Strategy and Policy Statement for Energy Policy in Great Britain

Earl Russell 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?