Energy Security Strategy

Lord Callanan Excerpts

Wednesday 27th April 2022 Lords Chamber

[Lord Oates (LD)]

My Lords, there are things to welcome in this Statement but unfortunately, there are also many missed opportunities. Energy security is obviously critical at this time, but we must understand that it is about not just security of supply to the United Kingdom but the fact that millions of households right now feel a complete lack of security regarding their ability to pay their energy bills going forward, and particularly as we go into the next cold period.

The Government had an opportunity to take up my right honourable friend Edward Davey’s proposal: a windfall tax on the super-profits of the oil and gas industry, which the Labour Party has also argued for. That could have unlocked finances to give further support to people who will be desperately vulnerable this winter.

As the Liberal Democrats and many others in this House have repeatedly stated, curtailing the wasted energy that leaks out of our buildings should be the No. 1 priority in the hierarchy of measures we take to improve our energy security, reduce carbon emissions and cut costs for households. But there was nothing new in the Statement on this front. I asked the Minister at Questions yesterday why the number of insulation measures installed annually in the UK had fallen from a high of 2.3 million during the coalition to an average of less than 10% of that peak since then. He did not really give me an answer, to be honest, but I do not blame him for that. If he was unconstrained by collective responsibility, he would be able to be clear that it was down to the myopic foolishness of the Treasury, which has kyboshed many of the schemes that have been brought forward in the past. Not least of these is the green homes grant, which was destroyed by its lack of understanding that this has to be a long-term project, not a short-term stimulus measure. I hope the Minister will not be deterred, however, by that myopia, and will continue to urge his government colleagues to take a more creative approach to this issue, including fiscal measures such stamp duty discounts and council tax rebates for homes that improve their energy performance certificate ratings.

Can the Minister also tell us when the new ECO4 regime, which he mentioned yesterday, comes into effect? Am I correct in thinking that there is gap between ECO3 and ECO4 coming into effect? If so, why is that being allowed to happen?

Like the noble Baroness speaking for the Labour Benches, I welcome the extra commitments on offshore wind, but I also share her view that this is a massive missed opportunity for onshore wind. Onshore wind, as has been said, is one of the cheapest ways of powering green energy, and it is absolutely reckless that we are putting it aside.

On oil and gas, I hope the Government are really thinking about the danger of stranded assets on any new exploration. That is a dangerous thing.

I should declare my interest as a member of the UK Hydrogen Policy Commission in saying that I very much welcome the Government’s commitment to doubling their ambition to 10 gigawatts by 2030, and that for the first time, at least half of that will be green or electrolytic hydrogen.

Our ambitions are now similar to those of many of our international competitors, which is welcome, but the funding allocation behind them is completely different. We are not putting in anything like the money that our competitors are. Could the Minister look at that issue in particular?

Finally, will the Minister also look at the support that will be needed by local authority planning departments and councillors, which will have to deal with an increasing number of hydrogen-related planning applications? Currently, most do not have the necessary skills or resources to deal with them or to address the inevitable concerns. Will he also look at the regulatory environment that will be required? The hydrogen strategy suggests that regulations will be made on a piecemeal basis as hydrogen is scaled up, but this misses the point that regulatory certainty is absolutely required if the scale-up is to happen at all. I hope he can address a few of those questions.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank the noble Baroness, Lady Blake, and the noble Lord, Lord Oates, for their relatively constructive comments. I know they do not necessarily agree with everything we are doing and would like us to go further in some respects, but I know that in general, their hearts are in the right place. The strategy is of course a long-term plan to accelerate the transition away from expensive fossil fuel prices that, obviously, are set by global markets we cannot control. I know that both the noble Baroness and the noble Lord will support us on that.

Starting with the vital issue of concerns about energy prices, correctly raised by the noble Lord, the strategy reconfirms that the Government are committed to helping with the cost of living. That includes over £9 billion of help for families struggling with their bills. We are aware, of course, that Ofgem will set the next price cap in August, and we will want to review the current support arrangements at that point, well in advance of them taking effect in October.

The noble Lord also raised issues concerning energy efficiency. I know that he and I agree on the critical role that energy efficiency plays in both our energy security and in helping consumers to manage their energy bills. I disagree with him, however, in that this Government have gone further than any other in setting out an ambitious energy efficiency strategy, including through our landmark heat and buildings strategy. I know he will want to push us to go further but, in essence, we are heading towards the same destination—although apparently, we have different rates of getting there.

In response to the noble Lord’s question about ECO, there is no gap between ECO3 and ECO4. There is a delay due to legal considerations in tabling the SIs to implement ECO4, but we are certainly in touch with the industry bodies to explain that, and there is no gap in the implementation. The increased budget associated with it, at £1 billion a year, takes effect.

The noble Baroness, Lady Blake, raised the subject of onshore wind—I am sure there will be further questions on this as we proceed through the Statement—and also solar. Noble Lords are correct: onshore wind and photovoltaic solar are the cheapest forms of renewable energy. We are fortunate to have more onshore wind that pretty much any other country in northern Europe, and we continue to promote it passionately.

That said, both onshore wind and large solar projects —which can be controversial in some circumstances—should be pursued on the basis of local community support. Clearly, where that local backing exists, the strategy includes support for new projects and the enabling national network infrastructure.

Offshore wind is an area in which we have been hugely successful, and it has had a transformative effect compared to other renewables. Offshore wind is especially suited to the UK’s geography, and we truly are leading the world in its technology and capacity. It rightly forms one of the centrepieces of the strategy. As the noble Lord, Lord Oates, referred to, we are increasing our ambition to deliver up to 50 gigawatts by 2030, including up to five gigawatts of innovative floating wind capacity. By 2030 we will have more than enough wind capacity to power every home in the United Kingdom.

In response to the question by the noble Baroness, Lady Blake, I say that this is all bringing vital investment into the UK, particularly to our coastal communities. It will support 90,000 direct and indirect jobs by 2030. I met the Mayor of Tees Valley last night, who was telling me about some of the enormous projects being built on his patch, entirely to benefit from this expansion of offshore wind capacity.

I also welcome the support of Labour—if not the Liberal Democrats—from the noble Baroness, Lady Blake, for nuclear. It is very welcome. Energy security means being able to meet demand even on the coldest days of winter when there is neither sun nor wind. We need a baseload of decarbonised power to complement the renewables we are installing and while most of the current nuclear fleet is reaching the end of its lifespan and will be decommissioned this decade. We will be reversing decades of underinvestment and we will build back British nuclear.

In response to the question from the noble Baroness, Lady Blake, about the new body, I say that this will be set up immediately to bring forward new projects backed by substantial funding. We will launch the £120 million future nuclear enabling fund this month. We intend to take one project to a final investment decision in this Parliament and two in the next—subject to value for money and the appropriate approvals, as always.

On the subject of fracking, which the noble Baroness, Lady Blake, also asked about, it is right and sensible that, with wholesale gas prices around 10 times their level at the end of 2019, we review the science and evidence picture around fracking. The strategy commits to assess whether the previous conclusion against licensing has shifted or if scientific developments have changed, and we will do that.

I welcome the support of the noble Lord, Lord Oates, for hydrogen. I am happy to look at the comments he made about support for local authorities in terms of progressing hydrogen applications. I am sure we want to provide as much technical support as necessary and I agree with his comments about the importance of regulatory certainty in this area.

[Lord Howell of Guildford (Con)]

My Lords, I declare my interests in energy as in the register. Can I couple that with a plea that we have a full debate in the new Parliament on all these issues? There are things here which affect both the immediate situation for all of us—certainly most of the households in this country—and the long-term condition of this country facing its energy needs in the future. We have heard some very unchallengeable and sensible ideas on this, but I am not sure they meet the immediate crisis effectively.

Can I draw the Minister’s attention to the section in the energy security policy paper which points out that there is “no contradiction” at all between short-term concerns to boost oil and gas production, referring to the North Sea, and the long-term climate aims? On the contrary, the two are linked together; that is what it rightly says in the paper. Can the Minister extend that thought to say that there is no contradiction in now seeking major oil producers in the Middle East to produce a lot more oil and gas to cause prices to tumble and partly replace Russian exports? It would really help bring down electricity, petrol and gas prices, and begin to meet the further huge increase coming our way like a rolling wave in October.

Can I plead that we go back to the great oil producers and press them hard that, unless they do this, they are financing Putin’s child murder in Ukraine? If they do it, we will begin to see a much greater easing of prices than any of the present well-intentioned short-term subsidies and additions we have had so far. That is the aim. Anything else is splendid, but it does not help the huge crisis in energy which will affect 70% of households of this country. I have heard nothing from either opposition party which will do that.

[Lord Callanan (Con)]

As usual, given his experience of the subject, my noble friend makes important points. On the subject of a debate, regrettably that is above my pay grade, but I will pass on his comments to the Chief Whip. Obviously, I stand ready to assist the House in any debates that it wishes to have. Regarding my noble friend’s comments about North Sea oil and gas, I say that he is completely correct. We are clear that oil and gas will continue to have a role as a transition fuel in the medium term. In carbon footprint and security terms, it makes eminent good sense to source these from the North Sea. That has to be preferable to importing them either from Russia or as LNG. That is why we will ensure a future for the North Sea, making use of our great reserves as we transition. We are holding a new licensing round in the autumn subject to the climate compatibility checkpoint.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I am going to ignore the quagmire of nuclear, which cannot come on stream for decades, and the quagmire of fracking, which is a ridiculously expensive and disruptive process, and all the other ridiculous ideas about more oilfields in the North Sea. I will talk specifically about biomass companies like Drax, which in fact produce more carbon than burning fossil fuels, yet the Government choose to give them renewable subsidies. Will the Minister meet me and one or two scientists who can explain the whole process to him, and possibly take that back to his department?

[Lord Callanan (Con)]

I am sorry that the noble Baroness has ignored the quagmire, as she puts it, of some very important subjects. I am sure we will want to debate them in future. She raised this matter with me yesterday. In principle, I understand the point she is making, but I point her to the website of Ofgem, which does the appropriate sustainability checks on the biomass used in Drax. It is from waste sources, and it is renewable. The Greens are shaking their heads, but I am afraid there is a case for it. It is sustainable and renewable, which is why it qualifies, but it is subject to strict sustainability criteria. They are checked and published.

[Lord Kerr of Kinlochard (CB)]

There is much in the Statement to welcome about the long term but, as Keynes said, in the long term we are all dead. What worries me is that there is not a word in the Statement about how we are going to help people deal with the very real household energy crisis we are in now that will vastly increase in October. The reference period that will decide by how much the cap goes up ends in July. We know now that there is going to be a big increase again; there is no reason for us to wait. It is not very reassuring to be told that

“the Chancellor has promised to review his package of support before October”.—[Official Report, Commons, 19/4/22; col. 75.]

Why is he not doing it now? I suggest that, when he looks at it, he looks not just at little packets of money here and there, but at the possibility of indexing the energy element in universal credit to the energy component in the household expenditure of the people on universal credit. That is the most efficient way of targeting it. It is sad to see a long-term strategy which tells us nothing about onshore wind, storage or the improvements to the grid which are badly needed. The more we invest in wind, the more we will need grid improvements.

[Lord Callanan (Con)]

The noble Lord’s question was somewhat contradictory. He complained that the strategy did not address some of the short-term problems but in the end, he referred to it as what it is: a long-term strategy. The clue is in the title. The reality is that it takes many years to put in place energy infrastructure, and it is right that the Government address these factors and look to the long term to make sure that we are putting in place the appropriate steps, such as the nuclear RAB Bill, to provide the long-term security of supply and power that the country needs. That does not obviate the difficulties that we have in the short term. As I suspect the noble Lord knows very well, I cannot comment on what the Chancellor may do in response before any future fiscal event, before the next price cap comes in. However, I can assure the noble Lord that the problems the nation faces with high energy prices are at the forefront of the Government’s consideration.

[Lord Rooker (Lab)]

I will make two brief points to the Minister, but as an aside on Drax, if memory serves me correct, when it started using the pellets, they were from trees in north America that had been grown for the printing industry, and the paper industry completely collapsed. Communities had been destroyed, and the fact that they could use this wood seemed a positive benefit. However, that may not currently be the case—it has been many years since I paid a visit.

On the nuclear issue, my noble friend is right in the sense that in 2009 the Labour Government left half a dozen sites for nuclear power stations, but the Statement is correct in that we lost 20 years. The Labour Government Cabinet was discussing this issue in late 2002 and early 2003. I was a simple Minister of State—I was not involved in that—but I remember writing a note for my Cabinet colleague, my senior. That is the kind of thing I remember because it was Christmas Day and I was sitting in Charing Cross Hospital at the time, as a visitor. The issue had been discussed but it was flattened by two or three members of the Cabinet. I will not name anybody, but that was a lost period.

The central issue I want to ask the Minister about was not referred to: batteries. The International Energy Agency has said that because of the use and storage of batteries for transport, propulsion and homes, the world will need a sixfold increase in lithium, cobalt and rare earths. Where are they processed? Some 60% of the world’s lithium is processed in China, as is 65% of the world’s cobalt, although it is mined in the Congo, where 40,000 children are involved in mining it. Some 87% of the world’s rare earths are processed in China. Therefore, the issue has to be, what do we do with colleagues and friendly countries—we cannot do it ourselves—to avoid in 20 years’ time being in the same position we are in now with gas and oil from Russia: being hooked to China for the metals we need for batteries? It is a grip that has enormous potential, and it needs dealing with now. I used the word “processing”; China is not mining it all but is controlling the process from the mining. A huge amount of cobalt comes from the Congo but it ends up being processed in China. China has a grip on this and I know people are trying to deal with it—I think the EU is—but the Government have to be part of a plan. They will not be able to do it on their own; they have to work with others. We need to cease dependence on such a large scale on metals that will be vital for our industries and our energy security.

[Lord Callanan (Con)]

The noble Lord raises a number of important points. On the biomass supplying Drax, he is right that it is mainly produced from waste-wood sources that would otherwise not be utilised. I think he was agreeing that that was a mistake on the part of the Labour Government, who got elected in 1997 on a manifesto that said there was no case for new nuclear. It is easy for us to look back at mistakes made in the past but in retrospect, that was a mistake. This comes back to the point made by the noble Lord, Lord Kerr: that in an advanced industrial country, this infrastructure takes many years to put in place. We let the UK nuclear industry wither on the vine because, of course, at the time we had ample supplies of clean gas and not so much concentration on climate change.

The noble Lord is in essence right about rare earths, but the Government are very well aware of this. A number of innovative battery technologies are also being developed but we are looking very closely at the necessity of various rare earths for existing battery technology, such as cobalt and lithium, and at where alternative supplies can be procured.

[The Lord Bishop of Manchester]

My Lords, I declare my interest as both a Church Commissioner and a board member of a housing association. As things stand, a community with local renewable generation is not allowed to sell the energy it generates directly to local people. Instead, it has to sell it to a utility, which sells it on to customers, creating disproportionate costs. Moreover, community-level generation could be further promoted by ensuring that new housing developments include green energy or even a requirement that they place no increased demand on the grid by generating more of their energy needs. The Bible assures us that the sun shines on both the righteous and the unrighteous. Indeed, I can assure the Minister that it does so even in my notoriously rainy city of Manchester. Can he outline what will be done to promote greater take-up of community energy generation programmes?

[Lord Callanan (Con)]

I thank the right reverend Prelate for saying that the sun shines on all of us—I am delighted to hear that. Community energy is important and we are supporting a number of community projects within Ofgem. I realise that there is a campaign to increase the take-up of community energy and we are in principle supportive of that. However, if those community energy projects also wish to be connected to the national grid and take advantage of other forms of energy and supply, it is right that they pay a proportionate share of costs for that. They are not insulating themselves from the national grid and from other forms of energy production and supply. Nevertheless, we want to see what we can do to support community energy, Ofgem is engaged in it, and we will look at what more we can do to help.

[Viscount Stansgate (Lab)]

My Lords, reference was made in the Statement to low-carbon hydrogen production. Does the Statement mean that the Government have in effect taken a long-term strategic decision—by which I mean well beyond 2030—that the hydrogen they intend this country to produce will be green and not blue?

[Lord Callanan (Con)]

Ultimately, yes, but in the short term we will want to support both forms of hydrogen production to get the market started and we will look towards providing something similar to the contracts for difference scheme for hydrogen production. As the noble Viscount is aware, we announced an expansion of hydrogen production in the strategy.

[Lord Teverson (LD)]

My Lords, is it still the case that despite this plan, just one person in a local community can in effect veto an onshore wind plan for that community?

[Lord Callanan (Con)]

I do not think so—I do not think it would be that specific. We will not have one person vetoing an application. However, we would want to make sure that there was general community support for further onshore wind capacity before development proceeded.

[Baroness Foster of Oxton (Con)]

Ukraine has certainly focused all our minds and minds in all countries, particularly across Europe. In particular I welcome the Government’s policy on expanding our nuclear energy programme and that they have now agreed to acknowledge that shale gas extraction should be considered. Notwithstanding that the shale gas extraction programme was halted, the initial work has been done. The technology has improved and horizontal extraction techniques take up a much smaller land area. This could come on stream as soon as 18 months’ to two years’ time, given the work that has already being done, albeit that it will be a long-term programme. Will my noble friend assure the House that the Government will crack on with this programme, as it is vital that we become energy self-sufficient as soon as possible?

[Lord Callanan (Con)]

I know that my noble friend feels strongly about this subject but it is important that we take account of the recent scientific consensus, and we will do that. We have always been clear that the development of shale gas must be safe and cause minimum disruption and damage to those living and working near sites, and that is not a new position. However, my right honourable friend the Secretary of State has asked the British Geological Survey to look again at this process. I think my noble friend is wrong in thinking that we could get large amounts of fracking on stream within 18 months. So far, we have had maybe two wells; to get significant amounts of fracked gas you would need many hundreds if not thousands of such wells, so it is quite a disruptive process and can take quite a long time. Nevertheless, we will be guided by the science and will look again to see whether it is possible to do it, with the consent of local communities.

[Baroness Hayman (CB)]

My Lords, I declare my interest as co-chair of Peers for the Planet. I return the Minister to his answer to the noble Lord, Lord Teverson: he said that he would not want one person to be able to veto an onshore wind development. Is that not precisely what is implied by the ministerial Statement that now governs these issues? Is that not why we have had a complete standstill on onshore developments? In an earlier answer, the Minister said that community support was important; it is in all planning applications, but why should these planning applications have a far higher standard, which requires unanimity from the local community? I ask why the Statement said that we would double down on every available technology, yet did not look at that issue, and why it makes a very limited proposal for developments that would support local communities in terms of cheaper electricity. That is fine but it does not give the volume that we need. May I ask specifically about the part of the Statement that says that we will look at arrangements to support the repowering of existing onshore wind sites? This is a real issue: we will not only not expand but contract because of the difficulties of repowering. What is the nature and timescale of the inquiries that will be made?

[Lord Callanan (Con)]

I know that the noble Baroness is a passionate supporter of onshore wind. She brought her Bill on it recently and we debated the subject at great length. I know she will continue to probe and push me, as is correct, on this subject about which she feels so strongly. The Government are clear: we want to see an expansion of onshore wind and we would like to see the communities that host this new Bill’s infrastructure benefit from developments in their areas. We hope that will drive greater levels of community consent, which will allow more of the procedures to come forward. I will write to the noble Baroness with details of repowering existing onshore wind infrastructure.

[Baroness McIntosh of Pickering (Con)]

Will my noble friend look closely at the possibilities for energy from waste and distance warming that are tried and tested and work so successfully, not just in this country but across most of Europe? Will he also ensure that many of these projects could be fed into the local grid rather than into the national grid, as happens currently?

[Lord Callanan (Con)]

Energy from waste is an important topic, both in generating electricity but also for heat networks. I have visited a number of very innovative energy from waste plants; there is one in particular in east London that is extremely successful and powers and heats thousands of local homes in the community. By the very nature of a heat network, under an energy from waste plant, it does of course benefit and help the local community.