Energy Trilemma

Debate between Alistair Carmichael and Andrea Leadsom

Thursday 23rd March 2023 Commons Chamber

[Dame Andrea Leadsom (South Northamptonshire) (Con)]

I beg to move,

That this House has considered the matter of tackling the energy trilemma.

I am grateful to the Backbench Business Committee and to the many colleagues from across the parties who have supported today’s important debate on tackling the energy trilemma. It is perhaps the most critical issue facing us today. Putin’s invasion of Ukraine highlighted the extraordinary pressure on the energy systems of countries right across the world, and also demonstrated the crucial importance of energy sovereignty. For us in the UK, although the risk to security of supply remains low, the Russian invasion has demonstrated as never before the importance of balance in tackling the energy trilemma.

We can think of the energy trilemma as being a bit like a three-legged stool. Its three equally important legs are first, keeping the lights on; secondly, keeping the cost of energy bills down; and thirdly, decarbonising right across the world. If we are to sit comfortably on that stool, all three legs must be in balance, and be given equal consideration. Achieving that balance is by no means easy. As chairman of the 1922 Back-Bench committee on business, energy and industrial strategy, I have, along with my hon. Friend the Member for Stoke-on-Trent Central (Jo Gideon), who is vice-chairman of the committee and is here, the noble Lord Lilley, the vice-chairman of the committee from the other place, and other colleagues from across our two Houses, been looking in detail at the practical steps that need to be taken to meet this enormous challenge.

The Government are, I know, already working hard to tackle the energy trilemma, but while they already have a great deal in hand, a shove here and a push there could make a huge positive difference in very short order to consumers, businesses and our decarbonisation efforts. In our recent report, “Energy Market Reform: Tackling the energy trilemma,” our committee made 34 recommendations. They include unblocking renewables; cutting energy demand; improving the flexibility of energy pricing; looking at the future of the energy price guarantee; and creating a new energy Department in Whitehall. I was very pleased to see that the Prime Minister came to the same conclusion on that last point, and created the new Department for Energy Security and Net Zero. I sincerely hope that we will be as successful with our other 33 recommendations. I am keen to use this debate to make the case for them to Ministers.

There is no doubt that the UK has been a world leader in deploying renewable energy projects, coming from almost a standing start in 2010. By 2020, solar and wind produced nearly 30% of the UK’s electricity—a tenfold increase on 2010. The UK is proud to have almost half the world’s offshore-deployed wind, all created under successive Conservative Governments—a great record of commitment that we can point to. However, renewable energy projects face increasing bottlenecks, including delays in the planning system, delays to grid connections, shortages in supply chains and a creaking electricity market design. In addition, there is an increasing risk of skills shortages as the deployment of offshore wind ramps up this decade. To tackle these problems, the Government should consider a number of measures that should already be in hand.

First, we should speed up the planning system by straight away implementing the new national policy statement for renewables, which has been good to go since 2011, and which would provide much greater investability. In particular, the concern over developers reserving grid connections and allowing years to pass without using them means that vital housing and infrastructure projects cannot go ahead because they cannot get a grid connection.

Secondly, the Government should consider officially committing to the development of an offshore ring main for offshore wind. Some projects are already sharing infrastructure, but clear guidance from Government would speed that up and make it much more acceptable to communities who do not want the huge onshore infrastructure currently being pushed onto their beaches and sensitive onshore conservation areas.

Thirdly, the Government could immediately issue direction on where new power lines should be located. Overhead lines are much cheaper, but less acceptable to communities. Underground lines, on the other hand, are potentially six times more expensive. There is a lack of clarity on policy in this critical area, particularly because independent analysis has concluded that, to meet our 2030 targets for electrifying our energy system, the National Grid will need to build seven times as much infrastructure over just the next seven years as we have achieved in total over the last 32 years—a huge mountain to climb.

Fourthly, although there has been progress on floating offshore wind projects, the Government should take seriously the evidence that floating offshore wind on Britain’s west coast in particular could strengthen our energy security, improving electricity resources in Northern Ireland as well as providing a hedge against low wind speed around other parts of the British Isles.

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

The right hon. Lady is making excellent points. She served as Energy Minister, I think, and I am reminded that the best part of 20 years ago one of her predecessors as Energy Minister, Brian Wilson, was promoting the case for an interconnector to go down the west coast of the United Kingdom and through the Irish sea. That did not happen, essentially because of concerns in Ofgem about the danger of stranded assets. I think her idea is a good one, but does she agree that in order to achieve it there will have to be a fundamental rethink about the way we regulate the industry?

[Dame Andrea Leadsom]

The right hon. Gentleman is absolutely right; of course regulation, safety and considering the impact of potential stranded assets are vital. I do not think there should be any fundamental objections to expanding the use of interconnectors, but I am talking specifically here about floating offshore wind, which has huge potential but is not yet being deployed in the UK.

Fifthly, the Government should stop paying offshore wind farms in Scotland to switch off when it is too windy, which is already costing bill payers billions a year. Instead, we should look at piloting local electricity pricing, encouraging producers to work with business and consumers to use more electricity when it is plentiful and to reduce usage or use stored energy when the wind stops. That could be valuable for everyone, from Scottish citizens accessing cheap electricity when the wind is blowing to Cornish residents doing likewise when the sun is shining. Local electricity pricing offers transformational change that would make much better sense of the successful deployment of so many renewables.

One key recommendation made by the 1922 BEIS committee is on how to make these projects more acceptable to local communities. Local referendums and local compensation caused a bit of a stir when we announced them, but the idea has a lot of merit. In short, the report recommends that any proposed onshore wind, solar or shale gas extraction project should be subject to a local referendum on the basis of a simple majority. Where 50% or more of those who vote are in favour, the project can then go to normal planning considerations, but without the prospect of being overturned for lack of local support.

In return for the community accepting that limit on individual objections, our report proposes that local residents should receive free or subsidised energy bills for the entire lifetime of the project. That would have the effect of not only encouraging local communities, but forcing developers to think twice before locating renewables too close to sensitive communities because of the impact on the financial viability of their project. At the same time, bearing in mind the need for an urgent increase in the amount of electricity infrastructure, the committee recommends that the National Grid should be encouraged to build new pylons alongside transport corridors, and that renewables developers should be encouraged to locate alongside them, resulting in cheaper grid connections.

The second area of investigation in our report was how to cut energy demand. Every unit of energy that is not used is one that does not have to be generated. That reduces carbon emissions, cuts the cost of energy to consumers and to businesses, and improves our energy security—a genuine triple win. Ever since the committee’s first report in April 2022, we have been recommending a wide range of energy-saving actions, and I will highlight just a few of them.

First, boiler installers should focus not only on safety, as they do at present, but on efficiency. Every boiler installation should provide only sufficient power to heat that particular home or business, and the temperature gauge should be set at the most efficient level.

Secondly, the completion of the smart meter roll-out should be prioritised and the move to half-hourly pricing brought forward, to put control in the hands of consumers through smart tariffs. They could then choose to wash clothes, cook or charge their car when energy is cheap. Likewise, businesses could plan their energy use around cheaper periods. That could have a big impact on flattening the overall daily peaks in energy demand, with massive benefit for energy security and cost. It would then make sense to regulate for white goods to be smart as standard, to automate the way in which customers take advantage of cheaper price windows.

Thirdly, the report proposes that the Government should bring forward enforcement of the new homes standards and expand the energy company obligation—ECO4—scheme to insulate more cold homes, which would offer far better value for taxpayers than our current policy of subsidising heating for draughty homes. We also recommend that an organisation modelled on Home Energy Scotland should be introduced in England to provide better advice and support to households.

An area in which the committee feels that Government policy has taken a wrong turn is the energy cap itself. It was a well-intentioned policy to stop customers being ripped off by their energy supplier if they did not switch provider often enough, but the current energy crisis has exposed major flaws in the operation of the cap. The cap is below the true cost of supplying energy, so almost all customers are now on capped tariffs in addition to extremely costly additional taxpayer subsidies. That has killed the market for switching between energy suppliers, and has exacerbated the bankruptcy rate of energy suppliers. The report recommends, first, a thorough review of the energy price cap; secondly, that the green levies on energy bills be permanently moved to general taxation to take away some of the regressive nature of levies on energy bills; and thirdly, that a more targeted system for energy bills be introduced. One specific proposal that is worthy of consideration is a cap for basic electricity usage per household, above which households are exposed to the full unsubsidised costs of energy.

Fourthly, our report recommends a new requirement for energy suppliers to offer long-term, fixed-price energy deals so that consumers and businesses have the budgeting certainty that so many achieve through taking out fixed-rate mortgages for their homes or buildings. Fifthly, energy regulator Ofgem must shoulder much of the blame for supplier failures. Financial regulation of energy suppliers has been far too weak. The Government should direct Ofgem to implement banking-style financial stability requirements to avoid a repeat of recent history, whereby an energy supplier can make money when energy costs are below the cap but goes bust if energy costs rise above the cap, leaving all bill payers to pick up the tab.

--- Later in debate ---

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I congratulate the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) on bringing this subject to the House. Her metaphor of the three-legged stool is a very good one. If we can move away from the immediacy of the problems, this debate allows us a few minutes to think about the issue in a more strategic manner. The point about the three-legged stool is that it works as a stool only if it has all three legs. If we take away any one of the three legs—affordability, security or decarbonisation—the other two will not achieve their purpose. The debate is often frustrating and ill served by false, binary choices. The point about a “trilemma” is that the choices that have to be made are about the balance of the progress we make on the three heads of the challenge, as well as the different means by which we seek to achieve them.

For years, to my certain knowledge, the debate has been bedevilled by easy options, and that remains true about some parts of the debate today. I remain to be convinced about nuclear, either in its own right or as a source of baseload, but sceptics like me have to then ask, “Well, where does the baseload come from?” From my point of view, there are enormous opportunities from developments such as tidal energy, which I will come on to as it matters a lot to me and my constituency. There is also the issue of storage and, beyond that, the flattening of the curve through supply-side and demand-side management. Again, it is all about balance. There is no silver bullet here; there is no one technology, area or direction of travel that will solve all our difficulties.

The right hon. Member for South Northamptonshire also spoke about local involvement in planning decisions. There is one other item that I would commend to her in terms of managing these issues: local benefit. Communities that are to have a wind farm, for example, have the opportunity to see some money coming back directly to their community, which makes an enormous difference.

In my own parish, we have a development of five wind turbines that provides a fund, which is administered by the local community council. My student sons have both benefited from that fund in terms of support given to them during their years at university. The support provided by such funds is small but meaningful. If we are to change the way in which we generate energy, from it being produced in large amounts in a small number of places to a much more diffuse pattern of generation, we have to find different ways of doing that.

[Dame Andrea Leadsom]

The Back-Bench committee proposed that individual households living very close to a renewable project should have their energy bills subsidised or free for the duration of that project, so I agree with the right hon. Gentleman but I think it should be even more direct than just a pot, as is so often the case.

[Mr Carmichael]

Absolutely. We make progress on these things incrementally, so if we can get to that situation that would be music to my heart and to the hearts of my constituents.

In Orkney, we already generate more energy from renewables than we can use in our own community. However, as the right hon. Member for Ross, Skye and Lochaber (Ian Blackford) observed earlier, because of the way in which the market is regulated and structured, we actually pay more for it. That is something that generates not just energy, but an enormous amount of resentment in the community as well.