Power Struggle: Delivering Great Britain’s Electricity Grid Infrastructure (Industry and Regulators Committee Report)

Viscount Chandos Excerpts

Tuesday 4th November 2025 Grand Committee

[Viscount Chandos (Lab)]

My Lords, I am delighted to be able to speak in this debate and have been privileged to be a member of the Industry and Regulators Committee that produced the report. My noble friend Lady Taylor of Bolton has introduced this afternoon’s debate with the same incisiveness and wisdom as she showed in chairing the committee and leading the consideration of this vitally important subject. I join her in thanking the committee team for their indefatigable work in the inquiry and those who gave generously of their time in providing both oral and written evidence.

I declare my interests as disclosed in the register, in particular as a shareholder in Greencoat UK Wind plc, and, since the publication of the report, a director of Digbeth Loc. Studios, a film and television studio in Birmingham whose operations require significant and increasing amounts of electricity.

As the committee considered at the turn of the year possible topics for the next inquiry, a theme emerged of the cost of energy and the implications for the competitiveness of UK business in particular, all in the context of what had been at that point a cross-party commitment to a fully decarbonised electricity system by 2035 at the latest. The Labour Government have advanced the target to 2030. We could identify on the one hand new and growing sources of electricity—wind, solar and a revived nuclear programme—and on the other hand, new or hugely increased users of electricity such as power-hungry, AI-focused data centres, which are so important for achieving faster economic growth.

The new users of electricity may account for only a proportion of future demand, albeit a large part of future growth, with domestic and traditional business still dominant. In contrast, however, renewable energy is essential to achieving the decarbonised target and, ultimately, net zero, and will represent the majority of future supply.

We realise that what linked, both physically and metaphorically, the new sources and both the old and new demand was the network infrastructure and that the changes in train presented immense challenges to the system. I believe that the report which has resulted is a powerful but fair analysis of these challenges— 1,000 kilometres of new onshore infrastructure and over 4,500 kilometres of offshore infrastructure needed with a price tag of at least £60 billion. This will need to be built over the next five years, as my noble friend Lady Taylor said, at four times the annual rate achieved in the previous 10 years.

Our witnesses were uniformly confident that these targets could be met but it was hard, without disrespect to the capable and committed people responsible for delivering this, not to hear echoes of an EFL League One football manager’s bravado when drawn to play a top Premier League club in the FA Cup. My noble friend is better placed than me to say what the odds are in those circumstances.

The committee identified a number of key changes which would help these targets to be met and made recommendations accordingly—reform of the connections queue, changes to the planning system which, as has already been said, is vital to other areas of investment and growth such as housing and transport infrastructure, and an increased role for the National Infrastructure Commission. The Government’s response would indicate that they have identified and/or accepted these points even if they are not immediately able to find the silver bullet which would ensure that the necessary changes are made.

As I have just said, the committee was generally impressed with the witnesses at the centre of delivering these targets; in particular, the National Energy System Operator, NESO, seemed to have hit the ground running. Without being churlish though, it would have been disappointing if that had not been the case given that it is based around ESO, the Electricity System Operator, acquired in September last year from National Grid Group for a reported £630 million. Although the noble Lord, Lord Teverson, referred to it as an organisation that had started last October, it had long roots.

Negotiations for this transaction had commenced under the previous Government but were completed only in the early months of the new Labour Government. I ask my noble friend the Minister: what was the basis of the valuation for the acquisition? Is the funding of NESO essentially the same as that which applied to ESO, a levy paid ultimately by consumers? What is the surplus expected to be in NESO’s first 12 months, which have now ended?

I will use my remaining time to probe the Government on what was generally seen as the single biggest policy issue for the electricity market: zonal pricing, to which my noble friend Lady Taylor has already spoken so cogently. The committee recognised the complexity of, and the issues raised by, zonal pricing but, as my noble friend said, concluded that, on balance, it should be introduced.

The scale of building and investment needed to meet the network requirement is massive and it is not just a matter of cost—with network costs being over 20% of prices ultimately paid—but more importantly the risk that the grid becomes the weak link in the chain. We could achieve all the targets for building new wind, solar and nuclear power plants, but if the network does not have the necessary capacity and connectivity, much of this investment—as is already the case with some wind farms in Scotland—may deliver poor returns economically and in service delivery.

Coal was bulky and heavy to transport and required road or rail infrastructure that made it totally logical, from the Victorian era onwards, for the steel industry, for instance, to be located close to the coal fields and mines. Electricity may be lighter than coal to transport, but it still requires increased network infrastructure that carries not just a high cost but imposes massive logistical challenges in building it to the necessary timetable. If zonal pricing could reduce even marginally the amount of additional infrastructure that is needed, it could have a disproportionate impact on the likelihood of the network having the capacity for the needs of the late 2020s and into the 2030s.

I was therefore disappointed that the Government announced in July that they would not introduce zonal pricing but rather have

“concluded that reforming the system while retaining a single national wholesale price is the right way to deliver a fair, affordable, secure, and efficient electricity system”.

As I have already said, I recognise that this is not an easy judgment to make. Professor Sir Dieter Helm, my go-to guru on energy regulation, published a penetrating and nuanced analysis soon after the publication of our report, which was sceptical about the practical effectiveness of zonal pricing. Could my noble friend the Minister give any more details of the reforms the Government have in mind to the existing wholesale price system to enhance the security and efficiency of the network, equivalent to what might have been achieved by zonal pricing?

I recognise the importance of stability and predictability in fostering investor confidence, which is critical to mobilising the levels of investment needed. I therefore reluctantly accept that zonal pricing should probably now be off the table. However, this places all the more responsibility on the Government to introduce effective reforms to the national pricing system instead.