (Lab)
On EV rollout, the noble Earl will be aware of what has been put in place for ending internal combustion engine use in vehicles and the phase-out of hybrid by 2035. The rollout of electric vehicles continues unabated, and the number of electric vehicle charging points in this country, currently at more than 80,000, is well on target for what we think necessary over the next period to ensure that the fleet works as well as it should.
Lord Moynihan (Con)
Does the Minister accept that in the UKCS we have a far smaller carbon footprint for our own North Sea gas than the full life-cycle emissions of imported LNG from Qatar and the United States? Given that the Government’s energy security is challenged with growing dependency over the next 10 years on LNG ships passing through the Strait of Hormuz, why are we the only country in the world that is failing to accelerate development of our own gas reserves, in the North Sea, for energy security and environmental objectives so that we can deliver firm and affordable power to all our high-energy-use industries, which currently face crushing energy costs, four times higher than in the United States?
Lord Whitehead (Lab)
I think the noble Lord knows that, even if we were substantially to increase the footprint of gas production in the North Sea, that would not come on stream for many years. Secondly, gas is traded on international markets at a particular price, so it would make no difference to energy costs in the UK, because the gas would go to one of the three international gas markets and bringing down that price would be beyond the control of the UK—unless we introduced draconian measures to prevent the price discovery of the particular levels of gas being undertaken on international basis, which I am sure the noble Lord would not be happy with.
Fire and Rescue Services: Clean Energy Projects
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Lord Whitehead (Lab)
I think that we should get this into some proportion. As I have said, the number of battery fires over the last five years is four. The percentage of fires that you might encounter in an industrial premises or commercial premises is higher than the proportion per thousand of battery fires. Battery fires stand within the general problem of fires across industry. As far as the extinction of those fires is concerned, there is protocol already in the fire service about how to deal with those particular fires. It is a process of enabling burnout, so that the battery does not self-reignite. The noble Lord is correct to say that there are issues relating to battery fires, particularly the ability of that battery fire to reignite itself even in the absence of oxygen. There is a protocol now to surround the fire with safety measures and allow it to burn out. That, as far as the fire service chiefs are concerned, is a perfectly adequate and safe response to those fires.
Lord Moynihan (Con)
My Lords, can the Minister revisit his figures on battery fires? On 6 September 2024, the noble Lord, Lord Redesdale, led an outstanding debate in your Lordships’ House on lithium-ion battery safety. Superb contributions were made across the House, particularly by the noble Lord, Lord Winston. Since then, battery fires in bin lorries and at waste sites in the UK have reached an all-time high—not four, but more than 1,200 in 2024. That is an increase of 71% from 700 in 2022, which was described by the Environmental Services Association as an “epidemic”. Will the Minister take this opportunity to go back to his department and agree that, at a minimum, we need the fire service, the Environmental Agency, and the Health and Safety Executive to be statutory consultees for all planning and new stand-alone battery energy storage systems? There is urgent action required in this sector.
Lord Whitehead (Lab)
I do not intend to go back to the department and tell it that its particular concerns are wrong. What we are talking about today are fires in large stand-alone battery storage plants, of which there have been four in the last five years. If the noble Lord would like the individual addresses and locations of those four fires, I have them here. It is not the case that this covers every battery fire there has ever been. We know that certain batteries—for example, illegally imported batteries in scooters—tend to be a little less safe than other batteries. There is proper concern about some areas of battery safety and maintenance, but not about this particular sector, which is very well regulated and safe now. As I have set out today, there have been further measures to ensure that the safety and integrity of those stand-alone batteries is maintained.
Local Power Plan
Lord Moynihan Excerpts(2 months, 3 weeks ago)
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Lord Moynihan (Con)
My Lords, although I have no outside interests which impact directly on solar farms and onshore wind, I declare my interest in having worked in the wider field of energy transition since my time as Minister for Energy.
I start by reflecting that we all want clean energy, we all want full engagement with local communities, and we all want to work towards an energy policy based on energy security, sourced from trusted supply chains and, above all, delivering affordable energy. This announcement should be tested against these criteria, for we support community energy enthusiasm where it makes economic sense. Does the Minister agree that reducing energy bills comes only by increasing reliable generation and decreasing costs, yet the local power plan does not come with a generation target nor an analysis of the extent to which it will contribute to reducing bills? If these are not central factors within the policy, I am afraid that it will for sure be time and money misspent.
In the Government’s own press release, they rely on “internal analysis” to claim that additional solar and onshore wind procured through AR7 could lower bills in the early 2030s, but that analysis has not been published. It looks only at a narrow scenario, it seems to exclude wider system costs, and it does not give a full picture of future bill levels. Does it include the load in grid costs to get the power to market, given that many of the wind projects being considered are in Scotland? How does the plan impact on Labour’s promises to cut energy bills by £300, not least given that they have risen by £190 since Labour came to power? How does this initiative change that?
I had a good look at the map of all the proposed projects in the CfD allocation round 7a. There were only two small wind projects in England, some in south Wales, and the vast majority of the other wind projects were in Scotland. Given that there were only two wind projects in England, can the Minister comment on whether this will lead to further increases in the already staggering bill for curtailment—paying wind farms not to produce—because of the grid constraint from Scotland to the south, the B6 boundary, and the cost of debottlenecking that, which is estimated to be north of £50 billion?
Can the Minister comment on whether this initiative is good for employment? There has been real concern recently, which the Minister will be aware of. The OEUK talked a lot about his policies and the redundancies in the offshore sector, and fears that the industrial contagion will spread to onshore supply chain and manufacturing communities. To put this in context, on average, 1,000 direct and indirect jobs are being lost each month from the oil and gas sector. Without intervention, this rate of job losses will continue to 2030. RenewableUK has said that these initiatives being proposed for renewables may create 4,000 more jobs from now to 2030, as against the 50,000 losses of jobs in oil and gas. How does that help employment in the UK? The GMB union’s Scotland secretary, Louise Gilmour, gave the same warning:
“There is a human cost to these decisions that goes beyond the bottom line of this year’s budget and impacts workers, families and communities in Scotland and across Britain. The economic case for easing the financial pressures on our offshore industries is clear and compelling but so too is the moral argument for slowing the rushed and needless abandonment of workers and their communities”.
Does the Minister agree?
I turn to an exceptionally important point. This announcement is principally about solar energy, and solar imports come from China. The Minister of State, the noble Baroness, Lady Chapman of Darlington, stated in a debate initiated in this House recently that
“human rights are a non-negotiable part of this Government’s approach to China”.—[Official Report, 2/2/26; col. 1301.]
This is an initiative to import Chinese goods. Well over 80% of PV modules used in the UK have significant Chinese content, and the true figure is very likely to be above 90% when you include panels made by Chinese-headquartered manufacturers—for example, Jinko, Trina, LONGi, JA Solar and Canadian Solar, all of which are Chinese in origin—and the non-Chinese brands whose wafers, cells or polysilicon is sourced from China. Some 80% to 85% of the global polysilicon that is needed comes from China, and the UK imports almost all its PV hardware. Installers and trade bodies routinely report that Chinese supply chains dominate the UK market because of price and scale. In the map for AR7, we are talking about a widespread, historic, major increase in solar imports from China. This local power plan depends on Chinese goods.
I simply ask the Minister whether he can tonight guarantee that no imported polysilicon, no panels being installed in our schools at the moment under GBE’s first initiative, and no solar content on any of the panels that is foreseen by this particular measure will come from the Xinjiang Uyghur Autonomous Region. A very large share of the world’s solar grade polysilicon has recently come from China, and a significant part of that comes from the Xinjiang Uyghur Autonomous Region.
It is a simple question and I hope the Minister can answer it by saying that there is absolutely no polysilicon that comes from that autonomous region. If he cannot answer it, it would have been wise and sensible to consider that question first. When comfortable that the Government could answer it in the affirmative, he could then come to the Palace of Westminster and bring forward this initiative for a historic increase in the import of solar panels.
In conclusion, can the Minister also say in this context why the Secretary of State, who is fast becoming a night manager, went to China a year ago, signed an MoU and locked it in his safe, marked “secret”, to be hidden from the public and not to be scrutinised? Why did the Government not publish it? They have published all the other MoUs that the Secretary of State has signed but not the one he negotiated with China a year ago. Why is it secret? Is there a reference to solar supplies from Xinjiang? Is there no reference to human rights? The Prime Minister has recently called for open government and honesty with the public. Surely, by locking it away out of sight, this is doing exactly the opposite; above all, to the local communities which are going to benefit from these solar initiatives. What is there to hide?
Earl Russell (LD)
My Lords, on these Benches we very much welcome the publication of the local power plan. This is a landmark moment: up to £1 billion of funding from Great British Energy for local community energy. This is the largest public investment to date. Our communities stand ready to generate their own power, cut bills and keep wealth circulating locally. They have been waiting for the Government to back them with serious funding and a level playing field.
We, and many others across the House, campaigned to secure community energy on the face of the Great British Energy Act 2025. We are pleased to see that commitment transformed into this concrete plan. Our communities should rightly be able to partner in, and directly benefit from, the renewable revolution. The vision is one we support.
Great British Energy aims to support an initial 1,000 local and community projects by 2030. However, I would like to see these plans going beyond programmes that the private sector can deliver itself; for example, a programme of community wind energy for our coastal communities. I would also like to see a broader range of technologies used, and greater integration with the warm homes plan. The four pillars—direct funding, expert advice, market innovation, and regulatory reform—are what community groups have asked for.
Delivery is where this plan will stand or fall. Although the plan is launched this month, the first grant schemes will not open until the spring and the new Great British Energy local products will not be piloted until the summer. There are hundreds of shovel-ready projects just waiting for capital finance. Will the Minister commit to an early fast track for schemes that can demonstrate that they are ready to build this year?
We welcome the commitment of up to £1 billion, but there is a clear gap between this figure and the £3.3 billion previously promised for community energy. Has this ambition been scaled back? How much of this fund is expected to go to actual deployment and how much on facilitation, advice and central programme costs? We recognise the importance of help with these processes but want reassurance that this will not become a scheme where too much is swallowed by planning and too little reaches the projects themselves.
The Government acknowledge that a lack of fair routes to market has held back community energy for too long. Without a genuine right to local supply, underpinned by statute, community groups will remain disadvantaged. The local power plan refers to developing new local energy supply models and a local energy platform, including smart community energy and virtual PPAs. When will the Government bring forward the regulatory changes needed to make them a reality? Can the Minister also confirm that legislation to create a clear right to local supply remains part of the Government’s programme?
The Government are right to recognise that delays and the cost of connections to the grid are among the principal reasons why community schemes have failed. The plan speaks of obligatory response times from DNOs, and of working groups with network companies, but what concrete powers will Ministers use to ensure that these things happen in practice? This matters especially when the technical and regulatory thresholds are already stacked against smaller schemes.
We strongly welcome the intention to introduce a mandatory shared ownership offer for larger renewable developments, and the indication that shared ownership templates and guidance with be published this spring. This could enable fairness into the next generation of large-scale infrastructure. What minimum stake will communities be guaranteed? How will the Government ensure that the offer is genuinely attractive rather than nominal? When will the Government publish the full community benefits framework, so that communities are not left at the mercy of voluntary schemes and of whatever crumbs are left over from the big companies? Will the framework include clear criteria on what counts as meaningful benefit, and will it be underpinned by statutory guidance?
One of the most promising elements of the plan is the commitment to build up local community capacity through expert teams and a “community energy in a box” toolkit, providing standardised documents and advice. Our most underserved areas have previously had the least spare capacity. Communities facing high deprivation, or with small and overstretched councils, lack the volunteers and technical skills needed even to begin. What criteria will Great British Energy use to define these underserved areas? Will they benefit from higher grant-to-loan ratios and more proactive outreach so that they do not miss out?
In the June 2025 spending review, £2.5 billion was allocated for small modular reactors—almost a third of Great British Energy’s existing budget of £8.3 billion. That decision pre-dated the finalisation of the local power plan and of GB Energy’s strategic plan for local energy. Does the Minister accept that the Treasury’s raiding of the Great British Energy budget has constrained what could otherwise have been a more ambitious and better-resourced programme for local power? It may have delayed the scaling up of exactly the projects the Minister is now bringing forward.
The local power plan has the potential to be transformative. Local, community-owned energy is one of the most powerful ways to cut bills, rebuild trust and take people with us on the journey to net zero. To realise this promise, we must move swiftly from plan to practice, getting money out of the door quickly, cutting through grid and regulatory barriers, and ensuring that every community has a fair chance to generate, own and—crucially—sell its own energy locally.
Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026
Lord Moynihan Excerpts(3 months, 1 week ago)
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Earl Russell (LD)
My Lords, we welcome this order but I have some important questions to ask the Minister. My party has long argued that a robust, transparent, high-standard carbon market is a cornerstone of any credible pathway to net zero by 2050. When done well, emissions trading cuts carbon at least cost, drives innovation in clean technologies and gives industry the long-term policy certainty that it needs to invest confidently in the green transition.
This instrument makes a number of sensible technical adjustments, but this update carries more weight than most of the normal updates. We strongly support all the Covid measures; they are sensible, practical and needed.
However, uncertainty persists around our future carbon-market relationship with our closest trading partners. The Government’s own documents show that UK industry has repeatedly called for linking the UK ETS with the EU ETS, which has already been spoken to and which is a step we strongly favour. A stand-alone UK ETS would be smaller and more price volatile, driving up costs for British business compared to the stability and liquidity of a larger linked market. When paired with clean power, deeper market reforms and other measures, a linked system offers real opportunities to cut energy costs, modernise industrial processes and slash emissions.
This order moves us towards dynamic alignment by adopting EU benchmarks from 2028, alongside the phase-down of free allocation for CBAM-exposed sectors and by enabling import levies through the UK CBAM. This is the right direction. We cannot ignore the carbon costs embedded in goods we manufacture or import emissions unchecked, but this complex transition demands adaptability, coherence and close management by the Government as we move forward. We remain in a halfway house, following rules we no longer help to write, without gaining the full benefits of a larger carbon market. I seek clear reassurances that the Government are protecting UK industry, working towards positions where we are rule-makers again and ensuring that our needs are recognised and mitigated during the interregnum.
The impact assessment’s estimate of £9.8 billion net present social value shows gains from effective decarbonisation, yet the £92 million annual cost to business is far from trivial for energy-intensive industries. As free allocation pares down—particularly for cement, fertilisers, iron and steel, aluminium and hydrogen—we must not offset our emissions and jobs to less scrupulous jurisdictions. A carbon price that cleans up British industry is welcome; one that simply relocates it helps neither our targets nor our industrial base.
I therefore have just five questions for the Minister. First, the Minister’s department accepts that EU linking would reduce costs and provide price certainty. Adopting EU benchmarks facilitates that alignment. Can the Minister set out a possible timetable for negotiating a formal linking agreement? Does the Minister tend to think that any conditions might be attached to that? Industry must plan and make investment decisions now, not years ahead, so this certainty is important to it.
Secondly, on parliamentary oversight, concerns remain that dynamic alignment could allow changes to benchmarks and core design features with minimal scrutiny. Can the Minister confirm that any future changes to the 2028-30 benchmarks or material changes from further EU alignment will come by affirmative procedures and be debated in both Houses?
Thirdly, CBAM and ETS reforms help tackle import leakage, but export leakage remains mostly unaddressed. As free allocation withdraws, UK exports may face higher carbon costs than our international competitors do. So what WTO-compatible measures, targeted free allocation, export rebates or other measures are being considered to help protect exporters and strengthen our manufacturing base? On the sectors that are hardest to abate—ceramics were mentioned in the other place, and Ministers are having particular conversations with the ceramics industry—it feels that particular sectors will struggle to abate even if they want to and extra support is needed.
Fourthly, on regional fairness, the impact assessment highlights burdens on industrial clusters, particularly in Wales, Scotland, Northern Ireland and the north of England. A lot of these areas have already been hit by processes of post-industrialisation. So how do the ETS reforms integrate with wider decarbonisation strategies, including cluster sequencing, CCUS, hydrogen support and the shared prosperity fund?
Fifthly, obviously SMEs are mostly outside these schemes, but some are captured. Where they are, will tailored support and special consideration be given to their needs?
I have some general questions. How will the Government monitor and report the impacts of these measures, particularly in relation to carbon leakage? What mechanisms will track investment in clean technologies that the Government want to see and expect to happen? What mechanisms will track price changes and the competitiveness of the industries related to those?
My belief is that openness in this sector as we move forward is in everybody’s interests. We support the direction of this order but, without bolder steps toward EU ETS integration, the UK risks drifting—aligning in practice but isolated—and being subscale in market terms. That does not serve our industries, investors or climate objectives. We urge the Government to put linkage firmly on the agenda and give British industry the stable framework that it needs. Our climate and our industry standards cannot afford continued ambiguity.
Lord Moynihan (Con)
My Lords, I thank the Minister for introducing this statutory instrument. He generously banked the good will between the noble Earl, Lord Russell, myself and himself yesterday, and I assure him that he will have no need to draw down on that, because I am sure he will disassociate himself from his colleagues in another place when it comes to this scheme.
For once, this is a policy that is solely conceived by the Labour Government. It is a straightforward decision by DESNZ to increase carbon taxes on major industrial users which depend on hydrocarbons, particularly gas in the UK industrial market. Many industries have no choice but to use gas, and no alternative firm sources of supply; indeed, they face heavy dependence on high electricity prices to stay in business.
The Minister’s speech may sound technical, and it is true that 104 pages covering the order and the Explanatory Memorandum take some digesting, but a reread shows exactly what this statutory instrument does. The good news is that the noble Lord, Lord Lemos, sitting beside the Minister, is a good Lewisham man and he had no difficulty understanding every word of the particular trading scheme order that is before us. He will be able to help the Minister; I see he is already doing so.
What does this order do? It reduces the supply of free allowances—the key point that was made by the Minister—and thus it increases the carbon tax cost to many of the UK’s major energy industries in a highly competitive global market. These free allowances have been the mechanisms used to protect businesses such as ceramics, cement and steel from being undercut by cheaper imported products from countries that do not charge carbon taxes.
Take the very real example, considered and referred to by the noble Earl, Lord Russell, which was considered in another place yesterday by Gareth Snell, the Labour MP. He focused on the ceramics industry and said that this sector
“is very difficult to decarbonise”
but that it is
“producing things that are integral to the Government’s missions, whether that be house bricks for our house building programme or advanced ceramics to support our defence industry … because we cannot make steel in this country without ceramics … We are still at huge risk of carbon leakage. We work in an unfair market at the moment, not least because of the way in which non-market economy status countries import into this country … the ceramics sector is desperately trying to do all that it can to reduce its output of greenhouse gases, but that is really difficult when it has to run a kiln at several hundred degrees for many hours to do the bisque and the glaze firing, and run refractories for 12 to 14 hours at 1,500°C. Electrification is not available to many of those businesses at the moment, because the capital to invest … is simply not available; the profit margins on their products do not allow for it … We are wedded to gas for the foreseeable future”.
The sector fears that,
“as we move at pace to meet some of the decarbonisation agendas and reduce the overall cap through the emissions trading scheme, that will mean that the free allowances also have to come down, which will push the ceramics sector into having to buy many more free allowances”,—[Official Report, Commons, Delegated Legislation Committee, 27/1/26; cols. 9-10.]
leading to higher costs.
Even in the Government’s net-zero nirvana of green power plants, gas is the dispatchable power in the system. There is no other choice; nothing else will keep the lights on when the wind does not blow and the sun does not shine. This SI needlessly imposes a tax that inflates the price of gas to the industry and then passes the additional cost through to the consumer when they have no other choice.
Everybody wants clean rivers, clean energy and an improved environment with a clear commitment to tackle global warming. But these objectives should never purposely lead to deindustrialising the country, negating growth and increasing unemployment in our high labour-intensive, high energy-consuming industries on the altar of net-zero zealotry.
We have among the highest power prices in the world and today we are putting them up again. If you drain free allowances out of the system, energy costs rise yet more in comparison with international competitors. Not surprisingly, international companies will relocate abroad in more competitive markets and accelerate deindustrialisation in the petrochemicals sector, the steel sector, ceramics and refineries. Sadly, this may also apply to data centres in the future, with fewer choosing the UK for the very same reasons.
Lord Whitehead (Lab)
I thank noble Lords for their contributions to this debate, which were absolutely up to the rather technical nature of this SI—although I would say that the noble Lord, Lord Moynihan, managed to take in a large landscape on the whole question of whether a decarbonisation policy is good or not. I suggest that that debate is for another day because we are talking about some specific changes that are being made to a specific policy.
That policy relates, of course, to an overall adjunct to decarbonisation policy in general, which is to secure a good carbon price to underpin moves towards developing a more sustainable, low-carbon, green economy based on making sure that fossil fuels are at the margins of the energy economy, rather than at the centre of it; and that incentives are put in place for that to happen and for the economy to run on low-carbon energy in general.
If the noble Lord, Lord Moynihan, considers that a bad idea overall, perhaps he might say so; he has moved a little way along that path. I do not think that the Bank has yet cashed in all its good will, but we need to set one or two things straight about how that relates to this SI. The free allowances that are presently in place for a number of energy-intensive industries that are in danger of carbon leakage as a result of low-carbon policies are being continued for 2026 but are being tapered down—not because the Government think that they are a terrible idea and that we ought to stop giving out free allowances but because we are on the road to CBAM, which is in itself a comprehensive shield against carbon leakage.
Having a series of free allowances running alongside a CBAM arrangement would therefore duplicate the protections that are, and should be, in place. Having a mechanism that enables the CBAM process to come into place, while making sure that the industry has the free allowances it needs to move towards CBAM, seems a very sensible thing to do to keep the overall low-carbon energy show on the road in the longer term. I have not heard from the noble Lord, Lord Moynihan, whether he thinks that CBAM is a bad idea; the industry generally thinks that it is a very good idea.
Lord Moynihan (Con)
The Minister has put two points back to me. First, I have no dispute with that; I think that decarbonising the industrial sector over time is a sensible policy. The problem is that, if you try to accelerate that decarbonisation into 2030 and you must raise electricity prices to the level the Government have done through a carbon tax, you make industry uncompetitive. If you make industry uncompetitive on the altar of long-term decarbonisation, you will have serious employment problems; that precise point was made by an MP in another place in speaking on behalf of ceramics.
My issue, therefore, is not with the long-term decarbonisation of industry; I am totally at one with the Minister on that point. My point is that, if you hurry this along on an artificial timescale of three years, you will have to put up carbon taxes and you will put businesses out of business, in effect, from the moment when they must face these carbon taxes, which are not imposed by their competitors around the world; they may, therefore, find themselves uncompetitive.
I am not arguing against CBAM but I am making the obvious point that, if you then remove these allowances—say you have free allowances of 10 out of 100, and you take 10 of those free allowances away—you have to acquire the other 10 allowances from the market. There is a significant additional cost; that is outlined very clearly in the impact assessment before us today. Indeed, paragraph 18.8 of that document states:
“These factors combined can lead to domestic prices being consistently higher than import prices, enabling substantial price pass-through”.
It is right here in the very document that we have been considering today, and it proves my point about an increase in prices—a significant increase from what are already very expensive electricity prices—that must then be passed through. Also, the nature of that pass- through goes even further than what I have said. Paragraph 18.7 of the impact assessment says:
“The results suggest that most sectors could pass about 80-90% of cost increases to consumers”.
It is the consumers who will feel the pain of this measure; that is the Government’s own clear statement on page 70 of the impact assessment.
Lord Whitehead (Lab)
The Government are of course very well aware of the whole question of how energy prices should be kept within reasonable bounds. By the way, the noble Lord went on a bit about gas a moment ago. He should remember his own period in government, when the Government spent something like £70 billion trying to bring prices back down when they had got completely out of control with the spikes in the price of shipped gas coming into the UK, which rose to 600p per therm at one stage in the mid-2020s.
You could say that, because the Government at that time did not control international gas prices in the way that the noble Lord seems to think can be done— I very much doubt that the various measures he is proposing to regulate international shipped gas prices would have the effect on volatility that he thinks they would have—we are still open to that enormous volatility in gas across the world. Indeed, just recently the price spiked quite substantially—probably not to the extent that happened in the early 2020s, but that is a spectre that continues to haunt us with reliance on international gas and not going to a low-carbon economy.
I am on the side of insulating the UK economy from those enormous global changes in gas prices, particularly by moving, broadly speaking, not to a no-gas economy but to a low-gas economy as far as the future is concerned. That will be of tremendous benefit to UK industry and exports, and jobs and industry in general, because we will have a stable energy economy for the future, which will allow us to plan ahead properly without the spikes, volatility and panics that we have seen over the last few years. I think the noble Lord wants me to give way again.
Lord Moynihan (Con)
May I say how flattered I am that the Minister thinks that I was in government on this side of the turn of the century? I must look a lot younger than I thought I did. I have to go back to 1990, to be precise, when I was Minister for Energy and we started the offshore decarbonisation of gas. In fact, we stopped flaring at that time, at the same time as we set up a non-fossil fuel obligation to encourage renewables. We had low domestic and industrial gas prices in the United Kingdom because we encouraged combined-cycle gas turbines. I just wanted to place that on the record, but I say it in a spirit of deep gratitude to the Minister for thinking that I was in government only recently and that I obviously look far too young to have been a Minister in 1990—or perhaps I look far too old.
Lord Whitehead (Lab)
I thank the noble Lord for that correction as far as his status in previous Governments is concerned. I was making a point not about his own distinguished period as an Energy Minister, which I appreciate was much earlier and perhaps in a rather happier energy era than we have today, but about the mangled response from the Conservative Government to the last gas volatility crisis in this country, and what resulted in terms of the money going out of the Exchequer for the attempts to protect domestic consumers and businesses from that spike, since he raised it as one of his concerns about this SI.
I ought to add, by the way, that, in the Government’s industrial strategy—yes, we have an industrial strategy, unlike previous Administrations—we announced additional support for 7,000 energy-intensive firms through the British industrial competitiveness scheme, which will reduce electricity costs by up to £40 per megawatt-hour. Through the British Energy supercharger, the Government are increasing support for the most energy-intensive firms by covering more of the energy network charges they normally have to pay. From 2026, the discount on these charges—namely, legacy costs, capacity market feed-in tariffs and so on—will be discounted by 90% from their present 60% level. That is a substantial boost to industry, as far as prices are concerned, by the direct actions of the Government under these circumstances.
I am conscious that I have spent rather too long addressing what the noble Lord, Lord Moynihan, has perhaps wound me up to talk about more than I might otherwise have done. I have to now address the questions that were put to me by the noble Baroness, Lady McIntosh of Pickering—who I applaud for being, as it were, on the side of these particular measures and ideas from the other side—and the noble Earl, Lord Russell.
I have, to some extent, covered the questions that the noble Baroness put to me. The first allocation period will be extended to 2026 to ensure that the changes implemented from the free allocation review come into force in 2027, to align with the introduction of UK CBAM. On her questions on bills, emissions trading has been a key element of power sector decarbonisation. Therefore, maintaining a strong UK ETS and, dare I say it, aligning it with the much wider market that we can enter into, for the stability of the ETS, will not be a joining of the EU ETS but a linkage of the UK ETS to the EU ETS. The UK ETS will continue. It has been determined following a recent consultation discussion that it will continue until at least 2040.
Warm Homes Plan
Lord Moynihan Excerpts(3 months, 1 week ago)
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Lord Moynihan (Con)
My Lords, I thank the Minister for responding on the Statement made in another place.
I very much appreciate that this plan has taken longer to finalise than expected, with a year’s delay, but I have to say that we will join those who support a measured and incremental move towards low-carbon home heating systems. If that is the objective, there are many measures in the plan today that are worthy of support, not least, for example, the greater role for home batteries.
Where our concerns lie is with the test against which any transition must be judged; namely, its impact on the capital and operating costs for families—in other words, on household bills. Having read the Statement and the impact assessment, our view is that what should be a welcome and important initiative to save consumers money looks more likely to have the opposite effect, with rising energy bills and taxpayer-funded initiatives, not least through the recently locked-in energy costs well above market rates.
In the impact assessment, there was no reference to the impact on tenants as a result of the requirements placed on landlords. I very much hope the Minister will address whether these costs can or in his view will be passed on to tenants.
Regarding heating systems, 50% of the British public are unlikely to install low-carbon systems, such as heat pumps, due to high installation costs. Even if the warm homes plan takes the proclaimed £200 off bills for the 5 million projected homes over the next four years, which is unlikely given current energy and projected costs, that will still leave 25 million homes without respite, worrying about the installation costs of the new heating systems. How does the Minister intend to reach the other 80% of the country struggling with higher bills?
Does the Minister agree that the central and more enduring problem is the ongoing operational costs of low-carbon heating? Two-thirds of people with heat pumps now find it more expensive to heat their homes than they did with their previous system. Frankly, that is no surprise. The price of electricity per unit currently sits at a multiple of that of gas, yet the Secretary of State’s plan offers no redress for the long-term costs of this policy. Perhaps the Minister can now lay out whether the department has plans to address the high operating costs of heat pumps.
The Secretary of State has also announced the founding of a new quango, the warm homes agency. The Government claim to be offsetting this with the abolition of Salix, but I am sure your Lordships are aware that this is not a like-for-like trade-off. Can the Minister now confirm what his colleague in the other place could not and give an estimate of the cost of both the new arm’s-length body and the net cost of this quango reorganisation?
Another key element of the plan is the move to introduce widespread solar panels in the UK, set out in the Warm Homes Plan as
“Unleashing the rooftop solar revolution”
on page 33. This is timely, given the Prime Minister’s visit to China. The reason this is so important is that well over 80% of PV modules used in the UK have significant Chinese content. The true figure is very likely to be above 90% when we include panels made by Chinese-headquartered manufacturers. As so many non-Chinese brands still rely on Chinese wafers, a panel can be assembled in, say, Vietnam, Malaysia or the EU and still be heavily Chinese in content. That is why estimates based only on the brand’s country of assembly understate the real proportion. Including these brands, most energy analysts treat around 90% of UK PV panels as having Chinese content in their supply chain.
China’s share of the global supply of polysilicon is some 80% to 85%, and the Xinjiang Uyghur Autonomous Region’s share of China’s solar polysilicon has been variously estimated at between 35% and 45% at its peak, all of which implies that 25% to 35% of global solar polysilicon has plausibly been sourced from Xinjiang-based plants. Can the Minister inform the House how Great British Energy can meet its legal obligation to track exactly which polysilicon plant was used for any UK import, whether that plant is in Xinjiang or elsewhere, and whether specific batches are verified as free of Uyghur labour?
The noble Lord, Lord Alton, has spoken in this House and discussed with me this morning his concern that forced labour has been widely documented in the region and that there is a need to shut the door on forced labour components found in Chinese supplies of polysilicon. Does the Minister therefore accept that independent auditors and NGOs still argue that full traceability is patchy due to multisite production in different factories and different time periods, continuously shifting new contracts and new plants coming online, and lack of full transparency at the level of polysilicon origin?
As I have said, the intentions behind the warm homes plan are commendable, and the help with capital costs is welcome, but this must be accompanied by plans for lowering operational costs, coupled with wider reforms to bring down the cost of electricity. Otherwise, this well-intentioned plan will become a passport to higher domestic electricity bills. I look forward to the Minister’s response.
Earl Russell (LD)
My Lords, I welcome this Statement. Promised nearly two years ago as a “flagship response” to soaring energy bills and poor home efficiency, it has taken some time. Delays have consequences, particularly for the millions of families living in homes that are cold. They are paying the price.
That said, this plan brings forward welcome innovation and greater policy coherence, particularly through its focus on climate adaption and mitigation. It marks a significant milestone amid a national affordability crisis and an accelerating climate emergency. But if warm homes are one side of the equation, cheap, clean energy and market reforms are, indeed, the other. We need both to succeed.
The commitment to £15 billion of public investment is ambitious and right. Ministers forecast upgrades for 5 million homes and relief from fuel poverty for 1 million families by 2030. These are the benchmarks by which this plan will be judged. Too many families still live in cold and damp homes, causing ill health and rising health costs. Labour is right to call out the “lost decade” under the Conservatives, when investment collapsed and home upgrades fell by 90%. Greater vulnerability followed Russia’s invasion: 85% of our homes were still dependent on fossil fuels, and £40 billion in emergency support was required. This was the cost of the Conservatives’ delay.
Against this backdrop, the plan’s innovative pathway is welcome. Partnerships with British climate tech firms could, if implemented well, build a world-class retrofit industry, but SMEs need support, predictable regulation and open markets to bring products from design to real homes quickly. The proposed retrofit innovation panel and sherpa approval models are positive, if they deliver.
I am concerned about the six-month cliff edge gap between previous schemes winding down and new schemes starting. I ask the Minister for greater clarity, particularly on the use of the £1.5 billion reserve to help fill this gap.
I welcome the focus on climate adaption. Increasing heat will be a slow-motion killer, so homes must be built for cooling as well as warmth. Including air-to-air heat pumps and supporting communal ground source systems is vital. Passive measures are also needed. The plan’s emphasis on consumer-led energy flexibility is encouraging, with an ambition to triple solar by 2030. Integrating solar batteries, EVs and smart meters can turn homes into virtual power grid participants, cutting bills and easing pressures on the grid. However, this “rooftop revolution” will falter without faster grid connections, planning reform and more resources for local authorities.
The transition must create good jobs and uphold ethical standards. I supported the amendment from the noble Lord, Lord Alton, to the Great British Energy Bill on forced labour. Our clean energy revolution must not rest on exploitation. What measures are we undertaking with our EU partners and others to build our solar manufacturing capacity?
Despite the promising direction and other areas of overlap, this plan stands in isolation from Great British Energy and our community energy plans. This is a missed opportunity. We welcome the support for the UK heat pump industry but question whether £19 million will be enough. The dilution of deployment ambition is troubling—well below the 600,000 a year target by 2028. Even with a £7,500 grant, typical households still face a £5,000 shortfall, which will be too costly for many.
I reiterate the Liberal Democrats’ call for free heat pumps and insulation for low-income families. We welcome the innovation financing models but ask for greater details. Can the Minister assure the House that these will be properly regulated and transparent, and will not put people’s homes at risk?
The new rented sector standards, benefiting some 3 million over the next four years, are also welcome, but how will their effectiveness be measured? We welcome the warm homes agency as a single point of leadership. What more can be done to make sure that people are not the victims of energy scams? Can the Minister explain how the plan will be monitored and reviewed, and confirm some level of flexibility?
Too often in the past, insulation was missing or simply done badly. Government must work to restore confidence. It is essential that we do insulation and we do it well. Without insulation, the best technology cannot prevent heat loss.
Finally, I agree with the Opposition: we need energy market reform, and clean energy needs to be affordable. Electricity costs are too high; while they are that high, households will not change from fossil fuels, so we must balance levies and take them off bills.
To conclude, we welcome the ambition and the funding, but ambition must now be met with urgency, coherence and fairness. Ministers must close the funding gap, put insulation back at the heart, reform markets to make clean energy affordable, and back British workers and innovators. If Ministers rise to that challenge, this plan can deliver not just warmer homes but a fairer, cleaner and more secure future for Britain.
Offshore Wind
Lord Moynihan Excerpts(3 months, 2 weeks ago)
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Lord Moynihan (Con)
My Lords, I declare my interests. I am chair of Amey UK Ltd, Acteon and Buckthorn Partners LLP. As this is the first time that I have spoken to a Statement on an energy debate from the Front Bench since I was Minister for Energy, I inform the House that I have spent my working life in the energy sector. I was also Minister for Energy in the Margaret Thatcher and John Major Governments and aimed to maximise a low-cost oil and gas province in the UKCS, always emphasising production with the highest importance attached to the environmental impact of all offshore activity, while in 1990 simultaneously launching the non-fossil fuel obligation, the renewable support framework and establishing the UK renewable energy advisory group. I place that on record because that political experience informs the contributions that I intend to make and the questions that I will be asking.
It is axiomatic that we should judge the Statement against the principles of creating greater energy security; increased affordability to all consumers, both industrial and domestic; strengthening the base of low-cost, firm power in the grid; and moving towards cleaner energy. Every decision we take should be addressed against fuel poverty. How can this be so when the order promises the highest prices for intermittent offshore wind in over a decade? How can it be affordable to the UK industry when this order is still more expensive than the £80 per megawatt for gas—which goes down to £55 if you deduct the government-imposed carbon taxes? How can it be when the overall price of contract extension is 24% higher than last year? Why are the Government using the levelised cost of energy matrix when we should be using the only true cost comparator, a full systems cost? As it is intermittent power, do the Government acknowledge that we need more firm gas power plants anyway? Is it not the case that the Government told NESO that there need to be 40 gigawatts of backup generating capacity?
Let us look at what is happening this evening. At a time when the wind is hardly blowing, is it not the case that we are here, this evening, generating nearly 60% of our power from firm gas and only 18% throughout the whole of the United Kingdom from intermittent wind? Worse still, is it not the case that we are importing gas from an increasingly unstable global economy and burning more CO2 through imported LNG than we would if we developed our own resources to the full, while this minute continuing to burn biomass in Drax, which is more polluting than coal and comes, at this point in time, to only 50% of the total wind generation throughout the whole of the United Kingdom?
Does the Minister agree with Prime Minister Støre of Norway who, at the same time as the Secretary of State was making this announcement, faced the country and stated that he regarded Norway as facing many similar choices to us in the North Sea? He said:
“gas … is crucially important for Norway, and should be developed, not phased out”.
He also said:
“The oil and gas industry is crucial for Norwegian jobs and our welfare state. At the same time, Norwegian gas has never before been as important for European energy security as after Russia’s full-scale invasion of Ukraine”.
Does the Minister agree with him?
Does the Minister agree with Jensen Huang, the CEO of Nvidia, who came to these shores in September 2025 and stated on a visit that the UK will need to utilise natural gas-fired power alongside renewable energy to meet the massive energy demands of new artificial intelligence data centres? For without that strategy, we will have no chance of generating thousands of jobs with competitive new data centres.
We need to keep our eyes open to the economics of energy and to the wider UK economic and political consequences of this Statement and the Government’s energy policy. Does the Minister agree it reduces energy security by increasing the need to buy more foreign LNG to meet the need for firm power; that it increases unemployment through higher energy costs; and that it accelerates the Government’s deindustrialisation of the chemical and petrochemical industries, which was all over the news this weekend, by pricing them out of the market? It drives a coach and horses through affordability for households and industries alike, and it takes us in the direction of significantly increasing the cost of energy when the rest of the world is managing to reduce costs in a highly competitive global market.
Yet, in this order, are we not faced with record subsidy contracts for offshore wind? Is there not a rise in the annual budget for fixed-bottom offshore contracts from the £900 million when the terms were first announced in October—only three months ago—to £1.8 billion last week?
Is the consequence not a poorer UK economy and a loss of jobs from the once prosperous Aberdeen now facing the chill winds of offshore recession? Is it true these are massive wins to the Germans who totally dominated the round and won the lion’s share of the contracts?
I conclude by asking the Minister whether he agrees with the analysis in the FT of the article which covered this round. One reader wrote:
“We have … just about the highest electricity prices in the world despite access to relatively low cost North Sea gas…We have loads of gas boilers…so ongoing gas grid upgrades are required irrespective of…investment in extremely expensive renewables”.
Do the Government agree with Sir Dieter Helm that current UK electricity prices are high because the true system costs of integrating intermittent renewables—wind and solar—plus grid upgrades and back-up are not fully priced in? Does the Minister agree that we all want clean, low-cost renewable energy, and we all want, and can have, domestic gas production which has far lower impact on the environment than imported LNG or high-cost CO2 emissions from Drax? Why can we not strive to deliver a policy built on these three pillars? I look forward to the Minister’s reply.