To ask His Majesty’s Government what assessment they have made of why UK electricity prices are among the highest in the Organisation for Economic Co-operation and Development.

My Lords, it is a great privilege to open this debate, especially with the high calibre of people proposing to participate in it.

The basic science of global warming is rock solid, but we have been told fairy tales about its economics ever since the Climate Change Act 2008. We all love fairy stories. The essence of most of them is the same: the country faces enormous challenge that can be overcome only at huge cost and sacrifice. Then our hero, through determination, clear-sightedness and a magic wand, finds a way to defeat that challenge which, far from involving cost and sacrifice, makes everyone better off and they all live happily ever after. The climate change version of this fairy tale is that, to avoid human extinction, we must eliminate wicked fossil fuels. This looked as if it would involve daunting costs and sacrifices, but along came Prince Miliband who announced that his magic wand—renewables—would not merely banish emissions but give us cheaper, reliable energy and green growth so that we can all live happily ever after.

The United Kingdom has been one of the first countries to embark on the quest for renewables. We have gone further and faster than most other countries. Our emissions are back at the level they were at in 1879. Two decades on, we have the highest electricity prices in Europe, and Europe has the highest electricity prices in the developed world. Far from enjoying green growth, we have seen our energy-using industries decimated, a third of our refineries closed, chemicals and fertilisers thrashed, aluminium and steel shattered, ceramics, bricks and cement rendered uncompetitive.

We are all told that these high electricity costs are a temporary phenomenon, entirely caused by the wars in Ukraine and Iran and our reliance on gas. High gas prices have exacerbated our problems, but even in 2019, before those wars and the pandemic, when gas prices were at the fairly typical level of the previous two decades, our electricity prices were the third highest in the OECD. Why is this? Surely sun and wind are free. That is true but, unfortunately, they are intermittent and capital intensive. Solar is now a competitive source in sunny countries because the main variable demand there is for air conditioning, which is perfectly correlated with the sun shining. Alas, in the UK the sun does not shine when we need the power most: in winter, in the evenings and at night.

That leaves us with wind. In 2024 Prince Miliband, newly reinstated in his palace—I mean his office—as Secretary of State, assured us that new offshore wind was now cheaper than new gas. Unfortunately, that year’s offshore wind auction set the CfD price for wind at £80 per megawatt-hour in 2021 pounds. His own department’s estimate for the levelised cost of new gas was £55 per megawatt-hour, pre-tax.

There is a respectable case for imposing a tax on fossil fuels to pay for the external costs that global warming will impose on the world. Unfortunately, DESNZ has stopped estimating the social cost of carbon because the conventional estimate, used by the Americans and others, of $20 per megawatt-hour was insufficient to make gas appear uncompetitive. Now DESNZ, in assessing the relative costs of different modes of generation, imposes a theoretical policy cost on fossil fuels, which is calculated as the tax necessary to render fossil fuels less competitive than renewables. I kid you not—that is the methodology. Even then, it is on a levelised cost basis, which takes no account of intermittency. Since the wind often does not blow for quite long periods over the whole UK and much of Europe, we need back-up capacity roughly equal to the wind capacity. At present, that can be only gas. If we then have to eliminate emissions from that gas, we will need an equivalent capacity of carbon capture and storage. That is a threefold investment in capital expenditure for one lot of electricity.

Unfortunately, wind blows best in the wrong places: the North Sea and the Scottish highlands, so a major factor is building additional transmission lines, which already add about a tenth to the final price of electricity. Until those transmission lines are built, we often cannot get the electricity from the north to where the power demand is in the Midlands and south. We have to pay the wind farms for the electricity they cannot produce and simultaneously pay for gas-fuelled power.

The Climate Change Committee and the Government themselves insist that the cost of new wind farms is coming down and will come down further. As it happens, we do not need to rely on guesstimates and campaigners’ forecasts. We can find out the true costs of wind farms already built and those under construction because each wind farm is usually owned by a special purpose vehicle, which has to publish its audited accounts. Professor Gordon Hughes, the professor of energy economics at Edinburgh University, has gone to the trouble of analysing 247 wind farm special purpose vehicle accounts and found that their capital costs are not falling in the way the Climate Change Committee predicts or the Government wish. Moreover, as fields age, operating costs rise significantly and the output of a field falls.

I put down a Question to the Minister asking whether the Government had analysed this data; after ignoring it, the Minister said that estimating prices was not a matter for his department but the responsibility of the independent National Energy System Operator, NESO. It too initially ignored the question, but, after I persistently put it again, it eventually admitted this: “We do not draw on the information from SPV accounts. We used data published in the Government’s electricity generation costs”. The Government imagine that NESO is producing independent figures, and NESO is actually recycling figures produced by the Government.

What is to be done? Unfortunately, we cannot undo foolish and costly past commitments. We heavily subsidised the cost of renewables when they were still immature technology. As Professor Dieter Helm has estimated, that premature subsidy for immature technologies has cost us up to £100 billion. The renewable obligation, which we entered into as part of that subsidy process, still accounts for nearly 10% of prices to energy users. If we want to have the cheapest, most reliable energy in future, we should stop offering subsidies—then we will get the cheapest price available. We should remember Dieter Helm’s remark that Governments are not very good at picking winners but losers are very good at picking Governments. We should require firms to bid firm prices—to offer a contract including paying for the back-up dispatchable supply needed to offset their intermittency—and we should base policy on audited facts, not educated guesses. Above all, we should stop believing in fairy tales.

My Lords, it is a pleasure to follow the noble Lord, Lord Lilley, but also a problem, as he has said almost everything that needs to be said on this subject already, and in a style that few of us can imitate.

In the time available, I want to critique one particular argument that we hear quite a lot nowadays: that we just need energy abundance. The argument runs: “We just need more of everything—nuclear, gas, wind and solar. Let’s just get building—it doesn’t really matter what. Let’s just get on with it”. In a way, it is a good thing that we hear this argument. I think it is put forward precisely because people sense that there is something awry with the arguments for renewables but do not want to follow the logic through to its conclusion. Indeed, the argument sounds superficially logical: let us maximise our ability to use everything—the wind is free, so let us use that when we can, and use other things when we cannot. It is said that building lots of everything makes sure we can do that.

There are two problems with this. The first is the best-known one: intermittency. You cannot control when the wind blows, so you have to have enough capacity to replace all your renewables capacity when there is zero wind and zero sun. The more renewables you have on the system, the more back-up you need and the bigger your problem is. Having more renewables requires even more capacity overall, and that brings more cost.

The second problem is perhaps less intuitively obvious but still crucial. It does not matter that the marginal cost of wind is free; it still needs a system to deliver it. After all, rain is free, but we still pay for our water because we need a system to get it to us. It is the nature of this system, and the cost that goes with it, that is the problem. Renewables are a low-density inefficient system; they require a grid that is fundamentally different in nature to the grid that conventional generation needs. It is much more diffuse, much less efficient and much more difficult to get the power to where it is needed, even when it is being generated.

To illustrate the point briefly, compare Hinkley Point to same electricity generated via wind. Hinkley Point C will generate 7% to 10% of the country’s electricity demand on a site roughly the size of Regent’s Park—reliably, all day and all night. To generate the same amount with renewables requires an area half the size of a county such as Nottinghamshire or Leicestershire. In practice, of course, it is much more spread out and much greedier in terms of land use than that.

Such a diffuse and intermittent system requires extra engineering to provide capacities that come automatically with a conventional grid: inertia, voltage support and system strength. All this comes with cost: grid balancing, vast transmission costs, curtailment and, as the noble Lord, Lord Lilley, said, subsidy and price support. Optimising a grid to do these things is difficult and expensive—that is just the physical reality of these things.

This is why “just build more of everything” is a fallacy. You cannot lower electricity prices by adding more of the very technology that increases the costs. “More of everything” just multiplies the most expensive and complicated part of the overall bill. That is why “build more of everything” is not a strategy; it is a refusal to be intellectually honest and a reluctance to face up to what is necessary if we are to get costs and prices down. What is necessary is not layering renewables on top of gas or nuclear but halting renewables expansion altogether, before any more damage is done.

My Lords, industrial electricity prices are four times the level of the United States of America’s and more than three times the level of China’s. It is no wonder that we face a disaster of deindustrialisation accelerating under this Government with the closure of the oil refineries, ceramics plants and others that the noble Lord, Lord Lilley, rightly mentioned.

This is all avoidable damage. It is self-harm on a huge scale that the Government should be ashamed of. We have signed up for dearer electricity—it was not just this Government, but this Government have signed up to it, doubled the signature and worsened the terms, making it so much worse than even the position they inherited. It was always going to be the case that, if you put on more renewables, you would have dearer electricity. It is completely wrong to suggest otherwise, because you need to pay for two systems: you need the wind power as well as 100% back-up, because on some days, particularly cold, difficult days in winter, there is no wind power at all. So you are paying twice with the back-up.

It was always going to be the case that the more renewables you put on the system, the dearer your cheapest form of energy production, which is gas generation, becomes. When you switch from gas being on baseload to gas being interruptible and brought in only occasionally when there is no wind, it works much less efficiently. The efficiency of the power station drops from over 60% to around 40%, so there will be even more carbon dioxide per amount of energy produced. Of course your costs go up dramatically, because your overhead costs for the gas power station are defrayed by a limited number of days instead of being defrayed by operating every day of the year apart from occasional maintenance. It was baked into the system that this would be less efficient and work less well.

Governments, particularly this one, have then compounded the problem by saying that gas must incur very high carbon tax charges. Of course our electricity was going to get dearer, because customers had to pay additional taxes on the gas. Why are there additional taxes on the gas? It is mainly as the noble Lord, Lord Lilley, implied: the gas was too competitive and was still cheaper even on some of the interruptible runnings that they were proposing. So you needed a big carbon tax to say to people, “This really is the dearest part of the power system, which is why we are trying to get rid of it”.

So the Government go out and sell to the public this unbelievable idea that we have uniquely dear electricity because we are producing some on gas—gas which is diminishing in volume because, when we have windy days now, there is more wind power available, so the amount on gas has reduced proportionately. They are not coming clean with the public that a series of levies and carbon taxes are the cause of very high energy prices in the United Kingdom.

The Government offered £300 off people’s bills as a lovely election offer. We all thought that that meant our bill would go down by £300, but we now learn that their down payment is £150 off a rise, so the bill still goes up. The sting in the tail, which we were not told about, is that we have to pay the £150, but out of general taxes instead of our electricity bills. For most people who go to work and pay taxes, that is no advantage at all. The Government are kidding themselves and undermining their own popularity, industry and commerce by a policy which is all self-harm.

My Lords, I declare an interest as chairman of Make UK, which represents 26,000 manufacturing businesses in the UK. I declare it not just because it is in the register; I am speaking in this debate because the unfair policy for pricing energy is affecting every one of those 26,000. Our members pay 25p per kilowatt hour. French and German companies in exactly the same field pay 12%.

It is 12p.

Sorry, I stand corrected: 12p. The noble Lord is right. In China, it is 3p. What does this really mean? Is it just a number? Having been on a presentation with the chief executive officer of Nissan, I can tell the Committee that that company pays more for electricity in Sunderland than in any of its other plants globally. Tinsley Bridge Ltd had to shut its automotive division in Sheffield because of energy prices—110 skilled jobs and £20 million of work went to France. That was because of energy prices. Another company, one of our members in Yorkshire, has seen its bills go up from £1.2 million to £2.4 million, not because of Iran or anything else recently but because of the cost of energy.

Why is this? International oil and gas prices are much the same everywhere. It is the price. This is the Government’s choice. Five different levies make the difference. That is policy; it is a choice that can be made. This is what makes the difference. Domestic prices are regulated, I assume for electoral reasons, but industrial prices are not and there are 150,000 small companies in this country that do manufacturing.

I had the pleasure of working with the Minister, the noble Lord, Lord Whitehead, when I was Energy Minister and he was my shadow. He is very smart and understands all these arguments, but I ask him not to respond to this debate by talking about the supercharger. That is an attempt to lower prices, very successfully, for 400 heavy users. I also ask him not to rely on BICS and its subsidies. This was announced after extensive lobbying by Make UK a year ago, when Jonathan Reynolds, then Secretary of State for Business and Trade, phoned up with glee to say that he had won a big argument around the Cabinet table and that there would be this scheme for manufacturing, affecting thousands of businesses and reducing their prices to the levels of those in France and Germany. A year later, what have we had? We have had consultations and arguments about who is included. Ed Miliband’s department tells us that it is the Treasury; the Treasury tells us that it is Ed Miliband’s department. Our members do not care: they get their bills, which are going up and up. Where is this?

I remind the Minister, who is a student of history, that every industrial revolution has been based on cheap power: water, steam, coal and oil. What now? We cannot allow the deindustrialisation of this country because of inept—I do not use the word easily—energy policy which is penalising jobs, employment and, as the Government are always mentioning, growth.

My Lords, I put on record my registered interest as the director of the Global Warming Policy Foundation.

Let me restate what Labour’s manifesto said. It promised to get power bills down by £300. The latest price cap is £294 higher than in those lofty days of July 2024, and even that has been fiddled because the average has shrunk from the previous average, as households are using less because they simply cannot afford to use more. So, like for like, it would be even higher. We are now more than £600 adrift from that manifesto promise. I have always brought to politics the principle that a promise made is a promise to be kept, but that promise is simply not being kept.

I do not want to pre-empt what the Minister might say, but I guess it will be something along the lines of, “Gas is the problem”. The answer should be, “Thank heavens for gas, even better if it is domestically derived”. The price cap for gas is 5.74p. For electricity, it is 24.67p, so gas is just 20% of the price of electricity. As I attempt to heat my home, gas is infinitely preferable on price, as it is for many. Gas sets the price, which I am sure the Minister will say is an indication that the market no longer works. Gas is used as the last resort after renewables have failed to provide the required electricity and after interconnectors are at full tilt—and after the wood-burning fiasco that is the Drax formula of energy generation, using imported wood pellets that have come across the Atlantic. That is the sham of the net-zero fairy tale, as the noble Lord, Lord Lilley, said very clearly.

The nature of renewables is in their intermittencies. Some might say that I do not know very much, but I do know one thing: the sun does not shine at night, so solar does not work very well at night. At our latitude in the UK, somewhat north and with Atlantic-influenced weather, it is not particularly good even on the best of days. Wind is similarly unreliable. In every energy debate, I try to get in the wonderful German word Dunkelflaute, which refers to long periods, usually in the middle of winter, when there is an anticyclone, no wind and—obviously, in the winter—very little solar. As we bulk up on renewables, we simply bulk up on cost, as we are seeing on an annual basis. We have a choice: either create loads more renewables, then create storage systems so that we have enough energy to get us across those Dunkelflaute periods, or use batteries and elevated reservoirs for gravity hydro, or we consider hydrogen. All are abject failures on the thermodynamic pathway. They are all poor. They lose energy at every step and all are horribly expensive.

We are now trying to recreate a perfectly good grid around this low-density electricity production. We are making redundant the perfectly good grid that we used to serve our high-density, high-inertia power stations. That new grid requires steel, aluminium, copper, concrete and transformers, and it simply destroys our beautiful countryside—all to chase the pipe dream of net zero. Surely this Government are aware that more industry will close and household budgets will be further squeezed as we perpetuate high prices for energy. This madness must stop.

My Lords, I want to make some brief comments in relation to the situation in Northern Ireland.

As noble Lords may be aware, energy prices in Northern Ireland are not controlled by the energy price cap. We all remember that global prices of gas, electricity, oil and other fuels began to rise dramatically in the summer of 2021. Prices then shot through the roof after Putin’s illegal invasion of Ukraine in February 2022. Later that year, the Conservative Government provided support for customers in Northern Ireland, which resulted in the largest electricity supplier in the Province cutting prices in November to a rate below those in the rest of the United Kingdom. However, a reduction in that support from April 2023, and its removal from July 2023, led to price rises in Northern Ireland. Since September 2023, the cheapest prices from Northern Ireland’s largest supplier have been higher than prices under the cap in the rest of the UK.

All Northern Ireland households will shortly receive a £30 annual reduction on their electricity. On the face of it, this is welcome news, until you learn that households in Great Britain will receive £150 per year. I understand that the discrepancy is because one of the two environmental levies being removed from bills by the Chancellor of the Exchequer does not exist in Northern Ireland. However, given the higher price of electricity in the Province which I have just explained, surely that should be taken into account as a means of redressing the current cost imbalance between the two parts of the kingdom.

There is another problem. According to Northern Ireland statistics, approximately 61% to 68% of households in the Province use oil rather than gas as their primary method of central heating. This equates to roughly 500,000 homes, with the reliance on heating oil jumping to over 80% in rural areas. An analysis by the Consumer Council for Northern Ireland found that, in March, following the US-Israeli attack on Iran, heating oil prices in the Province rocketed by 92%, with 500 litres costing consumers an eye­watering £627. I ask the Minister to consider what further support His Majesty’s Government can make available.

Finally, a word on business. While electricity prices for Northern Ireland household consumers are high, the situation for local firms is equally challenging at best, given that large energy users currently pay around 60% more than the EU median. Businesses in the Province are already tied up in knots, with additional costs caused by the ongoing Irish Sea border fiasco. Last month, Trade NI—the alliance of Hospitality Ulster, Retail NI and Manufacturing NI, representing the three largest sectors of industry and the majority of businesses in Northern Ireland—sent a delegation to Westminster. While here, they met Ministers and other key decision-makers to outline some of the practical interventions needed to support Northern Ireland’s competitiveness. I am unaware of whether the Minister was part of these discussions but, if not, I gently ask that he receives a full brief from his officials on the initiatives raised and considers how he and his department might best assist Northern Ireland.

My Lords, when I was a student at the London School of Economics, there was a thing called the London fog. When it descended, visibility went down to 10 to 20 yards. I must say, as I prepared reading for this debate, I felt that I was entering pure fog. It was confusion and darkness—you were frankly nervous about where you were going.

I will make just three points. The first has already been made, but I want to emphasise it. That is the cost of intermittency. You frequently hear, as the Secretary of State has said, that renewables are nine times cheaper than fossil fuels and gas. In a way, he is right. They are if you consider the price of fuel in connection with them as zero but, on the other hand, intermittency requires enormous investment. Dieter Helm suggests that, in the past, we needed about one-third more capacity to deal with peak demand. Now, he says, we have reached a position where we need twice the capacity to deal with peak demand. In the future, if we are to get the benefit from AI, greater electric vehicles and so on, we need a factor of three. This simply cannot be done from renewables. The enormity of the cost has simply not been recognised by the Government.

My second point is that we have a present grid that is totally out of date. The grid was built to deal with some very large generating companies. I do not know why there were so few. Whenever an economist looks at a few companies, you immediately think of restriction of competition. In the past, there was that small number. Today, you have wind farms and solar parks, and many more access points are needed. The grid is simply not compatible, and we do not have, like other countries, something to fall back on. China and Germany can fall back on coal. France can fall back on nuclear. The US can fall back on oil and gas. We fall back on wind, light and sun. It is really crazy.

My third point is on overregulation. Why should we have one price for power throughout the whole country? Why can we not have a regional pricing of power? If, in Scotland, offshore wind farms and so on are cheaper, why can Scotland not be allowed to attract to the area industries that depend heavily on power? We need much less regulation in this respect and much more flexibility. That is something only the Government can do.

In the 20 years past years, I think we have seen a complete shock in deindustrialisation in this country. If we have any ambition to benefit from things such as AI and to regain the power that we once had, we have to recognise the cost of intermittency. We have to recognise that the grid is out of date and needs restructuring. There is unnecessary government regulation, and we need regional price variation.

My Lords, it is a great pleasure to follow such an excellent speech by the noble Lord, Lord Griffiths. I declare my interest in new nuclear technology in the United States.

We have the highest electricity price in the world. Why? The Secretary of State claims that this is solely due to the gas price. The gas price does affect prices, but why and to what degree? Certainly, if the price of gas goes up, the electricity price goes up. But when the gas price goes down, will the cost go down? The devil in electricity prices is intermittent renewables. They are the cause, not just of high electricity prices, but of high prices that will persist in this country for almost the next two decades. While other countries will see their electricity price going lower and lower, we will be left high and dry.

Why is that the case? First, the old renewables contracts ensured not just very healthy profits for the operators but a huge extra and entirely unnecessary bonus when gas prices went up. It is another example of blundering negotiation by a zealous Civil Service under—I do agree—a Government run by my own party, which resulted in the Government being absolutely trounced by far better negotiators to achieve that wonderful upside benefit for the operators. That blunder was finally spotted, and now we have new contracts where the renewables operator does not get anything extra if gas prices go up. That means that, with these new contracts, it is just not true, as Miliband claims, that the gas price rules. Whatever the price of gas, what we pay for that large source is impervious. Note that the only way the Government managed to make even that happen—again in their blundering negotiations—was a very high price guarantee in the first place with very long contracts. The problem will persist, literally for a decade and a half or two, regardless of the cost of gas. Why were these very rich deals seen as necessary? I do not believe they were, but they were seen as necessary. It is because intermittent technologies are medieval.

What are we to do? If we let people drill for gas in the North Sea and by fracking—and the same all over the world—then the supply of gas will inevitably rise to the marginal cost of production, and the cost of gas will lower, say, to what it is currently in the United States, which is a tiny fraction of what we pay here. We are told by the Secretary of State that the price of gas rules our price of electricity, so, when the gas price starts to decline, will the price of electricity go down? No, it will remain high for 15 or 20 years, because there is this enormous renewable subsidy forcing up the price of electricity for contracts going on into the 2040s. For industrial competitiveness, this is dreadful, as everybody else’s price goes down and our does not. This is the disaster that will go on disastering.

In the US, the moment Trump got in last year, he slashed a bunch of useless regulations in nuclear. Within a year, the US has over a dozen safer and cheaper new nuclear plants and technologies being built. Within 15 to 20 years, America will be dominating those technologies while we flounder.

We should stop intermittent renewable contracts now, slash regulation on nuclear—the type that requires a nuclear power station to have less radiation in it than you get by walking down the road—and use our great scientific know-how to become leading in nuclear. Yet, only once we have got through the next awful two decades that face us, with all these intermittent high-cost renewable contracts, will we once again be able to have cheap electricity.

My Lords, I thank the noble Lord, Lord Lilley, and all those who have contributed. On these Benches, we support the energy transition and reducing our energy bills. They are in fact fundamentally linked, but we must be honest about the cause and the solutions.

UK industrial electricity prices remain among the highest in Europe, as the noble Lord, Lord Harrington, so ably put it, and household costs continue to be significantly more for electricity than gas. Prices have fallen from their peak in 2022 but are still well above pre-crisis levels, and this is having serious impacts.

Once again, instability in the Middle East shows our exposure to unreliable and volatile fossil fuels is the cause. Since the start, the UK has avoided around £1.7 billion in gas import costs, thanks to record wind and solar generation. Clean power improves energy security and shields consumers from fossil fuel shocks.

The Conservatives’ explanation of high prices is that it is driven by renewables and net zero madness. These arguments have been made consistently by many speakers, including the noble Lords, Lord Lilley and Lord Mackinlay, but the arguments do not stand up. The core issue lies in the structure of the electricity market. Under marginal pricing, the most expensive generator sets the price. Even when cheaper renewables are generating power, consumers still pay the price linked to gas. The gas price problem is passed directly to bills. Wholesale prices and, above all, continued reliance on gas are the real drivers. Blaming renewables does not explain or resolve the problem.

It is also a fantasy to argue that North Sea drilling provides the answer or would reduce our energy bills. Domestic production is in inevitable and terminal decline; gas is traded internationally. The North Sea will not impact the international markets, reduce bills or provide energy security.

We have already seen the consequences when these markets turn against us. Reliance on fossil fuels cost the UK economy £183 billion in the four years following Russia’s invasion of Ukraine. This is the cost of structural energy vulnerability. As long as we remain exposed to fossil fuel volatility, we will continue to pay.

This is why the seventh carbon budget is so important. A transition to clean energy is not just environmentally necessary but economically advantageous, reducing bills, strengthening security and attracting investment. The Government’s own analysis suggests that emissions reductions of 87% by 2040 could deliver economic benefits of around £865 billion. This is a real opportunity for stability, resilience and growth. The clean energy sector supports over 1 million jobs, and renewable projects capable of powering the equivalent of 23 million homes have already been secured by this Government, and we support that work.

At the same time, the cost of renewables has fallen sharply, with recent auctions delivering prices well below those for new gas generation. The Government have acknowledged the need to break the link between gas and electricity prices, including through adjustments to the generator levy and encouraging fixed-price contracts for existing low-carbon generation. We support those moves. They are welcome steps, but they must be part of a broader and more urgent programme of reform.

Further electricity market reform is needed and must be accelerated. As long as gas sets the price, consumers will not see the full benefit of low-cost renewables. We need a government strategic gas reserve, outside the market. We must address the imbalance in levies. Electricity wrongly continues to carry a disproportionate share of policy costs, despite electrification being central to decarbonisation. We need greater resilience to future shocks. There must be proper, long-term targeted support for bill payers. A permanent, targeted social tariff is needed. We must move faster on electrification, with heat pumps, electric vehicles and grid infrastructure. The direction is right, but the pace insufficient.

My Lords, I declare my interest as chairman of Amey, Acteon and Buckthorn Partners, three companies focused on delivering energy transition.

This has been an excellent debate. Since my noble friend Lord Lilley referred to Dieter Helm, and having just heard the speech from the noble Earl, I think it is important to quote in full what Dieter Helm, who is respected by both the Labour Governments of Blair and Starmer, said only last week:

“The industrial consequences have been dire. High electricity prices have contributed to the closure of Grangemouth refinery, the Exxon refinery in Scotland, one of the Hull refineries, the closure of most of the steel industry, the closure of the fertiliser and fibreglass industries, and severe problems for pottery and for glass-making. Car manufacturing is back to the 1950s’ levels”.

As we have heard:

“There is devastation amongst the SMEs, aggravated by the increase in employer national insurance contributions, enhanced workers’ rights, and increases in the minimum wage. The unfunded welfare spending has increased the cost of capital, with record gilt costs. Energy policy has reduced economic growth, not increased it”.

On these Benches, we believe in reducing household bills, strengthening energy security and increasing UK energy independence by prioritising cheap and reliable energy over net-zero constraints, expanding North Sea production significantly, repealing the energy profits levy and scrapping green subsidies, including carbon price support, which are no longer needed.

Ministers consistently refer to “clean energy”, which they define as homegrown. It is neither of these things. The con trick is to pretend that emissions should exclude the integrated lifecycle costs, as pointed out by my noble friend Lord Frost, while pretending naively that, because the wind blows and the sun shines, there is no impact on the environment. We are responsible for creating the demand for Chinese solar panels. Over 90% of the constituent parts of our solar panels come from China; they are not homegrown or clean. We create the demand for polycrystalline. We are accountable for the emissions belched into the atmosphere by Chinese coal-fired production of solar panels—a country, by the way, with which the Secretary of State has created a specific bond between DESNZ and the Chinese state through his secret MoU which encourages these Chinese imports. In this decade alone, China has pumped more CO₂ into the atmosphere than this country has in total since the industrial revolution.

Yet, we have our own gas reserves, which we are shutting down. This is not economic security. As the new AI technologies unfold, no data centre is going to find Britain’s high-cost economy for a highly intermittent-based electricity system an attractive competitive advantage. Why should it, when 60% of the operating costs of a data centre come from its electricity costs?

The central question for any electricity system in an economy is how good it is at delivering firm power at the lowest possible cost. It is not optional. A modern competitive economy is 100% dependent on firm, low-cost energy. We have a crisis. We have a crisis in British industry: as a result of the highest prices in the developed world, we are uncompetitive. We also have a crisis in affordability for households. Tragically, as this debate has shown, the Secretary of State is doubling down on both crises with the delusion of a zealot heading blindly for a go-for-broke strategy, which is the definition, as my noble friend Lord Redwood said, of economic self-harm.

My Lords, I congratulate the noble Lord, Lord Lilley, on securing this debate. It is a very important debate not just on our present energy crisis as a result of events in the Middle East but to review, among other things, how the energy market has developed in the UK over a long time and what has gone into it.

I, maybe naively, constructed my remarks on the basis of the Question, which addresses why the UK has among the highest energy electricity costs in the OECD area. That is undoubtedly true, although we need to make a number of caveats about how different countries manage their energy markets. Looking at other countries is significant in that respect.

However, I am sorry, but not surprised, that the debate this afternoon has been on a much wider basis. It would require all of us to get around the table for about three hours to talk all these things out, and it would certainly take me more than the 10 minutes that I have this afternoon to remotely address all the points that have been made.

As a general point, I had wanted with my closing speech to address what is being done now about a number of things which I think between us we can agree have been problems and distortions in the UK energy market over a number of years, which need rectifying in the future. But—this is where we come to fairy tales—we know that climate change is real and not a fairy tale. We cannot address the problems and difficulties of the UK energy market and its prices without factoring in what we are doing about climate change. Otherwise, the best thing to do would presumably be to dig a whole load more coal mines and start coal mining again. In our situation, we have to deal with climate change as a central part of our energy economy.

We do that on the basis of a UK energy system in which, for example, more than half of the CCGTs presently in operation are likely to go out of commission within the next few years—a maximum of 10 years, because they are beyond their lives. That is real; it is not a fairy tale. As the noble Lord, Lord Moynihan of Chelsea, informed us, we have a grid system that is completely clapped out and was originally built for an entirely different energy system—not a modern energy system based on climate change and delivering things where they need to go. Whatever the situation, we would have put a great deal of effort in replacing the grid, so that it is up to modern standards and purposes, particularly as far as digitalisation is concern. That is not a fairy tale either.

As the noble Earl, Lord Russell, mentioned, it is also not a fairy tale that, as it works at the moment, the system is based on marginal cost pricing. That means that whatever you do in terms of cheaper power in the system, the most expensive element of the system when the bidding process comes in is the one that sets the marginal cost for the entire system. That marginal cost price is still dominated by gas—marginally less so than previously, but it is still a very long way from being resolved.

None of these is a fairy tale. These are things we have to address now with the energy system that we have. I think it was again the noble Lord, Lord Moynihan of Chelsea, who mentioned that one of the early mistakes that the previous Government made was to generate low-carbon power on the basis of the renewable obligation system, which gives rewards to the 30% of the system still run by renewable obligation-based energy over and above what you would expect it to get because of the volatile price of gas going into the system. But we have it in the system and we have to deal with it. What do we do about it? How do we get those elements out of the system and get a system that really reflects the cheapness of the power coming out of it for the future?

When we look at other energy markets, one answer to these questions is that various other countries are not exposed to those marginal prices and the gas input of 30% or so into the UK system that we are. In France and Canada, for example, it is only a few per cent based on gas. Even in Germany, there is a higher proportion but it is still much lower than us. People may like to say that this is what I would say this afternoon, but it is overwhelmingly the case that the present high electricity prices in the UK market are based on our being very high users of gas in the system to create electricity, and therefore our costs in the system go along with the volatility and changing prices of gas.

There are two more non-fairy tales, of course: the invasion of Ukraine and the situation in the Middle East at the moment. It is true that gas prices have come down a little since the peaks during the invasion of Ukraine, but they are still considerably higher than they were before it. That is the system we are dealing with at the moment.

What are we trying to do to deal with that? First, we have to make sure we get off gas in the system. Part of the mission to achieve clean power by 2030 and accelerate net zero is to place gas on the margins of the system so that it produces a relatively small amount, as has been stated, backing up the system rather than being a central part of it as a whole.

We have indeed brought in price caps, as noble Lords will know, to ensure that price rises are kept in check over a period. The Government never said that energy bills would all come down as a result of price caps or as a result of the transfer of some of the legacy things, such as the renewables obligation or the energy company obligation, away from levies and into the Exchequer. We did not say that would necessarily bring down bills; we said it would make sure those bills would go up rather less than they would otherwise. That is not a fairy tale but an actual fact—that is what has happened with, for example, the reduction in the Ofgem April price cap and the effect on the price cap coming up fairly shortly.

As noble Lords have mentioned, the Government are trying to make sure that prices come down for the industry. Mention has been made of the supercharger, which will cut businesses’ electricity costs by up to £420 million per year, which particularly relates to discounts on electricity network charges for businesses in sectors such as steel, cement and chemicals from 60% to 90%. That will make a real difference.

The Chancellor also announced in April that the Government will cut electricity bills by up to 25% for over 10,000 manufacturers from April 2027 through the British industrial competitiveness scheme. We are working hard to make sure that there is downward pressure on those bills, both domestic and industrial, through the moves that we are making against the background of the electricity system we have at the moment. At the same time, we have to tackle the structural problems that we have in the electricity system for the longer term. It is not just a question of putting more renewables on to the system; it is a question of revising the whole system so that the benefits of those renewables and low carbons come through and that the things that are a cost to the system go to the margins. That is why we are seeking to delink the cost of electricity from management by gas, particularly by taking action against the renewable obligation bodies that still make up quite a considerable portion of the energy market. We think that will produce a considerable reduction in the hold that gas has over the market over the next period. There will be fixed-price contracts for eligible generators, and we will be delinking from gas prices and protecting consumers from future crises.

I am aware that, as I had predicted, I have not been able to take in the entire sweep of this afternoon’s debate in one go. I warmly hope that the noble Lord, Lord Lilley, will secure a further two or three debates so that we can debate a number of the other issues.

To conclude, the Government are determined that families and businesses cannot be left at the mercy of volatile fossil fuel markets on an international basis. That is why we must press on with the transition not just for climate change purposes but for the good management purposes of having secure, homegrown power that will ultimately bring bills down for good.