Renewable Energy: Costs

Lord Offord of Garvel Excerpts

Thursday 14th November 2024 Lords Chamber

[Lord Offord of Garvel (Con)]

My Lords, it is a pleasure to wind up this interesting debate on energy on behalf of the Opposition. Indeed, it is the second such debate we have had in the last two weeks, with a third to come on Monday as we begin the discussion on GB Energy.

It is worth framing this debate in the context of the new Government’s stated ambition on this topic, which is to make Britain a clean energy superpower. They are now bringing forward specific proposals for cheaper zero-carbon electricity by 2030, accelerating to net zero.

It is worth reflecting again on the consensus that exists on net zero: that we have set a target of 2050; that at the moment the majority of our power—roughly three-quarters—comes from hydrocarbons and a quarter from non-hydrocarbons; and that our objective, over one generation, is to flip that on its head so that a maximum of a quarter comes from hydrocarbons, which will be green hydrocarbons, and three-quarters from non-hydrocarbons.

As to what that mix, or matrix, might look like, we have used words in the past such as a “balanced scorecard”. We have also discussed the fact that 2024 may not be the right moment to accurately predict what will make up that matrix or scorecard. We know the direction of travel, but as the noble Lord, Lord Browne, has mentioned, technology is advancing rapidly and costs will move accordingly. Therefore, there will be a debate to be had on how we move forward and in which area.

It is interesting, therefore, having set that scene, to think about the specific proposals we will be considering next week, because this is the first concrete step on this Government’s journey to that end. The keyword here is “accelerating”. A number of noble Lords have already expressed concern about this concept of accelerating, and why and how we do that.

Coming before us will be the Great British Energy Bill, and the Budget committed £8 billion of funds as a key enabler of the zero-carbon electricity target of 2030, which has been brought forward by five years. The NESO report has described the ambition to achieve zero-carbon electricity by 2030 as “immensely challenging”, requiring the UK to double its onshore wind capacity and triple its solar power; and it will depend on flexible power demand—a euphemism for rationing.

That is quite a considerable statement by NESO, and a number of experts have raised concerns that this is going to be too aggressive. In fact, as we know, the analyst Cornwall Insight says that we are on track to get 44% from renewables, but that decarbonising the electricity grid completely would require getting to 67%. That is a long way off, and we estimate that that will cost an extra £50 billion.

I think the point the noble Lord, Lord Elliott, was making is this. These are great targets to have, but the Scottish Government, for example, have had to roll back very considerably on targets that were set, it would appear, more for grandstanding than in reality. I think we all agree that we do not want to set false targets that we cannot achieve, when we have an opportunity to do this in the right way and in a considered fashion.

Turning to the Great British Energy Bill that is coming up next week, I am concerned that the Government may have to manage public expectations on this matter. I gained some direct understanding of this a couple of months ago when I was in Irvine for the BBC’s “Any Questions?” The audience was convinced that GB Energy will be a new low-cost energy supplier, and was quite taken with the figure being bandied around of £300 per household. Rightly or wrongly, this is now in the public domain. In reality, as we will next discover week, GB Energy is simply an investment fund that will channel £8 billion of taxpayers’ money into renewables, principally offshore wind farms.

That may or may not be the right thing to do, but at the moment that sector is well invested in by the private sector. There is already £35 billion of private sector money in offshore renewables, projected to rise to £60 billion. This is a well-functioning market, so why does the taxpayer need to put £8 billion into a sector that is already well invested in?

If we take the £300 per household and multiply it by 28 million households, by compete coincidence that comes to £8 billion. Therefore, one has to double one’s money in five years—by 2030. Renewables is a low return on investment category, in the region of 5%, whereas hydrocarbon is a high return on capital category, in the region of 20%. The private sector has been investing renewables over a 20-year period and does not contemplate doubling its money in the space of five years, so why would the taxpayer expect to be able to do something different and double the money in five years? It is, frankly, beyond me, and we will get to the point where these numbers will be interrogated and will need to be backed up.

It has also been asked whether, if there is a spare £8 billion going and we are told that money is tight, the taxpayer should be considering getting rid of some of the bottlenecks in the system. Should we be thinking about some of the plumbing, for example? Should the money be invested instead in the national grid?

The national grid was built in the 1960s and ’70s, when energy was generated in coal-fired power stations in Scunthorpe and had to be sent to Orkney, which was considered a remote region and therefore had to pay more for its energy. Today, the majority of the wind farms are off Orkney and now send energy back to Scunthorpe, but at the moment the pipes do not allow for that to happen. There is no storage capacity in the meantime, which is why we have this ridiculous concept of curtailment payments and subsidies to switch off wind farms when the wind blows and keep the gas-fired power stations open when the wind does not blow. Given this, a lot of thought needs to be put into how we proceed.

As the noble Baroness, Lady Finn, said, the real issue is that our electricity is too expensive. Our energy in the UK is too expensive. The cost of living crisis has been driven largely by the fact that basics—energy, housing and transport—are too expensive in the UK. Any Government of any shape or form should be working hard to bring down these costs. Why should it be that UK consumers are paying 43% more than French consumers in domestic usage and 83% more than the French in industrial usage? That should be the focus of government activity, rather than piling into a sector that is already well covered by the private sector as things stand. If we see the likes of the OBR saying that the levies will rise by £3 billion, which is £100 per household, and if the IFS is correct that these levies are fundamentally raising prices for consumers, I do not understand how that ties in with the narrative of any Government saying that we need to make the lives of our citizens better by urgently bringing energy prices down and not up.

I conclude by coming to the precise events on this issue that we saw in the other place last week, when the Government voted against an amendment to cut bills by £300, which they had promised would be a strategic priority for Great British Energy. That might be the wrong number, but can we please have some analysis on what the number will be? Why did the Government vote against an amendment that would hold them to their word if, at the end of the day, that is to the detriment of the British consumer? I am sure that we will get into this next week. When we come to the Second Reading, I will ask the Minister to confirm that these energy policies will cut energy prices as promised, and by how much.