Energy Security

Lord Callanan Excerpts

Monday 5th December 2022 Lords Chamber

[Baroness Sheehan (LD)]

My Lords, I thank the Minister for bringing the Statement to the House. I of course also welcome the return of the Energy Bill.

I will start with nuclear, and the Government’s generosity with British taxpayers’ money in rebooting Sizewell C. I understand that common sense has prevailed: reports are circulating that China General Nuclear has been bought out. Can the Minister confirm that that has in fact already happened, and is not just an aspiration? Can he also comment on a recent article in the New Civil Engineer about fears of an 11-year delay to Hinkley Point C, on the back of news of a new contract between the Government and EDF, stipulating that Hinkley C will still be funded even if it does not start operating until 2036? If this were to be the case it would not be surprising, since no nuclear reactor has ever been built on time or on budget.

Finally on nuclear, the Secretary of State in his Statement cites it as a key plank in our bid for energy sovereignty. Can the Minister say where the raw uranium fuel for nuclear power generation originates from? The last time I looked, we do not mine any of it in the UK. I hope the Minister will agree that nuclear cannot be said to be the indigenous energy we need in the same way that energy farmed from our sun, wind and waves undoubtedly is.

Intermittency concerns about energy from renewables are often cited as a reason why nuclear is necessary. However, those concerns have been comprehensively debunked. There are many, much cheaper answers to intermittency if the Government were but minded to invest in them seriously. Energy storage is an example, including in the form of green hydrogen generated from the excess wind power that the grid is unable to harness in real time. There is also pumped hydro, more solar and onshore wind geographically spread out, marine energy, smart energy and demand management et cetera.

I have not even mentioned interconnectors. Can the Minister outline the Government’s view on the Morocco-UK interconnector power project? A project that is expected to provide low-cost, clean energy to more than 7 million UK homes by the end of 2030 with no taxpayer inputs and create 1,350 permanent jobs in the UK is surely worth a mention in any government energy Statement in 2022.

Moving on to fossil fuels, why do the Government persist in preferential treatment for the fossil fuel sector, for example, through subsidies? The OECD reports UK subsidies in 2021 of £200 million on decommissioning, £250 million on oil and gas investment, £1 billion on fuel oil, £1.5 billion on ring-fenced oil and gas trade corporate income tax relief and £2.1 billion on red diesel fuel. That is £5 billion of subsidies, which is unjustifiable.

On investment allowances, I agree with every word that the noble Lord, Lord Lennie, said. In the windfall tax paid by oil and gas extractors, they benefit from an investment allowance. However, no equivalent relief is available for renewable energy generators. This is nothing short of outrageous and will disincentivise investment in that sector.

Finally, on decommissioning, the subsidy regime may be even more costly than the £200 million reported by the OECD, because decommissioning relief deeds risk leaving taxpayers paying out to companies which never made a contribution to the Exchequer. That is madness. Can the Minister say to what extent the Exchequer is exposed to these types of deed? Currently we have no visibility of the assumptions behind those deeds or the liability that might result from them.

In conclusion, a Government who produce a Statement on energy needs which does not give immediate full-throttle support and investment impetus to energy efficiency of the built sector, on-ground solar, onshore wind and community energy projects are a Government who do not get the urgency of the situation the planet faces. The lack of ambition on energy saving is breathtaking. These are the low-hanging fruit which can do so much to wean us off expensive and immoral payments to the Russian pariah state as well as other unstable regions of the world. The Government could and should have done much more on these easy wins if they are serious about energy sovereignty. I am sure that many of these things will come up in the Energy Bill that we will debate next week.

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

I thank the noble Lord, Lord Lennie, and the noble Baroness, Lady Sheehan, for their questions. I will start with nuclear, and I thank the noble Lord, Lord Lennie, and Labour for their support for it. The noble Baroness, Lady Sheehan, and the Liberal Democrats are absolutely wrong on this. The idea that we can satisfy all of our baseload capacity from a little bit of pumped hydro storage, a few batteries and a bit of hydrogen is nonsensical, I am afraid. If the Liberal Democrats are serious about ever being in government, they need to seriously address these issues of how to provide long-term energy security. I am afraid that, at the moment, nuclear is the only carbon-free option that will do so at scale. The option that the noble Baroness talks about produces puny amounts of power.

In the British Energy Security Strategy, we provided a clear, long-term plan to accelerate our energy transition towards net zero and away from fossil fuel prices set by global markets beyond our control, and we are making serious progress towards that. We have more offshore wind than the rest of Europe put together; we have the second-largest offshore wind sector in the world, and the contracts for difference scheme has made a massive difference. I get that the Opposition think we should go even further and even faster, and we are expanding our ambition, but the turbines are being rolled out at a rate of many hundreds a year, and there are a number of supply chain limits. I assure the noble Lord that we will continue to roll them out because, at the moment, it is the cheapest form of generation—albeit intermittent, and we therefore need to provide back-up power for it.

That is why the investment in nuclear was announced. We are confirming the first state backing for a nuclear project in over 30 years, with a £679 million investment to support the UK on our journey to greater energy freedom. We are taking a 50% stake in the project’s development, with EDF. Sizewell C is set to generate reliable and clean homegrown electricity for 6 million UK homes, but it will of course also deliver thousands of high-value jobs in East Anglia and nationwide. We are also working hard to set up Great British Nuclear with support from the industry and our expert adviser, Simon Bowen. Great British Nuclear will aim to develop a resilient pipeline of new-build projects, supporting them through every stage of development. There are a number of exciting developments, such as small modular reactors, which will come on stream in a few years’ time.

[Lord Wigley (PC)]

Hear, hear.

[Lord Callanan (Con)]

I am pleased to hear that Welsh support.

The noble Baroness, Lady Sheehan, and the noble Lord, Lord Lennie, both mentioned the importance of energy efficiency and public communication, and I completely agree with them. The noble Baroness said that there was nothing in the Statement on energy efficiency, but I am afraid that she is wrong. We of course will not fix our energy future by focusing on supply alone; we have to sort out our own homes and buildings. That is why we set out our ambition, backed by an energy efficiency task force, to reduce our final energy consumption from buildings and industry by 15% by 2030.

We have already come a long way, with £6.6 billion provided in this Parliament, but we recognise the scale and urgency of our challenge. In this year’s Autumn Statement, the Chancellor announced an additional £6 billion to be spent between 2025 and 2028. In addition, we announced the start of a consultation on the £1 billion ECO Plus scheme, which will run between spring 2023 and March 2026 and will aim to save consumers around £310 a year on their heating bills by installing insulation in hundreds of thousands of homes across the country. As I said, I would be interested to see any consultation responses for that.

Having all this support in place is all very well, but people need to know where to find it. That is why we are providing about £18 million to expand our public awareness campaign to help households to do what they can to reduce their usage and bills, protecting vulnerable people over this winter and beyond. Again, I welcome the support for restarting the energy security Bill, and I look forward to our further debates on it in this House. It will be the most significant piece of primary energy legislation since 2013, and it will liberate private investment in clean technologies and encourage competition in the sector, protecting consumers and reforming the UK’s energy system to ensure that it is resilient, efficient and safe.

Both noble Lords also mentioned the subject of onshore wind. We know that onshore wind is a mature, efficient and cheap technology and that we will need more of it. We are clear that, to achieve this, we will require a sustained increased in locally supported offshore wind through to 2030. However, we understand the intensity of feeling that some people have about the impact of wind turbines in more densely populated parts of England, and we want to maintain the ability of local communities to input into those proposals. Noble Lords will be aware that various amendments have been tabled to the Levelling-up and Regeneration Bill addressing onshore wind in England. We are currently giving consideration to this issue and will respond in due course.

On the issue of solar, the Government recognise that there is a need to preserve our most productive arable farmland. It is important that the Government can strike the right balance between these considerations and securing a clean, green energy system for the future; that is why the planning system is designed to take account of those issues.

In response to other issues mentioned, I am aware of the exciting proposal for the interconnector linking us with Morocco. It is an awfully long way, and the electrical engineer in me thinks of the length of that cable and the losses that will result from that, but it will be great if we can get that to fruition as it is an extremely exciting project.

The noble Baroness referred to subsidies for fossil fuels. I reiterate once again that the UK does not subsidise fossil fuels; no matter how many times she makes this point, I will give her the same answer. She and the noble Lord, Lord Lennie, referred to billions of pounds unclaimed from the fossil fuel industry. The Chancellor announced the extension of the energy profits levy, and there were lots of wild squeals from many of those companies that the Treasury has gone too far with this tax because investment is drying up. I am sure that the Chancellor will want to keep that under review.

I think I have answered most of the other questions.

[Lord Howell of Guildford (Con)]

My Lords, there is much to welcome in this very important Statement. It shows real momentum in this area, which has been lacking in the past. I will ask the Minister two questions. First, the whole of Europe is covered by an intricate and balanced system of electricity interconnectors. Can we be assured that there is no question of undermining that in pushing for the greater degree of energy security which the Statement calls for, because that will be sorely and continuously needed?

Secondly, would he care to chance his arm and offer even an estimate of when Sizewell C might be operational, if it is authorised from now? I declare an interest as being involved in the instigation of Sizewell B. That took 15 years to get going, from the authorisation to the actual production of commercial electricity. The idea is that Sizewell C is going to be a replica of Hinkley Point C. As we all know, Hinkley Point C is not without its problems, and the EPR model on which it is built is certainly full of problems. At every point where it has been tried and tested, not one EPR has yet existed which has not run into major problems. There are those who say that a set of small modular reactors would be ready much earlier on a Sizewell C site than sticking to the large-scale EPR Hinkley model. Could the Minister comment on that? There is very strong opinion that, if we want low-carbon electricity within the lifetimes of most people now alive, we are going to need that rather more quickly than these huge large-scale projects can achieve or have achieved in the past.

[Lord Callanan (Con)]

I thank my noble friend for his question. He takes a close interest in this issue, having been Secretary of State for Energy in the past. He makes a very good point about the importance of interconnectors. They will clearly play a key role in balancing supplies across Europe, particularly as we have more and more intermittent renewables both in this country and in other parts of Europe. Of course, there are interconnectors linking us with Ireland, as well as with France, the Netherlands, Belgium, et cetera. They clearly will have an increased role to play. I forget the exact figure, but in the energy security strategy we set out that we wanted to expand the number of interconnectors that are available because of the important role that they will have.

I cannot give the noble Lord an exact date for when Sizewell C will be commissioned; these large nuclear projects have a somewhat chequered history. This is a tried and proven design, but it clearly will be a number of years before this comes on stream; it will, however, still be valuable and still be needed. In fact, if we had disregarded the advice of the former leader of the Liberal Democrats in 2010 in his famous video, we would indeed now be having new nuclear coming on stream to help us in the energy crisis that we have at the moment. SMRs, of course, will also play an important role, but they are still being developed and designs are still being improved, so, again, it will be a few years before they come on stream.

[Baroness Bennett of Manor Castle (GP)]

My Lords, my question is also on Sizewell C and nuclear. I am sure that the noble Baroness, Lady Sheehan, and the Liberal Democrats do not need me to defend them, but none the less I will quote the CEO of the National Grid in 2015. He said:

“The idea of large power stations for baseload is outdated”.


Perhaps the Minister needs to update his assumptions in that regard.

However, I will continue on from the question that was just asked by the noble Lord, Lord Howell, because the Minister was asked when Sizewell C would come on line and he declined to give an answer to that. Surely, the Government must have both a medium estimate and a worst-case estimate—for the enormous amount of money that they are spending—of when it is actually going to be working. I will therefore put that question again to the Minister.

[Lord Callanan (Con)]

I disagree fundamentally with the noble Baroness. Sizewell C is an important investment. It is still at the planning stage at the moment. We will secure the funding for it and we will bring it on stream as quickly as we possibly can.

[Lord Naseby (Con)]

My Lords, I welcome my noble friend to the Front Bench again. This was a very important Statement, and I can think of no better man to handle this very challenging area faced by His Majesty’s Government. On the nuclear issue, can he reassure me that the small modular reactor programme from Rolls-Royce will not be side-lined? It seems to me a very exciting project—one that, to date, has gone well with the company, as I understand it, and with those who are working closely with it.

Secondly, as he knows, I have a genuine interest—it is nothing to declare—in what is termed in the Statement “nascent hydrogen”. I personally believe that we will see, quite possibly, a similar revolution to that which we saw when we moved from coal gas to North Sea oil. In this instance, it will be a mixture of gas from the North Sea and hydrogen. If that were to happen, that would be a major step for every household in the United Kingdom. Can I be reassured that that will not be forgotten, and that hydrogen is vitally important, not just for normal usage but for the air industry, in which I also have an interest, as my noble friend knows?

Finally, just on renewables, I did a little bit of research on offshore winds in the current situation. At this point in time, things are not going well. The primary problem appears to be that National Grid is unable to give a guarantee to connect to the main transmissions until 2030. Quite frankly, that is totally unacceptable for an industry that has done well, in which we have major investments. Somebody needs to shake it up somehow so that those on the offshore and the future investments know that they can speedily get connection to the grid.

[Lord Callanan (Con)]

I thank my noble friend for his questions. I also thank him for welcoming me back to the Front Bench, although I was not aware that I had ever left it. Nevertheless, I am sure that his concern is well thought, and I thank him for that.

On SMRs, we are indeed continuing to support Rolls Royce; the figure is about £200 million-worth of support to accelerate the design of SMRs, because they will have a key role to play. My noble friend also asked me about hydrogen. We have a very advanced hydrogen strategy and will shortly be rolling out a business model. I can tell him that hydrogen for heating is not yet an established technology in its scalability. We have the ability to blend about 20% hydrogen into the current gas main, and in the Energy Bill, which we will shortly be considering, we are taking powers to conduct village-scale trials of hydrogen to check its feasibility for heating. I think it is more likely that the use of hydrogen will be in the sectors that are hard to decarbonise, such as steel or cement, or for really big, heavy, long-distance transport, such as locomotives or heavy goods vehicles.

My noble friend also makes a good point about the grid connections. As we seek to move the electricity system generally away from big nodes to a much more diversified system, clearly that requires an awful lot of new connections to be made. That is generally by pylons, but these can be extremely unpopular in various parts of the country. Nevertheless, that is something that we need to proceed with, but we need to try to do it in collaboration with local communities. Every offshore wind farm needs to be connected to shore and into the national grid to parts of the country that use the power. So there is a massive reconfiguring of the grid going on, with massive amounts of investment to bring that about. It is a project that will take many years to bring to fruition.

[Lord Arbuthnot of Edrom (Con)]

My Lords, does my noble friend agree that there are three elements to energy security? The first is the generation of energy, which is very important; the second is energy efficiency, which is also important, and I was very pleased with what he said about that; but the third is the distribution of energy, which is just as important and just as vulnerable. I declare an interest as the chairman of a resilience advisory company. In the light of constant cyberattacks on National Grid and the recent physical attacks on the Nord Stream pipeline, can my noble friend say a word or two about how we are addressing these vulnerabilities in the distribution of energy?

[Lord Callanan (Con)]

My noble friend makes some very good points, and I agree with him on the three issues he talked about: generation, energy efficiency and of course distribution, which is equally important. We have a very advanced cybersecurity strategy. I am not going to go into detail on that now, or indeed our contingency plans to protect our energy infrastructure, but we are very well aware of the risks and are devoting a considerable amount of attention to this matter.

[Lord Bruce of Bennachie (LD)]

My Lords, the Minister was a little sneering about the alternatives to nuclear power, but has he not considered that the record of nuclear power is one of going massively over budget, massive delays and an unidentifiable cost of waste management disposal? To take up the previous point, local generation and local distribution, rather than massive and highly vulnerable major projects, is a much better way to ensure sustainability in the future.

[Lord Callanan (Con)]

The answer to the noble Lord is that we need both. We need new large-scale nuclear power, not least to replace some of the ageing stations that are being phased out, but we want lots of new renewable power locally as well. Indeed, our strategy is to produce exactly that. I know that the Opposition tend to be a bit down on our renewable energy record but, dating from the coalition days, we have a fantastic renewable energy policy. We are continuing to roll out new renewables at a very large rate—one of the fastest in Europe—and we will continue to do so, subject to inevitable supply chain constraints as the rest of Europe seeks to catch up with the excellent policies that we have been following.

[Lord Adonis (Lab)]

My Lords, how many new nuclear reactors do the Government think they might be able to get operational in the next 20 years with their new planning framework and Great British Nuclear? Will the Minister also indicate, to whet our appetite, if the Government were to allow a more liberal planning regime onshore wind, how big a contribution might this also make to our energy supply?

[Lord Callanan (Con)]

The noble Lord will know, from his history of looking at infrastructure projects, that I cannot give definitive answers to those questions. We have announced the funding of Sizewell. Discussions are under way with operators for additional nuclear plants. I will be sure to let the House know when we have secured those investments and when we can make decisions on them.

It is difficult to answer the noble Lord’s question on onshore wind: it will make a contribution. Clearly, individual turbines make a relatively small contribution, but when they are scaled up, it can be quite large. Again, it is intermittent generation, but they will make a contribution, particularly in local areas. We want more wind; we want more solar; we want more hydro; we want more geothermal: the whole idea is to provide a diverse mix of energy sources.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I turn to another issue raised by the noble Baroness, Lady Sheehan: that of energy conservation. The Statement says:

“The days of wasting energy are over.”


I am sure that is something we would all like to see, but the Minister may recall that a couple of days ago, he answered a Written Question from me on the issue of digital advertising screens and neon shop signs, which France, Spain and, in a slightly different way, Germany, have all taken action on to see them switched off during the energy crisis to reduce energy demand and reduce the risk of blackouts. In answering me, the Minister said that the Government had no data on the impact of these. If he wants to see one for himself, he might like to wander up to Tottenham Court Road station, where there is a four-storey high screen billed as

“the largest LED canvas in Europe”,

which blazes out advertising 24 hours a day, I believe. Surely that could be switched off to save energy. Will the Government look at this issue again?

[Lord Callanan (Con)]

I do recall the Question from the noble Baroness. We do not have precise data on how many digital advertising screens there are in the country and what energy they might be using. I do not think we want to get into micromanaging people’s energy consumption to that extent. We do not want the whole country to be in darkness, and there will be some important display screens that provide key information for people—so getting into heavy-handed government dictating to companies when they can switch their advertising screens on or off might be a policy beloved of the top-down, controlling Greens, but I do not think it is a practical solution.

[Baroness Sheehan (LD)]

My Lords, if there is time I would like to ask another question and put the record straight on what I said about energy efficiency. I am fully aware that the Statement mentions energy efficiency, but I was referring to the lack of ambition the Government are showing. I think 15% by 2030 is really not good enough. We need to do so much better, and it is so easy to do so much better that it really is a missed opportunity.

Secondly, I want to talk about the interconnector from Morocco to the UK. The 3.8 gigawatts of energy it will generate is not an insignificant amount. It could help enormously with intermittency. The Minister mentioned the length of the cable that will be required. It will be immensely long, but the good news is that that cable will be manufactured in the UK, in Hunterston in Scotland, Port Talbot in Wales and parts of the north-east of England—so it is a good news story all round and I hope the Government will give it their full support.

[Lord Callanan (Con)]

I think I said in response to the noble Baroness’s earlier question that I welcome this fantastic project and wish the developers well in producing it, particularly as I believe that it can be built without taxpayer support, so we should welcome it even more—and of course we will do everything we can to support such a fantastic achievement. If it can be built, it will produce a very useful contribution to the UK’s energy security.

I have to disagree with the noble Baroness, who does not think a target of 15% by 2030 is enough. I can assure her, looking at the analysis of it, that it is an extremely ambitious target. It will require a huge amount of resource to be put into the sector, both public and private, in order to achieve such a target—but if you do not reach for the stars you will never make it, and it is important that we set an ambitious target. We will do all we can to achieve it.

I said in my initial answer that we are spending £6.6 billion on energy efficiency schemes in this Parliament; the Chancellor committed another £6 billion for 2025 to 2028. We are also consulting on the £1 billion ECO+ scheme. We are doing an awful lot in the energy efficiency space and the answer will actually not be in total cash resources, but in the building up of the supply chain, which is constrained in many aspects at the moment. That is what is providing me with food for thought: to make sure that we actually have the resources on the ground, in terms of materials and personnel, to implement all these ambitious schemes.

[Baroness Bennett of Manor Castle]

My Lords, the noble Lord opposite referred to hydrogen and its importance as a method of storing renewable energy when an excess is available from wind and solar et cetera. I do not know whether the Minister saw a really interesting study out this week on direct reduction furnaces and how if emission allowances are gradually reduced, producing steel with green hydrogen would be 15% cheaper than producing it with coal using carbon capture and storage. What are the Government doing to encourage, support and put into operation the creation of green steel in the UK, given that it is already happening in Germany and has been for a couple of years?

[Lord Callanan (Con)]

We are looking at a lot of ways of supporting the steel sector—we think that it is a very important sector in the UK. I would question the noble Baroness’s figures. If we wanted to produce steel completely with hydrogen, it would require enormous investment. I know that a number of interesting research projects are going on, but I do not think that they are particularly well established in other countries yet either. However, there are exciting prospects, and we should do all we can to support them.

I agree with the noble Baroness that one way of using so-called excess power from the likes of wind farms that produce lots of power perhaps at times when it cannot be used will potentially be in producing hydrogen. However, hydrogen is a relatively inefficient way of storing power; it is much more effective if we can use the power when it is produced. If we use a unit of electricity to produce hydrogen and then, for instance, use it for heating, we lose 60% of the energy value of that unit of electricity in converting and storing hydrogen. It is a very difficult gas to compress, to transport, to store, and then to use. It is not necessarily an efficient way, but it could be a way of storing excess electricity production if it cannot be used—that gets us back into the question that we discussed earlier of expanding the grid et cetera.

There are lots of solutions and lots of potential technologies that we could use. As I said, our strategy is to explore as many of them as possible so that we are not putting all our eggs in one basket. We have a diverse energy mix; it will take many years to roll out, but that in my view is the future of energy supply in this country.