To move that the Grand Committee takes note of the Report from the Industry and Regulators Committee Power Struggle: Delivering Great Britain’s Electricity Grid Infrastructure (1st Report, HL Paper 132).
I am very pleased to move that the committee takes note of our report and thank all those who have been involved in the writing of it, especially committee members—and especially those who have done a double shift today, because we had a very significant committee meeting this morning. I also thank our researchers and the whole committee team, who have worked hard on this, as well as our witnesses and those who wrote in with evidence, because it is a complex subject.
I think we can all agree that energy and energy policy is a fast-moving area. Our report was concluded five months ago, and I know that is a normal time it can take for a debate of this kind, but a lot has happened in the interim. Some of it is relevant to our report, and other parts are bigger parts of the Government’s overall policy. The report is very specific, however; it is about the electricity grid and its role in meeting government targets. That is a large enough topic, but it does not take on board energy policy as a whole.
The obvious starting point is to say that the electricity grid is obviously an essential part of modern life. During our inquiry, there were outages in Spain, in Portugal and at Heathrow, which showed just how central the grid is to modern life, how dependent we are on it and the levels of disruption that can be caused when things go wrong. The Government’s growth agenda, which is very clear, focuses on building more infrastructure and supporting energy-intensive industries, such as AI. That will only deepen our reliance on the grid.
We can all agree that the Government have set very ambitious clean power targets; the aim to decarbonise 95% of our electricity system by 2030 is certainly ambitious. The grid will play a crucial part in meeting that target by connecting more new low carbon sources of power to the grid and transporting that power around the country. Meeting the target will involve building new electricity generation and network capacity at a much faster pace than we have managed in recent years. Therefore, our inquiry set out to discover the main barriers to delivering the grid expansion that will be needed to meet that target.
Ofgem, which is the energy regulator, plays a central role in determining the future of the grid to prevent network companies from abusing their monopoly position. Ofgem controls the projects networks can build, the investments they make and the costs they can charge consumers through its price control. In doing this, Ofgem must balance its responsibilities to ensure that affordable energy bills, secure energy supplies and a decarbonised energy system—which can be in conflict—are decided in a proper way. Ofgem also decides how costs are spread between current and future generations, and how they are recouped through energy bills.
These are fundamentally political and distributional choices. For instance, Ofgem is currently trying to wrestle with whether those who are struggling to pay should receive greater support, potentially paid for by other customers. It can be legitimate for regulators to implement these political choices; it happens with a whole range of regulators and their responsibilities. However, there needs to be clear political direction on what the priorities should be. Ofgem’s statutory objectives provide no such sense of priority.
My Lords, I congratulate the Select Committee on picking this topic: it is vital for the country. It is important to local communities, which is a theme of part of what I want to explore today. I am conscious that the committee identified a number of issues. As an aside, when one looks towards the end of the summary, all of a sudden the paragraph numbers go out of sync, which makes me wonder what the committee removed from the report. However, there is enough in here for us to consider in detail.
One of the first things would be that so much relies on the strategic spatial strategy, although Nick Winser was right to point out that we did not have one before, so how much change will it make? A lot of eggs are in the basket of having this strategic strategy and I want to get clarity from the Government that it will definitely be ready next year. If there is an opportunity, will the Government say whether we are talking about quarter one or quarter two, or are we talking 31 December 2026? I am conscious that clean power 2030 is a specific choice by this Government to accelerate and decarbonise the electricity network to zero, which is one reason a lot of communities around the country are somewhat frustrated right now, because a lot of the planning and the work being done on this will not make much difference to the projects being considered.
The noble Baroness, Lady Taylor of Bolton, mentioned something that I found very interesting. I had not picked this up, but I am glad she raised the fact that, in terms of the prioritising of connections, one of the criteria is now that they have to have planning consent. That is not what is happening right now, certainly not in the east of England. There is no doubt that there are current live planning applications—connections are being given, and indeed ASTI money has been granted by Ofgem. I raised this on the Planning and Infrastructure Bill, suggesting that this sort of ASTI framework funding should not be available until planning consent has been given, because the underlying concern of a lot of communities around this country is that, for everything else, it does not matter what the planning process really does; the decision has already been made, in effect, by the Minister, by the actions of Ofgem or by the other organisations, such as NESO and others involved in this.
My Lords, I declare my interests: I chair a battery storage company called Aldustria Ltd and I am a trustee of Regen, a not for profit that promotes renewable energy. I will concentrate on grid connections within this report, and I will not go into the other areas much.
I want to go through a bit of history. In the area of grid connections, the previous Government absolutely sleepwalked into a crisis—and Parliament as a whole did, as well. Parliamentarians became aware of it a bit before the Government did. In terms of Ofgem being driven by keeping costs low for consumers, as opposed to investment in the future, that really stayed there until ASTI—I had to look up again what it was: accelerated strategic transmission investment—came in in December 2022, not very long ago. Even then, it took time to implement.
Then we had the Energy Act 2023, which tried to solve a lot of those other things to do with connections, and wider things as well. That piece of legislation was introduced in July 2022 and did not come out at the other end—I was Front-Bench spokesperson at the time for the Lib Dems—until October 2023. It was seen as an important and urgent strategic bit of business, yet it took one and a quarter years to get through Parliament after a long pause in the middle.
The irony is, of course, that, although we had many years of Ofgem promoting low bills, as opposed to investment for the future, we still ended up with lousy grid connections, a grid that is not fit for purpose and the highest energy prices in Europe. So something is certainly wrong.
There is one thing I would like the Minister to explain to me, because nobody has ever managed to explain it to me. Why do we need to pay extra money to transmission networks for investing in their own business? I do not understand. If any other private sector business invests, it does not charge for that investment in terms of pricing. In fact, we expect it to take advantage of economies of scale, with rising demand, as we have with electricity, and efficiencies. Take something like EasyJet. If, with rising demand, it invests in new planes, does that mean we see on its website that it is going to raise prices by 10% for its new aeroplanes? Of course not. It is around efficiency and economies of scale: the price goes down, not up. If the Minister can explain that to me in five seconds, that would be great, because there is something fundamentally wrong here in the way that Ofgem works.
My Lords, I am delighted to be able to speak in this debate and have been privileged to be a member of the Industry and Regulators Committee that produced the report. My noble friend Lady Taylor of Bolton has introduced this afternoon’s debate with the same incisiveness and wisdom as she showed in chairing the committee and leading the consideration of this vitally important subject. I join her in thanking the committee team for their indefatigable work in the inquiry and those who gave generously of their time in providing both oral and written evidence.
I declare my interests as disclosed in the register, in particular as a shareholder in Greencoat UK Wind plc, and, since the publication of the report, a director of Digbeth Loc. Studios, a film and television studio in Birmingham whose operations require significant and increasing amounts of electricity.
As the committee considered at the turn of the year possible topics for the next inquiry, a theme emerged of the cost of energy and the implications for the competitiveness of UK business in particular, all in the context of what had been at that point a cross-party commitment to a fully decarbonised electricity system by 2035 at the latest. The Labour Government have advanced the target to 2030. We could identify on the one hand new and growing sources of electricity—wind, solar and a revived nuclear programme—and on the other hand, new or hugely increased users of electricity such as power-hungry, AI-focused data centres, which are so important for achieving faster economic growth.
The new users of electricity may account for only a proportion of future demand, albeit a large part of future growth, with domestic and traditional business still dominant. In contrast, however, renewable energy is essential to achieving the decarbonised target and, ultimately, net zero, and will represent the majority of future supply.
My Lords, I rise to speak briefly in this debate without having the benefit of being on the committee or without any of the great expertise that others have shown. However, I congratulate the noble Baroness, Lady Taylor, on her committee’s work; it is a very granular analysis of the problems we face. I also hope the questions that my noble friend Lord Chandos asked of the Minister will be given a satisfactory answer. It seems to me that these issues are of fundamental importance to Britain’s future.
One of the reasons I wanted to listen to this debate was that it is of fundamental importance to whether we can achieve our climate change objectives, but it is also of fundamental importance if we are to be competitive in the industries of the future. That is a very vital concern. I was looking, for instance, at Mario Draghi’s report on European competitiveness. Item one on his list is electricity grids and the cost of energy. We are in a similar position to Europe in that it is absolutely fundamental to our future. That is point one.
I also reflect on the question of the electricity grid. Fifty years ago, I have to confess, I worked in the electricity industry. I was in the industrial relations department, literally trying to keep the lights on as there was always the risk of serious industrial action. Actually, there was not much risk when you had people like Les Cannon around, but it was a vital role. One of the things about the electricity industry in the 1970s was that it had been through the kind of radical transformation that it has to go through again now. When generation first came, it was all very localised. It was not really until the post-war era and nationalisation under Walter Citrine that the grid was put in place—one of the little remarked achievements of the post-war Labour Government—and then the whole thing had to be completely modernised in the 1960s and 1970s because of technological change that allowed these vast mainly coal-fired power stations to be built in Yorkshire and Nottinghamshire, which were transformative then of our electricity system. That meant the whole grid was designed on the basis of meeting the requirements of a coal-based electricity supply, and that now has to be changed completely to deal with what will be primarily a nuclear and renewables-based electricity supply, so it is a huge challenge.
My Lords, I apologise for delaying the Committee for another four minutes, but my own Select Committee was cancelled at short notice at 4 pm, so I was able to come here and listen to the considerable wisdom on an issue with enormous implications for the future. In the four minutes, I have time to comment on only one factor—one omission, if I may call it that—in the otherwise excellent and very thorough report.
The omission relates to the transmission and grid system. We have all read in the newspapers about the long queues of would-be applicants to transform from fossil fuels to electricity, and maybe the intention of getting them reduced will be achieved. But there is one obstacle. Although we can get the electricity to switching stations on the coast—from the growth of sea pylons in great numbers, where most of our electricity will come from on fine days—we know that the problem is then the transmission: getting it from the switching stations to the city gates and the markets where it is needed. We know that the problem there is the pylons, which the noble Baroness, the noble Lord, Lord Teverson, and others mentioned. Obviously, this is a huge difficulty and problem. Why? It is expensive and there are all sorts of planning problems and delay in getting these pylons built, because there is a general hostility from environmentalists to this sort of thing.
Therefore, one needs to ask: are we on the right track at all in thinking about the pylon problem? Are there alternatives? Yes, there are: hydrogen tanks, tankers and other vehicles can of course transmit hydrogen just as they transmit petrol now. We do not need pylons to get petrol and diesel to every garage in the United Kingdom. People say, “That’s all very well, but it’s much too costly”. But I wonder. Think about the alternative cost: the £1 billion or more that we pay each year not to produce electricity, despite the increased demand for electricity and the shortage of it—an absurd situation. Think about the enormous delays that will result from trying to put up 1,000 kilometres of new pylons, mentioned by the noble Lord, Lord Chandos, and others. Think of the years of planning that lie ahead while every single pylon is disputed. Think that the likelihood is that hydrogen technology costs will come down and we will be able to transmit hydrogen by pipeline or tanker easily, and a great deal of these pylons will be completely redundant in five to 10 years’ time. Are we on the right track at all?
My Lords, I am very grateful to have the opportunity to speak in the gap. I declare an interest as a member of Energy Local Totnes. I wanted to speak because of an electricity market regulatory change called P441, currently out for consultation, which would make local energy supply schemes considerably more viable across the UK, with many of the advantages that I believe the committee is seeking.
Currently, setting up local energy schemes involves navigating unclear regulations and exceptions, but P441 would create a standardised process, making it much easier for communities to buy and sell locally generated renewable electricity. It would also give licensed energy suppliers the confidence to support community schemes, knowing that the rules are clear and consistent. This really would be a very welcome change, which would also be much better at attracting investment because of the certainty.
Why are local energy schemes very important? I belong to one, and in the short time available to me I will give your Lordships some of the win-win wins—I counted at least eight of them. They reduce fuel poverty by selling energy affordably, at considerably lower prices than otherwise. They allow locally owned generators more control over pricing. They keep profits in the local economy, reduce reliance on fossil fuels and enhance local reliance by providing protection from fluctuating energy prices—that is particularly important when talking about fuel poverty. They balance local supply with demand, which helps the national grid reduce the need for costly network upgrades, which noble Lords have mentioned this afternoon—and, as was also mentioned this afternoon, less electricity is wasted through transmission losses, as the distance from the supplier to the customer is much shorter. So there are many wins, and I hope that the Government will encourage this change with P441. Can the Minister also say whether the Government are encouraging Ofgem to do all it can to support local energy schemes?
My Lords, it is a pleasure to speak in this debate, and I thank the members of the committee for the quality of their report. This is indeed a very important and timely work, and I thank the noble Baroness, Lady Taylor, for her very good introduction. As the noble Baroness stated herself, this is a very fast-moving field, and the world has moved quite a lot since the publication of the report itself. I thought that the noble Lord, Lord Liddle, put it very well in combining the important granular nature of the report with the fundamental importance of Britain’s future, related to our grid development in these areas.
Against this report, we have to understand the background of decarbonising our electricity system by 95% by 2030—clean power. This is a key foundation of our energy and climate commitments. In the report, the committee found this to be a significant challenge, but achievable, and it talked about a once-in-a-generation upgrade to our grid to make this happen. The committee really looked at this huge challenge before us and what can be done to make sure that we deliver on these targets.
I have said this before, but in energy terms I think this is the biggest energy change since the industrial revolution—and it all needs to be delivered in the next five years. This is a vast, co-ordinated and complex dance between systems, regulators, government and big infrastructure projects. It is all immensely complicated stuff, and I am very grateful that this report has been done. As the noble Viscount, Lord Chandos, said, this is mobilising £60 billion into the network, 1,000 kilometres onshore and more than 4,500 kilometres offshore. It is a six-fold increase in wind development and a three-fold increase in solar. The grid is not just the backbone. I like to think of it as the central nervous system: if it is not working, the country does not work, and we do not go to work—we have no transport, and the country makes no money. So the grid is absolutely essential to what we do.
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The Government have the ability to provide Ofgem with guidance on these matters, through the strategic policy statement for energy, which was published last February. But it is often the case that the Government give regulators extra instructions without providing the full level of priority that is often needed. We have found with many regulators that Governments give instructions but there is not always transparency on what exactly the instructions mean, and some regulators across the board are concerned about that.
The current Government have indicated that they will provide clearer priorities as part of their review of Ofgem. Can the Minister commit that, as part of the implementation of this review, the Government will provide clarity on how Ofgem should balance the affordability of energy bills with the need for greater investment in the grid? Will the Government change the statutory objectives for Ofgem and provide more detail on what should be the priority? Will the Government provide their own view on how those struggling with energy bills should be supported and how the costs should be met, rather than leaving it to Ofgem to resolve?
I want to say a word about zonal pricing, which the committee spent quite some time discussing. As part of building any new grid infrastructure, it will cost consumers and we believe therefore that there needs to be greater price incentive for major sources of energy generation and a demand for them to locate closer to one another, thus reducing the need for additional grid as far as possible. On balance, after taking considerable evidence on this, the committee decided that it was supportive of the idea to move towards zonal pricing of electricity, which we thought could have enabled better use of existing grid capacity.
One of our members, the noble Viscount, Lord Thurso, who unfortunately cannot be here today, illustrated this to us very clearly by pointing out what could happen in his former constituency of Caithness, where there is abundant power, abundant land and a workforce. If there was zonal pricing, because of the potential for cheap electricity there, that might be a very good place for data centres.
On zonal pricing, though, we recognised and acknowledged that such a move had the potential to impact on investor certainty. We felt that that could be managed but clearly the Government felt otherwise and have decided to retain the existing national pricing system. I understand that the Government and Ofgem plan changes to network charges to try to improve those incentives, but we were doubtful about whether that would have the same impact as zonal pricing. I hope the Minister will consider what the impact will be of retaining national pricing and whether it will limit our ability to make our existing grid more efficient and decrease the amount of grid that would have to be extended going forward.
On connections—another area where we took a great deal of evidence—we heard repeated complaints during our inquiry that new energy-generation projects and businesses seeking connections to the grid face a slow, opaque and unpredictable service from the networks, with many being quoted connection dates of over a decade away. This was because the queue to connect to the grid previously made no judgments at all on whether projects were ready or necessary and simply went on a first-come, first-served basis. This led to enormous queues that theoretically contain more energy generation than we would need even to reach the clean power target. It is generally agreed that many of those applications were, in fact, speculative and very early-stage applications.
Since we were taking that evidence the Government, Ofgem and the National Energy System Operator—NESO—decided to take action to reorder the queue. Networks will be required to offer connections only to projects that have planning permission and are judged to be necessary based on the new projections from the Government and NESO on the types of generation we will need to meet these targets.
These changes are to be welcomed. They are necessary and should enable generation to be conducted to the grid more quickly. NESO and the networks must act quickly to provide these updated connection offers to those hoping to connect to the grid, but we are hearing—even yesterday—from those involved in the sector that this is not happening quickly enough and there is insufficient consultation to make sure that we get the fast-tracking of the connections that are pretty vital to what we need in order to go forward quickly.
Our inquiry also heard some concerns, particularly from the solar and battery sectors, that the current criteria for prioritisation in this queue could cause problems for those who want to have projects that will be needed and will be key to what we do going forward after 2030. We can understand the need to push things forward quickly but I think we need to think of the medium to long term as well as the short term. So before publishing, next year, the strategic spatial energy plan, which will guide these decisions, we believe that NESO must make sure that it is consulting very closely with all forms of generation suppliers to ensure that we get the kind of future investment that we really need.
The reordering of the queue should allow networks to provide a better, clearer and more consistent service to connection customers. We have heard that networks have sometimes provided unsatisfactory levels of service, including significant delays and charges for connections, so we welcome that Ofgem is reviewing the regulatory framework there for connections, and we support its proposals to strengthen the incentives and penalties networks face for their performance. But this does happen. These connection changes have to happen at speed, and they have to happen with a proper amount of consultation with those involved in the sector.
On planning, as in any area of infrastructure delivery it is a key challenge. Certainly it is in terms of delivering new grid projects in the planning system. We support the Government’s plans in the Planning and Infrastructure Bill to allow local authorities to recover the full costs of planning processes and to ring-fence these important pressures on local authorities at the moment. That will be one way of making sure that we get the kind of service that is needed. But we are very concerned that planning authorities do not have the skills and resources—but particularly the skills—that are needed to process these at the speed that is necessary. Skills shortages are a problem not just for planning authorities but across the whole of this area, and it is probably one of the major challenges facing the country as a whole at the moment.
The Government, Ofgem and NESO are all doing very many positive and necessary things—or have committed to do so in the future. But all these elements need to be decided and implemented at pace. It is important that we get the momentum for getting these changes if we are going to meet our clean power target. We believe it is still unclear whether the energy system is capable of moving at the huge scale and pace that is necessary to do so many things in such a short time. We were told repeatedly by many witnesses that the Government’s target for 2030 was possible, but everybody agreed it was very difficult. We were told repeatedly that it is possible, but the key is that failure in any one element of these issues could cause real difficulties in terms of the Government meeting their target.
We have called on the Government to make sure that we are all informed of what is going on. The Government are saying that they are publishing various key indicators, but very often these are hidden in government figures that not only the public but certainly parliamentarians do not always follow with great care. Things on the website are not always the way to find out what is going on. So we would like the Government to commit to clear public statements to Parliament—a drumbeat of information coming forward—so that every six months or so we can just assess how clear it is that the Government and the industry are going in the right direction, and we are moving towards hitting our targets.
The objectives that the Government have set are clear, but so are the potential pitfalls. Time is running out and we cannot have any complacency. It really is time for everybody involved in this industry and in government to pull out all the stops to make sure we can go forward, and it is important that the Government make information available to Parliament and to the public.
One reason I am grateful to the noble Baroness who chaired the committee so well is that I went on 4 March 2025 deliberately to question Nick Winser. The noble Baroness was gracious enough to let me ask a question, and it was about this transparency—this frustration that exists that we are almost going through the Emperor’s new clothes on some of these things.
I was struck by what the noble Baroness just said and I will be very interested to hear how that impacts on current planning applications. By the way, I do not expect the Minister to refer to this, but I will be attending various hearings in the next few days regarding Sea Link, and I encourage her to think carefully about transparency. I believe that Nick Winser talked about complete transparency being important for confidence, but when I asked the Government a while ago about the estimated cost of the Sea Link project, I was told it would probably be around £1.1 billion. When I asked that question again more recently, I was told we were not allowed to know the answer to that because of commercial considerations.
To come back to what the committee talked about, it is vital to get this openness and this publication. Actually, the very first recommendation that the committee made is about publishing key metrics on meeting the target every six months. That is why I was disappointed by the Government’s response, which talked about intending to publish statistics regularly. That is not the same. One thing that often happens with statistics—as I know as a Minister, frustratingly, but also as a Back Bencher trying to get information—is that quite often the statistics are from the previous calendar year and are published about 10 months later. You would probably not get the information for 2024-25 until sometime in March 2026, and so it goes on.
I think it does matter to recognise the amount of levies and carbon taxes and the amount of cost on consumer bills both for households but also for businesses. It is right and important, with these changes that the Government are continuing, from a process initiated by the previous Administration, that we can see more regularly how progress is happening and to hold to account both the Government and the different parts of the architecture that are critical in trying to make sure that we get on with aspects of this connection right around the country.
One thing about which I had a minor frustration was that I never really accepted the then National Grid’s assertion that it had to offer a connection to everybody, regardless. When it was asked about who those connections were, it said that it could not reveal that either, so we are in this forever black box situation. Again, transparency would help—it would help communities to understand what is happening in their area, especially when we see the connections now starting to involve much bigger substations. I appreciate that the National Infrastructure Commission seems to be in favour of this, but this is at the same time that there is no trust in whether a particular construction is needed, or whether it is just a case of lots of this infrastructure being dumped in certain parts of the country.
A lot is happening in East Suffolk. I have no doubt that the whole issue of energy projects is one of the reasons I lost my election last year and have ended up here, much to the chagrin of some people in this Chamber, I am sure, rather than perhaps the other. Nevertheless, it is still something that is deeply concerning to people, that lack of transparency, and I fear we are not getting any further with the new set-up.
As to why there is no confidence, some of it goes back about a decade to when a developer said that they would do a direct connection—a DC link—from its offshore wind farm right through to the substation at Bramford. At the time, with regard to the local council, I appreciate that the committee is suggesting that lack of resources may be one of the barriers, but that has not been my experience locally. My experience has been that the council has been very willing to work with developers to try to minimise the impact on local communities and come up with innovative solutions on how to do that. But by doing that, and expanding the tunnel that would be used for the trenches, all of a sudden, on a commercial basis, the developer decided to reduce the amount of electricity that it was going to generate in that way, and it was going to do it through AC, not DC. One key thing about the transmission of electricity is that it dissipates over time and distance and, as a consequence, if you have AC instead of DC, in a way you are underusing the substation, but you are generating a lot more infrastructure and having an impact on lots of agricultural fields, nature reserves and ancient woodlands right around the country. That lack of density, in effect, is problematic in terms of what we are trying to do on other aspects of government policy and improving our natural environment.
So it continues: by refusing to consider brownfield sites for connection and insisting on greenfield sites, we are seeing what local communities often perceive to be attacks on their green spaces and their pleasant natural environment. That, again, is frustrating. By the way, this has nothing to do with pylons. Not a single extra pylon would have been erected in East Suffolk in all this time, so I am not getting dragged down in that particular debate.
Nevertheless, one thing I think Ofgem should do in terms of prioritisation is be very clear and public about which connections it has given and which it is considering, and there should be healthy competition in getting what is a valuable resource. But, at the same time, what I would prefer to see from the Government and the various bodies involved, instead of creating many more links unnecessarily, is doing more to enhance, for example, the existing connections, from the Isle of Grain into Tilbury. There has already been some expansion of that; why not do more? We are talking about connecting two significant brownfield sites, not two areas where there are already significant environmental protections, although thanks to the Planning and Infrastructure Bill—it has not passed yet—all that will be, frankly, set aside and disregarded anyway. But that is not an ideal outcome given where we should have been.
On the recommendations in paragraph 5 of the report, the Government have basically said that the transmission networks already publish that. But actually it is the second half that really matters in order to hold the Government to account. The progress on the transmission network projects that NESO has identified as necessary is vital. The Government providing a clear steer on how Ofgem should balance the competing effects of energy bills is key. We need to continue to try to make sure that bills are affordable, rather than have some of the challenges that industry and householders face. I will not get into energy bills, as that is a completely separate debate and we have had some of that debate already when discussing things like the warm home discount.
On paragraph 18, I raised this on the Planning and Infrastructure Bill, so I will not do so again. Paragraph 24 talks about the connections that are prioritised, and it would be useful to know which ones have been dropped. Who has already been dropped from this list, and when will Ofgem, NESO or indeed the Government publish that?
On the 10-year infrastructure strategy, it is good that the committee has focused on making sure we get the electricity to where it is needed. One of the main issues with a variety of developments affecting interconnectors is that a lot of this is focused on getting energy to London and parts of the south-east. But, candidly, significant other parts of the country desperately need electricity connections, and it feels to me that that is not being properly considered. But I am sure the Minister will explain how they are prioritising the different aspects of connections.
There is one aspect where it is also difficult to hold Ofgem and ESO to account: the application of its duty on the consideration of biodiversity. It is impossible to get a proper answer on that. I can see that I have reached 13 minutes, and I have come to the end, so all I will say is that I will continue to fight the fight for transparency and openness. It is what our communities in this country deserve, and it is what Parliament deserves too.
It is not just grid connections to generators. I remember very much one of the pieces of witness that we had. I asked, “Isn’t there a problem? Housebuilding in west London has come partly to a halt because of lack of connections”. The witness actually denied that, but I have spoken to the sector since, and if you google it or whatever, you will find that it is the case. This is an issue not just around generation but also in terms of housebuilding targets.
So grid reform is absolutely needed and is being done quickly at the moment. As our chair rightly said, we have moved on from first come, first served, with a hugely long list of projects, some of which have been identified as “zombie projects” that did not exist and that we want to take out. What we are moving to is those that are shovel-ready and conform with CP30. I did actually check what CP30 was. I was sure it was clean power 2030, but I googled it to make sure and it came up with C-3PO or whatever it was from “Star Wars”. Anyway, it was around the future. But that is to the side.
Anyway, we have changed that, and that is absolutely right. The difficulty has not been the fault of NESO at all: it was only established almost exactly a year ago, in October last year, and it immediately had, among its other responsibilities, re-queueing this huge tail in terms of grid connections. Quite frankly, it strained in that task, and I will come back later to a number of questions for the Minister to see how we can get round that.
There is no doubt that NESO has been working hard and wants to do this. There were problems over the portal that put back its programme by a couple of months, but the timetable has been extended and there is genuinely a lack of investor confidence in the way that that is now rolling out and a lot of uncertainty in terms of those timetables. So that lack of confidence is a crisis there at the moment, and that will affect the investment that makes it so important, as our chair said, to be able to reach those CP30 targets. So, at the moment, those delays in connections with regard to the reform process are leading to a slowdown in clean energy projects being developed.
I have some specific questions to the Minister about that, around the future of making it work. They are not detailed but are substrategic, so I will be very happy if he wants to come back later on. My questions are: how will the Government, together with Ofgem and NESO, give enough confidence to the developers’ projects that are due to connect in 2026-27, so that they can actually place firm orders with their supply chains and start building those projects out? That is the only way they can meet their connection deadlines, because, if you miss deadlines, you go back to start again, which means a loss of time and more uncertainty. It is absolutely right to put those gateways down there in terms of planning permission, your supply chain and land acquisition or whatever, but if you do not meet them, you go back to the beginning.
Will the Government ensure that developers have the opportunity to agree viable gate 2 milestones with networks pre offer to take account of the impact of delay on project timetables in the connections reform process? Lastly—this is key in terms of the future, exactly as our chair said, looking forward not just to the next couple of years but to 2030—when will the next gate 2 connections application window be opened? This is really important, so that there is a path for projects that do not meet gate 2 in this first window. We seriously risk developers having no development route and just walking away. So it is all around making that really important reform that is being made work—dare I say work at pace—but making sure that we know, for those that have not got to gateway 2 now, that they are able to do that for the future, so that we can achieve the net-zero grid that is so important.
We realise that what linked, both physically and metaphorically, the new sources and both the old and new demand was the network infrastructure and that the changes in train presented immense challenges to the system. I believe that the report which has resulted is a powerful but fair analysis of these challenges— 1,000 kilometres of new onshore infrastructure and over 4,500 kilometres of offshore infrastructure needed with a price tag of at least £60 billion. This will need to be built over the next five years, as my noble friend Lady Taylor said, at four times the annual rate achieved in the previous 10 years.
Our witnesses were uniformly confident that these targets could be met but it was hard, without disrespect to the capable and committed people responsible for delivering this, not to hear echoes of an EFL League One football manager’s bravado when drawn to play a top Premier League club in the FA Cup. My noble friend is better placed than me to say what the odds are in those circumstances.
The committee identified a number of key changes which would help these targets to be met and made recommendations accordingly—reform of the connections queue, changes to the planning system which, as has already been said, is vital to other areas of investment and growth such as housing and transport infrastructure, and an increased role for the National Infrastructure Commission. The Government’s response would indicate that they have identified and/or accepted these points even if they are not immediately able to find the silver bullet which would ensure that the necessary changes are made.
As I have just said, the committee was generally impressed with the witnesses at the centre of delivering these targets; in particular, the National Energy System Operator, NESO, seemed to have hit the ground running. Without being churlish though, it would have been disappointing if that had not been the case given that it is based around ESO, the Electricity System Operator, acquired in September last year from National Grid Group for a reported £630 million. Although the noble Lord, Lord Teverson, referred to it as an organisation that had started last October, it had long roots.
Negotiations for this transaction had commenced under the previous Government but were completed only in the early months of the new Labour Government. I ask my noble friend the Minister: what was the basis of the valuation for the acquisition? Is the funding of NESO essentially the same as that which applied to ESO, a levy paid ultimately by consumers? What is the surplus expected to be in NESO’s first 12 months, which have now ended?
I will use my remaining time to probe the Government on what was generally seen as the single biggest policy issue for the electricity market: zonal pricing, to which my noble friend Lady Taylor has already spoken so cogently. The committee recognised the complexity of, and the issues raised by, zonal pricing but, as my noble friend said, concluded that, on balance, it should be introduced.
The scale of building and investment needed to meet the network requirement is massive and it is not just a matter of cost—with network costs being over 20% of prices ultimately paid—but more importantly the risk that the grid becomes the weak link in the chain. We could achieve all the targets for building new wind, solar and nuclear power plants, but if the network does not have the necessary capacity and connectivity, much of this investment—as is already the case with some wind farms in Scotland—may deliver poor returns economically and in service delivery.
Coal was bulky and heavy to transport and required road or rail infrastructure that made it totally logical, from the Victorian era onwards, for the steel industry, for instance, to be located close to the coal fields and mines. Electricity may be lighter than coal to transport, but it still requires increased network infrastructure that carries not just a high cost but imposes massive logistical challenges in building it to the necessary timetable. If zonal pricing could reduce even marginally the amount of additional infrastructure that is needed, it could have a disproportionate impact on the likelihood of the network having the capacity for the needs of the late 2020s and into the 2030s.
I was therefore disappointed that the Government announced in July that they would not introduce zonal pricing but rather have
“concluded that reforming the system while retaining a single national wholesale price is the right way to deliver a fair, affordable, secure, and efficient electricity system”.
As I have already said, I recognise that this is not an easy judgment to make. Professor Sir Dieter Helm, my go-to guru on energy regulation, published a penetrating and nuanced analysis soon after the publication of our report, which was sceptical about the practical effectiveness of zonal pricing. Could my noble friend the Minister give any more details of the reforms the Government have in mind to the existing wholesale price system to enhance the security and efficiency of the network, equivalent to what might have been achieved by zonal pricing?
I recognise the importance of stability and predictability in fostering investor confidence, which is critical to mobilising the levels of investment needed. I therefore reluctantly accept that zonal pricing should probably now be off the table. However, this places all the more responsibility on the Government to introduce effective reforms to the national pricing system instead.
In the 1970s—here I am going to sound very old-fashioned—the reason this great transformation occurred was because there was a body called the Central Electricity Generating Board, a dominant body, very dominant, which managed to drive this transformation through its important position and its powers. We went through privatisation in the 1980s. I thought at the time that privatisation, properly regulated, was not a bad idea, and there is no doubt that operating efficiencies were achieved, but the trouble with it was that it led to a business culture of sweating assets and not of building them. This culture is completely unsuited to the challenge we face now, which is of how we reconfigure our grid and our electricity system, and we have to do that in short order, as people have said—by 2030 or 2035.
It seems to me, as an outsider in this debate, that when we look at what is going on, the fundamental problem is that unlike the CEGB in the 1970s, there is no one clearly in charge. There are far too many people with fingers in the pie who have the ability to obstruct but not to make happen. What is particularly important is the triangle between the Government and Ed Miliband’s department on one hand, the regulator and the system operator. I congratulate the last Conservative Government: taking the system operator into public ownership was a very important move if we are going to carry out this job of modernising the grid properly. But it is in its infancy. Yes, there was an organisation before, but the organisation before was run in the commercial interests of the National Grid not the public interests of how this transformation should happen.
The fundamental problem is sorting out who is in charge and how we get drive and efficiency into the modernisation we face. At the moment, it seems to me that we have a target but we completely lack a plan. The plan is absolutely crucial, and it is very costly— £60 billion, as my noble friend Lord Chandos said. There was an interesting article in last week’s Economist about what is happening on the continent. In other countries, the amount of money being spent is vast. In France, the estimate is €100 billion. In the Netherlands and Germany, it is €200 billion. It is estimated by the EU that, within Europe, €800 billion will have to be spent by 2050 for the energy transformation and the grid that changes that go with it. So these are huge investments—huge things that have to be got right. The fundamental problem that our Government have to face up to is that we need a proper plan, and it needs a guiding mind.
That is all I have to ask in my four minutes. I fear that we are not on the right track. I fear that the costs of alternatives—the electrolysis for transforming north Atlantic electricity, clean, to the vast new demands of the electric economy that lies ahead—have not been calculated or set against the enormous cost of trying to build 1,000 kilometres of new pylons, which is said to be £60 billion; I will believe it when I see it. This is really a great gap in the whole argument and strategy which NESO has not addressed properly. Previous Governments probably have not, and the present Government do not seem to be doing so. Therefore we have a case, as the noble Viscount, Lord Chandos, said, for another report to look at the real facts of the overall transmission situation in the coming decades. That is all I have to add to an otherwise excellent document and much wisdom around on the enormous problems of trying to get adequate clean electricity 24/7, not intermittent, to our industry in the future. Unless we do, we will fall even further behind in competition in world markets.
We have this massive scale, pace and challenge ahead of us. The committee was really concerned about that trajectory, whether the targets can be met, what the blockages are ahead and what more can be done between government, the regulators and investors to make sure that we can all work together. The one thing that is clear from this report today is that everybody wants us to be able to get towards these targets and recognises how fundamentally important they are to the energy transition.
I want to turn to planning. We have had the Planning and Infrastructure Bill and the Government have brought forward changes. The noble Baroness, Lady Coffey, talked a lot about the need to bring communities with us through that transition, and I welcome that. There is more to do on that front; there is more to do in planning change terms. The report recommended hypothecating funds to planning officers and making sure that the granular nature of the planning system worked, so there is more to do on that. I tabled some amendments to the planning Bill in relation to the low-voltage grid, which is equally important. Small blockages in the system all add up and will cause considerable problems over time—so I think that there is a need for further planning reforms.
The committee also looked at the grid connection queues and the problems there. I recognise the work that the Government have done already to move to the system needed for 2030. That is welcome—but there is more to do around it, and the noble Baroness, Lady Taylor, in particular, asked questions about post 2030. There are some questions for government about not getting too hung up on a hard target, because some of the real challenges that lie ahead for government and our grid transition actually sit in the 2030-35 timeframe. There is a need to get to clean power, and we welcome that —but there is a need to be not absolutely rigid and to look further afield to make sure that we are not taking decisions that fundamentally cause greater problems down the road, as we continue that transition post 2030 —because 2030 is the start, not the end. We need to get to 2050 and beyond. That is concern for me as well.
There were some concerns about the Government’s position on the role of Ofgem, the energy regulator, and the duties that it has to protect consumers and ensure affordability—and the need to balance that against ramping up investment in infrastructure. These tensions can have impacts, and there is a need for the Government to take political leadership in this field and move things forward.
Obviously, the committee came out in favour, on balance, of regional zonal pricing. Since the report was published in July, the Energy Secretary came out and took a decision not to support that as a way forward and to keep the national pricing strategy. Personally, I welcome that commitment. The trouble with zonal pricing was that, while it had upsides, it seemed to have equal downsides for every upside it presented. Fundamentally, the challenge was putting that much change into a system that was already under so much strain and needed so much investment. Ultimately, the worry with it was that it would fundamentally undermine investor confidence just at the period of transition.
I am not against that decision. The question for the Government now is: they ruled out zonal pricing in July, so how will they use price structures and mechanisms to help with the energy transition, outside zonal pricing? What comes next in terms of the reformed national pricing system? Are the Government still on track to report by the end of the year, as they said they want to do? Can the Minister say anything about what that will look like? We all need to move this stuff forward. Those are the kinds of questions I have around that. We need to provide investor certainty, to review network charges and to provide stronger locational signals. Is there still the opportunity to take up some bits of that work?
The committee also talked about the Government taking a clearer political strategy and guiding Ofgem in its work, making sure that there are clear political decisions and pathways and that they are not leaving too many of these issues to the regulator. That is an issue that I think is important, going forward.
The committee was concerned about the proliferation and number of new strategic plans. This is a complicated space. We have the strategic spatial energy plan and all sorts of other plans. Could the Minister say a word about the conflicts between them, when they are being delivered, how the Government will make sure they work together and co-ordinate across different bodies, and assure us that the proliferating plans will not get in the way of the key thing we want to do, which is delivering this change?
The committee also called for the Government to publish key matrices every six months, in terms of 80 critical transmission network projects identified by NESO. The Government in their response committed to publishing statistics on the clean power share, but not to give that real detail. Could I push the Minister and ask the Government to reconsider that? The committee argued quite strongly that that detail is fundamental and important. That level of scrutiny of this period of rapid change is really important. This is about Parliament and parliamentarians trying to work with and support the Government. It is about trying to co-operate and work together on these issues. So I call on the Government to consider that again. This transparency is really open and important in these matters.
Can I also ask the Minister about connections and connection queues? What work is NESO doing with AI and AI tools to help with that? I understand that there is some work around that. These really complicated problems could benefit more from AI and AI tools, and I understand that there is some use of them.
Finally, I will ask the Minister about the update to the energy code, which has not been mentioned to date but which was a key recommendation in the report. I know that work is going on with this and, again, it is a very complicated area. I am concerned that the date for updating the energy code is smack up against the 2030 deadline and I am worried about the Government’s ability to deliver this transition.
To conclude, I had a lot more I could have said. We really welcome this report. I think it is an important and fundamental look at where we are in this transition. A very complicated dance needs to happen between investment, government and the regulators and needs to happen at pace and at scale. The Government need to be a bit more open. There is a need to fill the policy vacuum left after zonal pricing has been ruled out. The Government need to bring forward ideas, be open and give clarity about the direction of travel—where they are going and what their thinking is—so that we as politicians and the general public know where we are going. I think this a timely and important report and I am very grateful to the members of the committee.