Energy Trilemma

Paul Beresford Excerpts

Thursday 23rd March 2023 Commons Chamber

[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.

[Sir Paul Beresford (Mole Valley) (Con)]

There are days when the renewables fail and, when that happens, we have to buy electricity in, particularly from places such as Belgium. Should the Government not be expanding what they have started in looking at nuclear, which my right hon. Friend has not mentioned, and particularly small nuclear reactors? The Government are looking at one type of small nuclear reactor, but there are two. Should we not be encouraging the Government to move into that field, fast?

[Dame Andrea Leadsom]

I am grateful to my hon. Friend for raising the issue of nuclear. I am a huge supporter of both small modular reactors and advanced modular reactors. They offer massive potential for baseload energy here in the UK, which is crucial. While there are not recommendations in this particular Back-Bench committee report, I agree with him.

To conclude, I congratulate the Government on creating the new Department for Energy Security and Net Zero. There is no doubt that having a specific focus on tackling the energy trilemma is vital if we are to meet our goal of leading the world in tackling global climate change while building secure and affordable energy sources at home.

--- Later in debate ---

[Ian Blackford]

When the announcement was made, it was on the basis that it would be £20 million pot. [Interruption.] I have spoken to many of the operators over the course of the last while, and they do not share the hon. Gentleman’s view. But let us try to find consensus where we can and see the opportunity in all this, because that is key to this matter.

[Sir Paul Beresford]

The right hon. Gentleman said that tidal would be an alternative to nuclear, but it should be in addition to nuclear. The demand that is coming and the demand if we move into hydrogen will be massive—beyond anything we can imagine.

[Ian Blackford]

I have talked about the Skilling report and the ability to get to 80 GW. There is the opportunity with tidal to provide the baseload. I argue on that basis that we probably do not need the investment in nuclear to get to where we need to get. One thing I referenced was that I did not believe there is any fantasy in the numbers we have from Skilling. They are eminently achievable on the roadmap that we talk about.

Let us look at some of the choices and where the money has to come from, and put that in the context of the debate we are having over the trilemma and the choices that many people are having to make because of the cost of energy. We know that a number of producers have made eye-watering profits as a consequence of high energy prices over the past year. This Government have rightly introduced a windfall tax. If we had wanted, we could have hypothecated some of that to make sure we were speeding up investment in renewables. We could have provided the £50 million that I am asking for on an annual basis so that we could fulfil that potential in tidal.

One aspect of the events of the past 12 months has been the enormous increase in share buy-backs from energy producers. In essence, what are share buy-backs? They are in effect a return of capital to shareholders. We have taxed the profits of the generators to some extent, but we have not taxed the return of cash to shareholders—windfall gains. On a one-off basis, we could have taxed share buy-backs in the same way that we tax dividends, and provided the ability to generate the investment that we need in our energy transition. That would have been the sensible thing to do.

Let me come back to the European Union, because there is already an €800 billion NextGenerationEU post-coronavirus pandemic recovery scheme. EU member states must reserve 37% of their spending for that green transition. About €100 billion of the EU’s 2021 to 2027 cohesion fund, which is dedicated to regional development, goes to green spending. Horizon Europe, the EU science and innovation programme, allocates €40 billion to green deal research and innovation, and industry partnerships. The investment I am asking for and that I believe we need in tidal has to be seen in the context of the scale of that investment.

On a subject that many of us discuss, carbon capture and storage, the EU has commenced its third round before the UK has come close to completing its second. We are all aware of the promises that have been made about carbon capture and storage in the north-east of Scotland. There are Members in this Chamber who are as passionate as I am about making sure it happens, and let us remember why. If we are serious about getting to our net zero targets—whether 2045 in Scotland or 2050 in this place—then carbon capture and storage has to happen.

We have failed to back carbon capture and storage, and the harsh reality is that the renewable energy budget has been cut by a third and there has been the cut to the ringfenced budget for tidal stream. We need to make sure that we create competitive advantages out of the bounty that we know is there. Let us come back again to the green industrial strategy, because if we are able to develop our green energy sources to the extent that I believe we can, we need to make sure there is a competitive advantage for our industries and the industries of the future.

We also need to make sure that our communities benefit from the investment that is taking place. To take my own home island of Skye, an enormous increase in investment is coming down the line over the next few years in wind generation. We will be producing many times the amount of energy that the island of Skye can absorb by itself, yet there is an additional cost to access the network from producing in such remote and rural areas. There is a double whammy: because of the nature of the regional distribution market, we pay the highest prices to get the electricity back again. It simply is not good enough, and the communities making legitimate sacrifices in producing that energy have to be compensated effectively.

While we are talking about onshore, offshore and tidal, we should not forget the opportunities we have with pumped hydro storage. I delighted that, this week, SSE has announced a £100 million investment in the biggest pumped hydro storage scheme in the United Kingdom for 40 years. The Coire Glas scheme will power over 3 million homes, more than doubling the United Kingdom’s electricity storage capacity. Again, it is demonstration of what can be done in providing the baseload that is so necessary.

We need to pose the question why—in what is, for Scotland and arguably for the UK, an energy-rich country—people are facing the kind of costs that they have done over the last year. The average household bill in Shetland, if I may refer to that, in October 2022 was £5,578, more than double the UK average of £2,500, according to evidence submitted to the House of Commons Scottish Affairs Committee by Shetland Islands Council. The latest available figures show that a third—33%—of households in remote and rural areas in Scotland are in extreme fuel poverty. That statistic has not been updated since 2019 due to covid, and therefore does not reflect the current cost of living crisis. There will have been a massive increase in the percentage of our households that are not just in fuel poverty, but in extreme fuel poverty.

The only place where the UK Government seem to be increasing investment is in nuclear energy, which is far more expensive than the renewable alternatives. The Institute for Public Policy Research said:

“If the Government are serious about reaping the benefits of the transition and levelling up, it should learn from Joe Biden, scale up public investment, and bring forward a serious strategy to build an economy that is prosperous, fair and green.”

The CBI said:

“The UK is falling behind rapidly—to the Americans and the Europeans, who are outspending and outsmarting us.”

The world faces an energy trilemma, but the UK faces a simple binary choice: will it continue to be left behind, or will we collectively work in humanity’s self-interest to tackle climate change and embrace the opportunity for green growth?