Net-zero Emissions Target: Affordability

Lord Offord of Garvel Excerpts

Thursday 3rd April 2025 Lords Chamber

Moved by

[Lord Offord of Garvel]

To move that this House takes note of the affordability of achieving the net-zero emissions target by 2050.

[Lord Offord of Garvel (Con)]

My Lords, how appropriate that this debate should be scheduled on the day after President Trump told the world to grow up, play fair, pay its own way and become self-reliant. The stark reality is that the UK cannot become self-reliant with the most expensive energy in the OECD, hence the title of this debate: that this House takes note of the affordability of achieving the net-zero emissions target by 2050.

I begin by illuminating your Lordships’ House on my personal position on net zero. First, I am not a climate change denier. In fact, in September 2015 I had the great pleasure of going to the North Pole with David Hempleman-Adams, where I witnessed for myself the polar ice cap melting. Secondly, I attended COP 26 in Glasgow in November 2021 as the Scotland Office Minister, where I advocated enthusiastically for net zero 2050 and the leading role the UK played. I pay tribute to my noble friend Lord Sharma, who is in his place today: when the UK took the presidency of COP 26 in 2019, 30% of the world had signed up to the concept of net zero, and when he handed over the role two years later, 90% had done so.

When I recently took on the Opposition Front-Bench role on energy, I had no particular ideology on energy. But, like any sensible business executive taking on a new role, I threw myself into the brief and went on a journey of discovery to learn from external stakeholders and experts what net zero really means for the UK. I shall share what I have found with your Lordships’ House.

Perhaps I should open with just two caveats. The first is from Dieter Helm, considered an expert in these matters and not particularly party aligned. He says that in the UK we have one of the most complicated energy systems in the world. The second caveat is that with the vast sums of money at stake here, there are vested interests which are very loud and very vocal. With those two caveats, let me give your Lordships an overview of what I found on net zero.

In 2004, the UK was energy independent: we could meet our internal demand with our own supply. In the last 20 years, both Governments have reduced their hydrocarbon production such that we now import 40% of our total energy needs, costing £40 billion a year. The result is that the UK now has the highest electricity prices in the OECD: ours are five times those in the US and seven times China’s for industrial usage, and three times the US’s for domestic usage. These exorbitant energy prices mean that the UK has deindustrialised, such that our economy and employment is today 80% services and 20% manufactured goods.

The concept of net zero was to set a target of 2050 whereby we would switch our energy dependence from 75% hydrocarbons to 25% hydrocarbons. Yet today, in 2025, we remain stubbornly dependent on hydrocarbons for 72% of our energy needs, with 40% imported. The reality is that our 20-year experiment with renewables, mostly windmills and solar, has failed because the add-on costs of subsidies, levies and grid upgrades have doubled household bills. Their intermittency means they can never provide reliable and consistent baseload and that we will always be dependent on gas as our reserve.

Meanwhile, renewable storage is impractical. Today in the UK, we have storage for only 30 minutes. Even accessing all the world’s combined storage today would give us only 12 hours. All the while, the upgrades to the grid required to distribute intermittent renewable energy from remote wind and solar farms has been costed by Aurora at £116 billion over the next 10 years. That amounts to £4,000 extra per household or £400 per annum, all of which means that the real cost of renewables is vastly higher than for gas, which can be distributed through our existing grid network, while also being unreliable. Finally, there has been no employment benefit to the UK because most of the capital equipment is manufactured offshore, mostly in China, and only 58% of our highly skilled hydrocarbon workforce is transitioning to renewables and at wages one-third lower, which explains why our highly skilled workforce is haemorrhaging abroad.

In answering numerous questions on this topic, the Minister insists that our energy prices are high because of international gas markets. This is a false narrative. The reality is that from 2008, household electricity prices began to diverge from wholesale prices of gas and electricity, which were broadly stable until 2021 and the Ukraine crisis, so why did household electricity prices accelerate away from wholesale prices faster in the UK than in the rest of Europe in the same period? Indeed, UK industrial electricity prices today are six times the price of wholesale gas, versus three times that in Germany and two-and-a-half times that in France.

Something other than the international wholesale price of gas must be driving higher electricity prices in the UK—and we now know the answer. It is all the subsidies, levies, curtailment payments and grid upgrades required by renewables, particularly offshore wind. Over the next five years, the total cost to households of renewable subsidies and levies is estimated by the OBR to be £95 billion. That is £3,400, or a staggering £680 per annum, per household.

I now turn to baseload. The simple reason why renewables will never be a reliable baseload in any energy system is their intermittency. Sadly, in the UK sometimes the sun does not shine and the wind does not blow. In the UK, gas is relied on as a reserve energy of last resort, or baseload, when the intermittency of renewables means that there is either no supply at peak demand or too much supply at reduced demand. This means that no matter how many wind farms we build, we can never switch off our gas reserve, which in turn results in massive duplication.

As a simple market mechanism, the market price will be determined by the marginal price of switching the gas reserve on and off, which has the grotesque outcome that windfarms are making huge profits based on the marginal gas price rather than on their own costs of production plus a margin. Instead of making our own homegrown gas production cleaner and more efficient, we have weighed it down with the associated cost of offshore wind, such that 50% of the fuel costs of gas power stations are in the form of carbon tax.

Moreover, our gas fleet dates from the 1990s and early 2000s, and is running at only 40% efficiency. Modern combined cycle gas turbines are the most carbon-efficient way to produce power through gas, with emissions at 45% of coal-fired power stations. At current prices, new CCGTs could produce electricity at £65 per megawatt hour, compared with new offshore wind at £90 to £120 per megawatt hour. Their capital cost is £500,000 per megawatt compared with offshore wind at £3 million per megawatt—one-sixth of the price. They also give 100% efficiency, versus 40% for wind. Meanwhile, nuclear remains the most emission-compliant baseload, which is why in France the cost of electricity is half that in the UK.

I turn now to energy security. The geopolitics of 2025 mean that energy is no longer just industrial policy; it is at the very heart of national defence. The UK now imports 70% of its gas, largely from Norway and the USA—thankfully, both friendly nations. Of peak UK gas, 20% comes through the Langeled pipeline between Norway and the UK. What havoc would be unleashed in the UK if that pipeline was ever sabotaged?

It begs the question of why we are shutting down domestic production of oil and gas—which supports an entire sector of 200,000 jobs, brings much-needed tax revenue to the Exchequer and contributes to our net-zero target—while importing gas from the same North Sea via Norway. Why should we put ourselves at the mercy of Chinese imports for offshore wind?

There is an opportunity to reset the geopolitics of Europe. German industry has also been hit by high energy prices, caused by divestment from nuclear and subsequent overreliance on Russian gas. If we want to deweaponise energy in Europe, surely Britain’s role as a clean and efficient homegrown oil and gas producer is crucial to our energy security.

I put it to noble Lords that it is time for a rethink and that 2025 is a good year to reassess net zero by 2050. COP 26, which I attended in Glasgow in November 2021, represented peak global enthusiasm for net zero. The UK led the way, with a commitment to switch from 75% to 25% hydrocarbon use. It is interesting to note that just two months ago, in February, out of the 195 countries party to the Paris climate agreement, only 10 submitted updated climate targets to the UN. Of these, only three G20 countries submitted an updated target, and only one country reaffirmed a 2050 target with a pathway—the UK.

How can it be credible to shut down our homegrown gas baseload, when we account for 1% of global emissions? China is opening one coal-fired power station per week and contributes 31% of global emissions. The fact is that the UK’s extortionate energy prices are damaging our economy, yet the gas both offshore and under our feet in the post-industrial heartlands of central Scotland, the north and the Midlands could generate an exciting new industrial revolution. As good citizens of the world, the UK can legitimately retain the ambition to have the cleanest energy system by 2050, but only if it produces cheaper energy which will increase the prosperity and security of our citizens.

Net zero 2050 is a laudable ambition that was passed through the House of Commons in 70 minutes in 2019, without any real assessment of its achievability. It has now become a straitjacket that is preventing the UK from resuming our place in this modern world as an industrial, technological and military powerhouse. In 2025, it is now clear to see that it is neither practical nor affordable, and it behoves all of us to think again. That is why I am proud that my party and my leader, Kemi Badenoch, has had the courage to grasp this thorny nettle. She made it clear in her keynote speech two weeks ago that net zero 2050 is unachievable. This requires our party in opposition to do some serious work to set out an alternative plan for the citizens and businesses of the UK—a plan that, at its heart, is affordable.

--- Later in debate ---

[Lord Offord of Garvel (Con)]

My Lords, I thank all noble Lords who have contributed to this very important debate. I pay tribute to the noble Lord, Lord Rees of Easton, for a very elegant maiden speech. Of course, the whole point of debate is to challenge consensus, and I am delighted that I have been able to do that today. Was it not Benjamin Franklin who said that when everyone is thinking the same thing, no one is thinking?

Allow me to sum up as follows. Our energy is the most expensive in the developed world. This is self-inflicted and it is not fair on ordinary working people, who pay the price. It is grotesque and unfair to see billions of pounds in curtailment subsidies going to owners of what are quite often foreign-owned wind farms, just because the wind blows too hard at the wrong time. Net zero is a laudable aim, but the purpose of this debate is to ask how we reassess it, not remove it, because we are in danger that the public will begin to see this as the biggest transfer of money from the poor to the rich since feudal times. Make no mistake: these green levies and taxes on working people are viewed as attacks on working people and a drag anchor on our industry. We must not allow that to happen or to be the perception.

Therefore, my argument is simply that 2025 is 25 years away from net zero 2050, so this is a good time to reassess the plan in the light of reality and to re-evaluate our energy strategy, with the simple objective that we must make it affordable and secure. We are living in different times from when this was moved in 2019. We need to make our energy affordable and secure. We need to reindustrialise our great nation. We need to get our proud people back to work. We need to be strong and independent in an uncertain world. We may well need to rebuild our military capability to keep us strong and protect our citizens, but above all, we need to give comfort, security and prosperity to all the inhabitants of these islands.

Therefore, it is high time that this House takes note of the affordability of net zero 2050. I commend this Motion to your Lordships’ House.

Motion agreed.

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.

Climate Agenda

Lord Offord of Garvel Excerpts

Thursday 24th October 2024 Lords Chamber

[Lord Offord of Garvel (Con)]

My Lords, I thank the noble Lord, Lord Lilley, for tabling this debate. I also welcome my noble friend Lady May of Maidenhead to her place in this House and congratulate her on a first-class and compelling maiden speech.

Speaking on behalf of the Front Bench of His Majesty’s Opposition and having read the document, I begin by applauding the Government on their ambition in this area—the ambition to

“make Britain a clean energy superpower”.

This is something I think all sides of the House can agree on. I note that the energy mission is very specific and stated as being to cut bills, create jobs and deliver security with cheaper zero-carbon electricity by 2030, accelerating to net zero. This has been highlighted by my noble friend Lord Leicester. The practicality of this is an area that I should like to explore this afternoon.

To remind ourselves what we mean by net zero at 2050, we can say that today we power our economy by roughly 75% hydrocarbon and 25% renewable, and that our target by 2050 is to spin that on its head and make it 75% renewable and 25% hydrocarbon. We can all agree that it is a good target. What we are talking about today is how we get there and at what cost.

The first thing to say about net zero is that it does not mean zero hydrocarbon. Hydrocarbon is a very important part of our energy supply. We still have high-intensity industries in this country that we need to power. We have days when the sun does not shine or the wind does not blow. We have a baseload that we need to take care of. However, we have an opportunity to make our hydrocarbon the greenest in the world. The science and technology being deployed in the North Sea is extraordinary. There will be no flaring, there will be carbon capture and there will be the use of green hydrogen. The technology will allow us to have the greenest hydrocarbon fuels in the world, thereby not relying on bringing in dirty fuel from elsewhere.

We will surely end up with a balanced scorecard. Is that not the point of this? We will have 75% non-hydrocarbon, whether—pick a number—50% or 60% renewable and 15% or 25% nuclear. If we do this correctly, we will have a balanced scorecard, which will be to everybody’s benefit.

The philosophical question is: who are we to determine the mix? Should it be left to bottom-up forces to determine where the best solutions lie, as technologies emerge, or should it instead be imposed by top-down ideologies? My worry about the Government’s 2030 target is that it is artificially unrealistic and driven by ideology and politics rather than practical. If that is the case, what are the costs? Will this cost the British consumer on the journey that we feel sure we will achieve by 2050?

Why do I say that the Government’s ambitions are perhaps unrealistic? To take the calculation of leading analyst Cornwall Insight, if the renewables are principally solar, onshore and offshore wind, they will provide 44% of UK electricity by 2030. That is the date that the Government have in mind, but 67% is required to fully decarbonise the electricity system. These are two quite different numbers, and Cornwall Insight calculates that it would cost a whopping extra £48 billion, on top of the £18 billion already committed, to achieve that target by 2030. The British taxpayers will ultimately bear that cost, through a combination of higher consumer bills and higher taxes.

The first question I pose to the Minister is whether the Department for Energy Security and Net Zero and the Treasury completed an impact assessment of this timetable and the 2030 target, including a sensitivity analysis that clearly takes account of energy pricing and capital cost volatility.

On energy transition, there was consensus in the House that we will go from 75% to 25% or the other way round. The worry is that we do not want to do this at the point of endangering jobs and prosperity. Take, for example, the impact on the North Sea oil and gas sector. This sector employs 220,000 people in the UK. These are highly technical and well-paid jobs, 93,000 of which are in Scotland. The windfall tax imposed by the previous Government, however reluctantly, at least had the merit of being temporary until 2025. It could be justified as preventing short-term profiteering after the Ukraine war. The current Government’s plan to increase that to 78% and extend it to 2029 will create a massive disincentive to investors in this sector, which remains important to our economy. This will be a barrier to growth. As one American investor said to me recently, “We now consider west Africa a more stable and appealing investment environment than the UK”.

Labour’s proposed ban on awarding any new North Sea oil and gas licences has already spooked producers. For example, the three owners of the Buchan field, 120 miles off the shore of Aberdeen, have already delayed by a year their planned start to oil production, until they have clarity on the Government’s intentions. Be aware that these gas licences are already in the pipeline. Approval was given many years ago and they are already baked into our net-zero plan for 2050. They are already baked into the green hydrocarbon fields, which will still allow us to have a quarter of our energy from that important source. Delays in this regard are not to the benefit of anyone, consumers or otherwise.

Just look at how the North Sea transition should work practically, rather than ideologically. The fact is that the biggest investors in renewables in the North Sea are the hydrocarbon companies, as they are reinvesting their profits in renewables. They hold the two key components for an orderly transition to net zero from oil, gas and renewables—capital and people.

I will give the House an example on capital. I had the privilege of sitting on the North Sea Transition Forum while I was a Scotland Office Minister. One of the investors in the North Sea said their target for capex in 2025 was going to be 50% in hydrocarbon, 50% in renewables to get a blended return on capital of 12.5%. Being a private equity guy, I asked, “What is your return on capital on renewables?”. After a short silence and a slight look at the floor, it emerged that return on capital is quite low, about 5%. If you do the maths at 50:50, you work out that the return on capital on hydrocarbon is 20% to get your blended 12.5%. That is market economics because wind and water are, on the face of it, relatively cheap to capture, and therefore they are not expensive things to generate and one has a lower return on capital, whereas hydrocarbon is more difficult, especially in the deeper fields in the North Sea, requires a lot more expense and therefore has a higher cost of capital. The point is that one is funding the other, and you cannot disconnect the two.

On the second thing around people, I had the privilege in that period of going to the offshore wind farm at Kincardine, off Aberdeenshire, which is the biggest in the UK. Fun fact: if you are doing media, take them on the boat to Kincardine wind farm. The journalist was so ill on the journey that he could not ask me any questions. What is notable about the sheer scale and size of these floating turbines is the technology and engineering required to power and maintain them. The skills that have been developed in the deep sea offshore oil industry are now being deployed to create our offshore wind farms overseas. That expertise is sought around the world. I did a couple of trade missions to Chile and Mozambique, two countries with large coastlines. UK expertise is required to help the world understand how to do offshore wind farms.

Hydrocarbon companies have the key components of capital and people. If we accelerate the transition just for ideological purposes—just to say at conferences that we have brought our target forward by five years—and along the way we reduce capital in the system and make skilled people redundant, I am afraid we will not get the transition we all want. There will be no transition at all; it certainly will not be a just transition. It will result in needless job losses and project cost inflation to the great detriment of British consumers and taxpayers. Offshore Energies UK thinks that trajectory of shutting down the North Sea too early will result in 42,000 job losses, 25% of this critical and well-paid sector. So my second question for the Minister is: have DESNZ and the Treasury done any impact assessment on the jobs and prosperity to come from this ideological early acceleration of the North Sea transition?

The issue—ideology versus being practical—is also driven by top-down targets imposed by Governments. Is that the right thing that we should be doing? If we look at a couple of examples, such as what is happening with electric vehicles at the moment, we have actually managed to reduce—oh, I am way over my time. I will leave that there.

In conclusion, my worry is that we need to be more practical in how we deliver the transition, and we also need to allow technologies to emerge. They will provide the answer to the question we are facing. We do not wish to become like a telecoms company in the 1990s installing infrastructure for phone boxes, landlines and fax machines. We need to be savvy and technologically aware.