Strategy and Policy Statement for Energy Policy in Great Britain

Lord Naseby Excerpts

Monday 25th March 2024 Lords Chamber

[Lord Naseby (Con)]

My Lords, I welcome the speech from my noble friend and congratulate him on his dedication to this challenging industry. When one looks at the background to the document we have today, it is just over 10 years ago that the concept of a strategy and policy statement was introduced by the Act in 2013—and here we are now. We now have it, and the vehicle is to be this organisation, the NESO—I do not know exactly how to pronounce it.

It would be helpful for colleagues in the House if we had some indication of what the costs will be when NESO is actually established, as the sphere of influence it has to cover is massive—its responsibilities go right across electricity, gas and hydrogen—and it is no bad thing in life to know, before you start something, what the cost is likely to be. That at least provides you with criteria.

It is fortunate, or unfortunate, depending on one’s viewpoint—I had the privilege of serving on the Public Accounts Committee in the other place for some 12 years, as well as on the Select Committee on energy—that the National Audit Office published a report titled Decarbonising Home Heating on 18 March, precisely a week ago. Thankfully, I managed to pick it up. The summary of its investigations are, in effect, the first solid piece of evidence we have had in any depth on the particular area of home heating. We are talking about 28 million homes, which is a huge market, and the emissions that come from burning natural gas to heat homes. Reducing emissions from heating homes is a key component of the Government’s overall target of achieving net zero greenhouse gas emissions by 2050, and they have printed that here.

The report says, in paragraph 3 of its summary, that

“growing the supply chain for heat pumps to a minimum market capacity of 600,000 heat pump installations per year by 2028”

is the Government’s target. In the last 12 months, they have achieved 55,000, which seems like slow progress, quite frankly. Furthermore, it says that the Government are

“developing the evidence base to inform strategic decisions in 2026 on the future role of hydrogen in home heating”.

It seems to me that we should have done a fair bit of that work already, but apparently we have not.

Paragraph 4 says:

“The government also committed £6.6 billion from 2021-22 to 2024-25 for schemes to improve energy efficiency … This includes the Boiler Upgrade Scheme”,


which, equally, does not appear to be doing too well.

The report goes through a series of other points, with which I will not tire colleagues here, but it is well worth reading. I will, however, highlight points on some of the key findings. First, the NAO has established that some aspects of the

“plans to test the feasibility of hydrogen for home heating are behind schedule or have been cancelled, meaning it will have less evidence to make decisions in 2026 on the role of hydrogen”.

We know that British Gas has a trial going, and there is a small government trial, but I find that rather worrying. Secondly in relation to hydrogen,

“Ongoing uncertainty over the role of hydrogen could slow the progress of decarbonising home heating”.


The report goes on to say that the Government are thinking of using local government to play a role in establishing what to do about decarbonising home heating. As someone who had the privilege of being a leader of a local authority for some years, I do not think this is something, with a subject that is so important, that will be hugely welcomed by local government, which has more than enough on its plate.

As someone who comes from the world of advertising and marketing, I found it worrying to read, in paragraph 14 of the report, that the department has developed a campaign to promote heat pumps, but it does not seem to be getting through:

“public awareness is low: around 30% of respondents to a government survey in summer 2023 had never heard, or hardly knew anything, about the need to change the way homes are heated”.

This is all very worrying; we do not seem to be making the progress that we ought to be making.

There are a series of eight recommendations in the report; I will not go through them all, but I will pick out a couple. On page 12 of the summary—and remember this is the NAO, which is not prone to stating anything positive unless it feels quite strongly about it— recommendation c states that the department should:

“Consider whether it is possible to provide more certainty on the role of hydrogen in home heating before 2026 to help industry plan and invest”.


There are then some suggestions as to how that could be done.

Additionally, I have one other further area, and that is small nuclear reactors, which were not covered in the NAO report. It is worrying that we have known for at least three years that Rolls-Royce is geared up to do small nuclear reactors, and we have given it good money to work on them, but we are still not at a point where anybody is being appointed. There is a list of six potential people involved; some of them are not even ready now to do a proper pitch, and the rumour is that the pitch will be put back further because some of them are not ready. This slippage, all the way through, symbolises this market, and it is extremely worrying. It is possibly one of the most key areas of our industry and our lives when we talk about home heating.

I do not envy my noble friend on the Front Bench the job, and I thank him for his work so far. There is an awful long way to go, and even though His Majesty’s Government are not the vehicle for doing the communication, we must make sure there is better communication with the general public and that we should go forward together to meet the main policy objective in a way that is based on good science and good experience.

[Earl Russell (LD)]

My Lords, this is the first use of the power to designate a strategy and policy statement—SPS—for energy policy in Great Britain, which was introduced in the Energy Act 2013. The changes in that Act included the powers to establish a National Energy System Operator a new independent public corporation responsible for planning Britain’s electricity and gas networks and operating the electricity system. NESO will be required to have regard to the strategic priorities set out in the SPS and new duties for Ofgem, which are all contained in this statement. Can the Minister confirm that NESO will be set up this summer?

All that this statement does is to bring together existing policy and restate that policy in one coherent paper; the statement

“does not introduce new roles or duties for bodies in the sector, it is comprised of only existing government policy, commitments and targets”.

We broadly welcome the statement, but my first question is: why has it taken 11 years, since the Energy Act 2013, to get where we are today? It is 11 years late; we should have been revising the second edition by now. While key elements are welcome, there is much that remains unclear or subject to regular change going forward. I do not think this statement should last five years without review. Will the Government commit to more regular reviews, even an annual review, as we continue our process of transition?

The relationship between the National Energy System Operator and Ofgem is still undefined in this strategy, so when will this be defined? Will the Minister agree to give a further review as soon as NESO is set in place, so that its powers, functions and relationships can be fully scrutinised? The strategy document says that NESO has a duty to notify the Secretary of State if, at any time,

“it thinks that a policy outcome in the SPS is not...achievable”,

as has been stated by other speakers. What are the interim arrangements for the period until NESO is up and running if it decides that there are policies that are not achievable?

I worry also that Ofgem is not accountable to Parliament at the appropriate level of scrutiny for the new powers that are given to it under this policy. There seem to be some tensions for Ofgem between net-zero targets and promoting economic growth as set out in its core functions.

While I welcome the continued commitment to reach net zero, and I am thankful for all the work the Government have done, the Government need to do more at pace. There are key areas where progress is lagging, such as: the development of long-term energy storage; meeting targets, particularly for power generation to be decarbonised by 2030; and the ability to deliver the nuclear plan for a 24 gigawatt deployment by 2050, when many projects are running behind or are late. There are questions about whether we are still on track for offshore wind, following the collapse of the offshore wind auction this year. There are internal disagreements over the clean heat mechanism, and a year of delays means that the target for implementing heat pumps is in question, as we have heard. Emission targets for 2030 look unlikely to be met, the sixth carbon budget is behind schedule and the planned energy efficiency upgrade of ensuring that all properties achieve a rating of band C by 2030 does not have clear mechanisms to take it forward.

The Government are missing their own 2030 fuel poverty targets by 90%; we need a fair and just transition to net zero, yet fuel poverty is completely missing from this statement. I could not find the words in the document and neither does it make any mention of the Government’s own fuel poverty strategy. There is also no mention of the social energy tariff, and the rollout of smart meters is behind. We need more renewables, and we to do more to improve home insulation at scale and at pace. These matters need to be at the heart of our future energy polices, and it feels like they have been forgotten in these documents.

The mention of the EU-UK Trade and Cooperation Agreement is very welcome, as we are spending £1 billion extra a year on our energy bills. When do the Government think the strategic spatial energy plan will be ready? The policy states that the Government expect an investment of around £100 billion in the energy sector by 2030. Does the Minister agree that recent changes in government policy direction, particularly in relation to electric vehicles as well as on other matters, have caused market uncertainty and damaged investor confidence? What actions are the Government taking to ensure the long-term clarity and stability of our environmental policy?

--- Later in debate ---

[Lord Callanan (Con)]

My Lords, I thank all noble Lords who have taken part in this debate. First, I am confident that the strategic priorities and policy outcomes in the SPS clearly establish what the Government are trying to achieve in the sector. I think it got fairly widespread support and it established why this is important, demonstrating how these smaller policy outcomes contribute to the broader strategic priorities so that stakeholders can be reassured of how their role fits into the bigger picture.

I hope that the SPS gives industry a sufficiently high-level understanding of the roles, responsibilities and remit of government and the regulators in helping to deliver these objectives. Particularly in the case of NESO, we have provided enough information on the body’s remit to give confidence on the role that it will play when it is established, while also recognising that its responsibilities will evolve over time. As well as reaffirming our ambitions, this SPS will give encouragement to Ofgem to utilise the full range of its existing powers to ensure that those ambitions are realised and that stability and confidence are restored across the sector.

I move on to the points that were raised in the debate, starting with my noble friend Lady McIntosh. The SPS makes clear the importance of tackling fuel poverty, as was also raised by the noble Lord, Lord Lennie. Ofgem has conducted a call for evidence on the standing charges issue. I know it is a very topical issue; there is a lot of concern. Ofgem received over 40,000 responses to that consultation. It is reviewing those responses. The Government are liaising closely with Ofgem to understand the options going forward. It is an independent regulator, and it would not be right to interfere in the decisions that it will make, but we do understand the concern that has been raised.

The NESO will be funded and regulated by Ofgem through licences and the price control process, as is the case with the electricity and gas system operators today. That is a well-known model, understood widely across the sector. The approach will provide accountability, scrutiny and, of course, value for money, while ensuring that the NESO is able to deliver fully on its objectives.

As part of agreeing future price controls, Ofgem will ensure that NESO is fully resourced to fulfil its objectives and the obligations set out in its licence, including the funding of its statutory duties such as those towards innovation and keeping developments in the energy sector under review. As with other regulated bodies in the sector, the NESO will have the operational freedom it needs to manage and organise itself to effectively deliver its roles and objectives.

I move on to the points raised by my noble friend Lord Naseby. He quoted extensively from the National Audit Office report on home heating. That is of course different from what we are debating today, but he raised some very good points, particularly on the rollout of heat pumps et cetera, on which I agree. My noble friend will be aware that we took a decision not to proceed with the hydrogen village trial last year. That was due chiefly to the lack of available hydrogen, but it also took into account the real concerns that were raised by many members of the public in that area. It is undoubtedly the case that electrification will provide the vast majority of the decarbonisation options in home heating; hydrogen will play a very limited role, if any, in the decarbonisation of heating.

In response to the questions raised by the noble Earl, Lord Russell, and the noble Lord, Lord Lennie, our aim continues to be for the NESO to be operational in 2024, depending on a number of factors including agreeing timelines with various key parties.

On the review of the SPS, I confirm that the Secretary of State can review the strategy and policy statement at any time—for example, following a general election or a significant change in energy policy.

On the questions raised by the noble Earl, Lord Russell, about the rules and responsibilities of NESO, I confirm that we have set out the roles and responsibilities of government, Ofgem and NESO at a high level in the SPS. The Government set the policy direction, while Ofgem is the independent regulator and makes decisions on business and investment plans. NESO will be the whole system planner, the operator of the electricity system, and the expert adviser to the Government and Ofgem as key decision-makers.

We are currently developing a framework agreement, which will set out the relationship between the Government as the shareholder and NESO. We plan to publish this shortly after designation. The specific roles and obligations of NESO will be set out in its licences, on which Ofgem undertook an initial consultation last year. We are due to undertake a statutory consultation this spring. However, as mentioned previously, we expect that NESO’s role and remit will continue to evolve over time as energy policy develops.

On NESO not being able to raise concerns over the achievability of SPS outcomes until it is established, I reassure the noble Lord that Ofgem will also have a responsibility to raise concerns over achievability. We are already in frequent dialogue with the current electricity system operator, on which NESO will be based, where the Government’s ambitions for energy are regularly discussed.

Finally, I move on to the point made by the noble Lord, Lord Lennie, on why now is the right time for the SPS. The Energy Act 2023 introduced new measures and established the independent system operator and planner in the first place as NESO. We thought that now was a good time—to reply to the point about major policy changes—to develop strategic guidance to explain exactly how we believe that Ofgem, government and NESO would work together to meet the Government’s energy priorities going forward.

I hope I have been able to deal with all the points raised by noble Lords.

[Lord Naseby (Con)]

Can my noble friend answer the question about small nuclear reactors? There has been consistent delay after delay. Are we going to get a decision in this calendar year?

[Lord Callanan (Con)]

That is not the subject of this particular policy statement, but my understanding is that Great British Nuclear is currently reviewing the various designs, having instituted a competition to try to pick the best design going forward. I do not know the precise timescale for responding to that, but I will certainly find out and write to the noble Lord.

Civil Nuclear Road Map

Lord Naseby Excerpts

Monday 15th January 2024 Lords Chamber

[Lord Callanan (Con)]

The noble Baroness makes a very valid point. We are looking forward to the upcoming findings of the nuclear skills taskforce, very ably chaired by Sir Simon Bollom. I am sure he will have some interesting comments and observations for us in taking forward the diverse needs of the workforce.

[Lord Naseby (Con)]

Is my noble friend in a position to tell us when there will be a move forward on the advanced small modular reactors? My understanding of the background is that Rolls-Royce has been ready for the best part of two years, and I understand the same is true for the competitors, which are supposed to be bidding in due course.

[Lord Callanan (Con)]

I am happy to reassure my noble friend. We have given Rolls-Royce £210 million to help in the development of the next phase of small modular reactors. There are a number of competing technologies. Great British Nuclear will be making progress on selecting the most appropriate technology in the months and years to come.

Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023

Lord Naseby Excerpts

Monday 18th December 2023 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, these regulations were laid before the House on 8 November this year. On 26 October, the Energy Act 2023 received Royal Assent. The Act provides a legislative framework for hydrogen, including provisions relating to the hydrogen production business model—a funding model to support the production and use of low-carbon hydrogen in the United Kingdom. Delivering this policy will be essential to kick-start the hydrogen economy and move towards the Government’s ambition to have up to 10 gigawatts of low-carbon hydrogen production capacity by 2030, as set out in the British Energy Security Strategy.

Under the business model, projects will be paid a subsidy for the hydrogen produced through a revenue support contract, similar to the highly successful contracts for difference for low-carbon electricity production. The business model, contracts for hydrogen, will be managed by a hydrogen production counterparty. Initial projects are to be selected through allocation rounds run by the Department for Energy Security and Net Zero. To receive business model support, a project must be an

“eligible low carbon hydrogen producer”.

Where such a project is allocated support, the Secretary of State will issue a direction to the hydrogen production counterparty to offer to contract with that project.

I hope noble Lords noticed that, last week, we announced 11 major new electrolytic hydrogen projects across the UK that will be offered support under the hydrogen production business model. This represents the largest number of commercial-scale green-hydrogen production projects announced at once anywhere in Europe. These new projects, stretching all over the country from the south-west of England and south Wales to the Highlands of Scotland, will invest over £400 million up front over the next three years, in a major boost to the UK’s green economy. In addition, CCUS-enabled hydrogen projects have also been shortlisted through the track 1 phase 2 cluster sequencing process.

I turn now to the detail of the regulations and their important role in all this. Fundamentally, the regulations satisfy the duty in Section 66(4) of the Energy Act 2023 by determining the meaning of “eligible” in relation to a low-carbon hydrogen producer. They tell the world who can be eligible for support.

The regulations set out that only new hydrogen production facilities, or existing hydrogen production facilities adding new production capacity, that can demonstrate that their proposal for the production of hydrogen is capable of complying with the UK low-carbon hydrogen standard, will be considered eligible. This will ensure that eligibility keeps pace with how the Government define low-carbon hydrogen. I recall that a number of amendments tabled during the passage of the Energy Act 2023 sought to ensure that regulations on eligibility made reference to the low-carbon hydrogen standard, so I hope that the Committee will welcome these provisions.

The regulations also set out the process by which the Secretary of State may direct a counterparty to offer to contract with an eligible low-carbon hydrogen producer. This follows a similar approach to contracts for difference, with which industry is very familiar. Similarly, the regulations include requirements for a counterparty to publish the full contracts entered into and establish a public register of key information. As noble Lords would expect, such publication is of course subject to redaction of confidential information and personal data. The regulations also set out various requirements in respect of Secretary of State directions to a counterparty. They include the circumstances in which directions cease to have effect and enable the Secretary of State to revoke a direction before it has been accepted.

Furthermore, the regulations require a counterparty to promptly notify the Secretary of State if it is, or considers it likely to be, unable to carry out its functions. Your Lordships may think such a provision sounds familiar, and indeed it is; it is very similar to the approach taken by the Nuclear Regulated Asset Base Model (Revenue Collection) Regulations 2023, which I am sure the Committee is following very closely.

The department has considered the content of these regulations extremely carefully. We carried out a full public consultation earlier this year, seeking views on the principles enshrined in the regulations and satisfying the statutory requirement to consult, as set out in the Energy Act 2023. We received 28 responses from various organisations and members of the public. We carefully considered all of them, although I am pleased that the majority supported our proposals. Accordingly, in our government response, which we published on 30 October, we set out plans to proceed largely as proposed, albeit with some amendments made in response to the feedback that we received.

This secondary legislation represents an essential step for implementing the hydrogen production business model to ensure that we can support the deployment of low-carbon hydrogen projects to achieve those 2030 ambitions, to improve our energy security and to help achieve net zero. I therefore commend these draft regulations to the Committee.

[Lord Naseby (Con)]

My Lords, I very much welcome this statutory instrument and congratulate His Majesty’s Government on bringing it forward so speedily. I just wonder whether my noble friend has any idea of how many potential clients there are in the United Kingdom. That would be interesting in itself.

Regulation 2(4), on page 2, defining an

“eligible low carbon hydrogen producer”,

is very sensible and has thankfully been included. Of course, because of the publicity for the domestic trial in the north-east of England, hydrogen is getting a bit of an unfortunate image. I am not sure whether any incentive can be produced to help the local communities—which I would say are getting difficult, but let us say they are being very careful—to do those trials. If there is not, there is not, but this is a negative reaction and not one I welcome.

Finally, it is usual for most statutory instruments, certainly the ones on which I comment, to have a sunset clause for review. I do not see one, unless I have missed it, but that would have helped.

[Lord Teverson (LD)]

My Lords, as always, I thank the Minister for his excellent explanation of this secondary legislation and welcome how we are now moving forward at some pace on the hydrogen front. I also welcome the Government’s announcement that they are moving ahead with the carbon border adjustment mechanism, even though it is one year after the EU has done so. I do not know what has happened in the middle, as far as SME exports and that side is concerned. Their commitment to energy efficiency after the election perhaps raises some questions, but at least there is some intended movement there.

I also welcome the Government finally giving up on the hydrogen villages in England. This was clearly never going to happen or be real, and I am sure the Minister was at the forefront of those talking sense to his Secretary of State on that area, which is excellent.

As background, I read through the hydrogen standard. As it is Christmas, I was going to ask the Minister to explain the formula in there, because I could not understand it either. There is a training video on how to understand it, which I will watch on Boxing Day rather than before.

Limiting Global Temperature Increase

Lord Naseby Excerpts

Wednesday 13th December 2023 Lords Chamber

[Lord Callanan (Con)]

There was a whole series of questions in the noble Lord’s statement. This was an international agreement, involving almost 200 countries. Is it perfect? Is it everything we would have wanted? No, but it is certainly a great achievement by our extremely hard-working negotiating team. I do not agree with the noble Lord on the second part of his question about licensing and increased production in the North Sea. Even if they come on stream, the output in the North Sea will still continue to decline and we are still committed to phasing out oil and gas production.

[Lord Naseby (Con)]

Will my noble friend reflect that it is not just carte blanche? There will be situations where an oil company finds a new field, perhaps like the one 200 miles north of the Falklands, where the quality of the oil is far better than the oil that we produce in the North Sea, and it would make economic sense to substitute one for the other in the future. Then at some stage, that field will be reduced. It is not absolutely static, is it? We now want a situation where the industry decreases but at the same time improves the product.

[Lord Callanan (Con)]

My noble friend is right, in that different circumstances will apply to many countries, but we are very clear about the trajectory that we are on. We need to bear in mind that this is a transition. It cannot happen overnight, but we are clear on the direction in which we are travelling.

Hydrogen Heating

Lord Naseby Excerpts

Monday 11th December 2023 Lords Chamber

[Lord Callanan (Con)]

I agree with the noble Lord that energy efficiency and insulation are extremely important. That is why we are spending £6.5 billion over this Parliament on insulation, energy efficiency and clean heat measures; but, of course, there is always a lot more to do and we will have more to say on that shortly.

[Lord Naseby (Con)]

Is it not extraordinary that Germany appears to have decided that all its heating for domestic should be in a hydrogen/gas mix, and there are apparently at least four or five other European countries far ahead of us? How is it that the national infrastructure plan can ignore the work that appears to be being done on hydrogen on the ground in this country, with factories being built at the moment for the use of transport and all the extensive work being carried out in trials?

[Lord Callanan (Con)]

I do not think my noble friend is correct about attitudes in Germany. The latest information I have is that 10 homes in Germany—no more than that—are subject to the trial. The issue of blending hydrogen into the gas network is of course a separate issue, and that too is something on which we will have more to say shortly.

Climate Financing

Lord Naseby Excerpts

Tuesday 17th October 2023 Lords Chamber

[Lord Callanan (Con)]

We are proud of our record on helping the global south to relieve its debts. We have one of the largest programmes of international aid alongside our programmes on international climate finance. Of course, there is always much to be done, but we can be very proud of the record that this country maintains.

[Lord Naseby (Con)]

My noble friend rightly mentions developing countries. He will well know that the emphasis that he gives is much appreciated. Within that, is he aware of the parlous state of the small islands and the worry that they have about their future? Is he prepared to make a commitment today that they in particular will continue to be a priority for His Majesty’s Government?

[Lord Callanan (Con)]

Of course I can give that commitment to my noble friend.

Offshore Wind

Lord Naseby Excerpts

Monday 11th September 2023 Lords Chamber

[Lord Callanan (Con)]

Again, there is no complacency. I understand that there are many projects wanting the go-ahead, but we must be careful in making sure that the consumer gets a fair deal. Lots were consented to last year; I am sure that lots will be consented to in the future. The noble Lord talks about onshore wind. I am pleased to tell him that 24 onshore wind projects were consented to and were successful in this round, totalling 888 megawatts.

[Lord Naseby (Con)]

Is my noble friend aware that a number of us have taken an interest in this market, recognising the enormous steps that His Majesty’s Government have taken on the development of offshore wind? At a time when it is stated that we are facing a possible bill of £65 billion to replace the internal grid to all our homes in the United Kingdom, is it not more appropriate that the resources we do have should be used for research such as that into the mix of hydrogen with LPG to see whether it can be used in the existing pipelines available to every house in the country?

[Lord Callanan (Con)]

The noble Lord asks a lot of different questions within what he said. I think his figure of £65 billion refers to the cost of upgrading property to EPC level C, which is a long-term aim. His separate question on hydrogen for heating is indeed a controversial subject. We will make a decision on whether to go ahead with a hydrogen village trial by the end of the year. Similarly, another issue facing us is whether to allow blending of hydrogen into the gas network; you can blend up to about 25% with the current network. Again, that is an issue where, frankly, there are a lot of pros and cons on both sides of the argument. We will make a decision on that by the end of the year as well.

Electricity Capacity (Amendment) Regulations 2023

Lord Naseby Excerpts

Wednesday 5th July 2023 Grand Committee

In conclusion, this draft instrument introduces a number of technical provisions which are necessary to enable the continued efficient operation of the capacity market, so that it can continue to deliver on its objectives. I commend these regulations to the Committee.

[Lord Naseby (Con)]

My Lords, I will concentrate on the Explanatory Memorandum in relation to the capacity market. As I understand it, last winter something did not go quite right in the sense that, at a certain point we had to use coal, which had not been planned for. Perhaps the Minister will correct me if it had been planned for, but my understanding is that it was not planned for. As we look at the coming winter, we have just experienced one of the hottest Junes ever and it is not inconceivable that we could have the coldest winter ever. As I understand it, there is definitely no coal available for this coming winter. Is that right? If the coal is not there, where is the extra capacity to come from?

I also notice that, for some reason, His Majesty’s Government have postponed bringing on small-scale nuclear. A number of us have kept a close watch on Rolls-Royce in particular, which I understand has been ready to get moving on small-scale nuclear, which would be part of a capacity situation. I am deeply concerned—and I am looking for a confident answer from my noble friend—that if we hit a really cold winter this year, we have the capacity for something to come on stream. There would be nothing worse for the United Kingdom as a whole if we found that we needed black- outs and fuel cuts.

[Baroness Walmsley (LD)]

My Lords, I inform the Committee that I have a close family member who works for Ofgem. He is responsible for energy security and has been making plans for next winter, but I have not discussed this SI with him.

The capacity market, brought in by a Liberal Democrat Secretary of State, has been a great success. This statutory instrument aims to continue that success by improving the processes and reducing the administrative burden. We are all in favour of that, especially the flexibility that makes it easier to transfer from capacity market schemes to contracts for difference, where appropriate. However, I have a few questions for the Minister about the scheme in general.

First, how well are the Government succeeding in minimising the use of fossil fuels in the capacity market? What percentage is expected to be clean energy, and within what timescale? I was glad to hear the Minister say in his introduction that there will be an emissions limit on those applying.

Secondly, what is the Government’s aim for enabling demand reduction, and what percentage of bids do they want to see for the demand-side reductions? This is just as important as generation if we are to decarbonise and reduce the potentially enormous grid capacity increase needed to reach net zero. How many of the successful companies in offshore wind round 4 auctions have reached financial close for their projects—that is, they have agreed their financing requirements to deliver the scheme with financial institutions? As I understand it, only one successful bidder has yet managed to reach financial close on their project, so the whole programme of offshore wind coming on stream is coming to a halt.

Moray West offshore wind farm, owned by Ocean Winds and minority shareholder Ignitis Group, has secured £2 billion of non-recourse project finance. Initially, bids were famously low, but with inflation now across the supply chain, perhaps the numbers do not add up for most of the schemes. How are the Government going to solve this? Given the financial situation, can the Minister say whether it is still wise to have most capacity market schemes for only 12-month projects?

I look forward to the Minister’s reply—particularly to the questions about coal.

Heat and Buildings Strategy: Gas Boilers

Lord Naseby Excerpts

Tuesday 28th February 2023 Lords Chamber

[Lord Callanan (Con)]

The noble Lord is right to an extent. At the moment, hydrogen heating for homes is an unproven technology, which is why we need to carry out trials and research to ascertain whether it is a viable technology. In the meantime, we know that heat pumps and electrification work and are operable technologies, which is why we support them.

[Lord Naseby (Con)]

My Lords, I remind my noble friend the Minister that there are millions and millions of terraced houses throughout the United Kingdom. It is absolutely impossible for them to have heat pumps. Against that situation, would it not be much more sensible to ask the gas industry to produce, in the interim, new boilers that are less difficult in relation to zero carbon? In addition, the point that was just made about hydrogen seems equally relevant to me.

[Lord Callanan (Con)]

I am afraid that I do not agree with my noble friend. It is perfectly possible for heat pumps to be used in terraced properties. The thing about the UK is that there is a multiplicity of different property types and flavours; not all solutions will be appropriate for all properties, so we need to look at a number of options. We also need to continue to improve the efficiency and effectiveness of gas boilers. In whatever scenario, there will still be millions of gas boilers fitted in existing properties in the next few years; there is more that we can do to improve existing efficiencies.