Welcome to this meeting of the Scottish Affairs Committee. This is the last of our inquiry sessions on GB Energy and the just transition. We are happy to welcome the Minister. Will you and your colleague introduce yourselves for the record?

Good morning. It is good to be with the Committee. I am Michael Shanks, the Minister of State for Energy, a portfolio that covers most of the energy system—from renewables to oil and gas, the transition and Great British Energy.

I am Jonathan Mills, the director general for energy markets and supply in DESNZ, covering cross-cutting energy issues.

Thank you. The current energy price cap will be in place until July. What options have the Government considered to protect bill payers from potentially sharp price rises once the price cap period ends?

It is important to restate to the public that the price cap is in place now, and that it has brought down bills by 7%. That is because of conscious decisions that the Government took in the Budget to take costs off bills and to put them into general taxation. That has brought down bills. Clearly, we are now in the observation period for what the price cap will look like at the end of June. Obviously, I absolutely understand that the public are concerned about what the energy bill will look like in July, but in truth it is too early in the observation period for us to know exactly what that looks like. Some speculation is out there, but it is simply speculation at this point. It is important that we monitor what prices do in the entire observation window, and then come to a view on what Government should do, but that does not mean that we are not doing any of the work in the background right now. A number of conversations and workstreams are going on across Government to look at what might be possible. The Chancellor has been very clear, as has the Prime Minister, that we have taken nothing off the table on supporting consumers through this crisis. We think that that support should be much more targeted than what was delivered by the previous Government in the energy crisis—that was, of course, more than £40 billion, which we are still paying back—so we are looking at what such targeted support could look like. The second thing I would say is that we are also looking at how we go further and faster on protecting consumers from the kind of volatility that we are seeing right now in the first place. This is a moment to take the right lessons from what we see of the impact of what is going on in the middle east. It does mean that the more we can insulate ourselves from fossil fuel-driven crises like this, the more we can protect households in future. Of the two workstreams, one is, “What can we do right now to support consumers?”, but we should not lose sight of the fact that the faster we move to that permanent way of protecting and insulating consumers, the better.

I am conscious that July is not far off, and people will be becoming anxious about what will happen after July. Do you have any idea of the timeframe for those deliberations?

We are obviously very aware of the timeframe for when the price cap will be announced. We are working to that deadline. I cannot go into any more detail than that. You will appreciate that a huge amount of work going on, driven by the Prime Minister himself, to make sure that every bit of focus is brought to this. Every lever that the Government have is being looked at, but I cannot go into detail of what that looks like at the moment. We are obviously aware of the timeline.

What impact would expanding North sea oil and gas production have on supply and prices?

For consumers, it would make no difference whatever. It is important to restate that. It would not take a penny off bills, and that has been our position consistently. When I was last in this Committee, I made the point that I will make again: oil and gas is hugely important to our energy mix and to our energy security. It contributes a huge amount to the wider economy, not least to jobs across the country, but particularly in the north-east of Scotland, but equally, it has been in decline for more than 20 years. What this Government have sought to do is to put in place a plan for the transition of the North sea, recognising not only the role that oil and gas plays, but the need to build up what comes next and to be really active in driving that forward—not passive in hoping it will happen at some point in the future. That is what the North sea future plan is all about and what the North sea future board, which I chair, is driving forward at the moment. Fundamentally, more oil and gas licensing would not affect consumers’ bills in the slightest.

What assessment have the Government made of any impact there might be from decoupling gas from electricity prices in terms of energy affordability? That seems to be one of the factors that is of concern.

It is really important, and we are doing some work at pace on that at the moment. The Government’s wider clean energy mission will delink us from gas. We have already seen a significant decrease in the amount of time that gas is setting the price in our system, which is because of the renewables that we are bringing on to the system. The more we do that, the more we have half-hourly settlements throughout the day that are not driven by the gas price, and that is hugely important. That is the long-term ambition. We also recognise in the short term that, if there is more we can do to delink from that gas price, we should be doing that. That is partly what we are working on now. I will come back to partly why we have the merit order and the marginal price system in the first place. In some ways, marginal pricing is a natural way a market will operate, and it is common in other countries in the world. We have it driven by gas more than other countries because we do not have, for example, the nuclear that France has, the solar that Spain has or the hydro that Norway has, so gas is setting the price more often. We want to see if there is a way to delink the price so that we are getting the advantage of clean power much more often, but it is not a straightforward thing to do. Finally, I will say is that this is the argument about the clean power mission. We need to build more renewables and storage, so that we can utilise it when we need it, and also, fundamentally, the grid, so that we can reduce constraint payments, which are a disgrace and far too high. The only way to do that is to build the grid that should have been built a long time ago to bring clean power to where consumers are, and that will immediately achieve bill savings and delink gas, because we will move to a place where gas is a strategic reserve and not a day-to-day generation in our electricity system. That is the long-term aim, and we are doing work at the moment to see if there is more we can do in the short term.

In response to the Chair’s question about the effect that expanding North sea production would have on supply and price, your answer was “no difference whatever”; those were the words you started with. You focused very much on the price element, so I want to go back to supply. As you know, and I am sure you agree, over 70% of the UK’s energy mix is oil and gas, and that will not change any time soon. No matter what the Government are doing elsewhere, that is fundamentally true. Some 24 million homes rely on gas, and we have a supply of gas from the North sea. The Government have still not permitted Jackdaw, which could power 1.4 million homes by the end of the year. There are 3 billion barrels’ equivalent under the North sea, and, as I am sure you know, every molecule of gas produced in the North sea comes on to these shores, so it is not correct to say that more production from the North sea would not impact our supply. Production would impact our supply, and it would impact it positively.

I apologise if I misunderstood the Chair’s question. I heard “price” because it was related to the cost of energy, which was the preceding question. If I missed the question about supply, I apologise. I would have given a different answer, because you are right to say that 100% of North sea gas flows into the UK, so the supply question is slightly different. I hope that you would also concede the point that it would not make a single difference to bills, which was the point I made in response to the Chair. There are two fronts to this. I think that the Committee will appreciate why I have not commented specifically on projects that are live for decisions by my Department. That is a long-standing principle. Whatever your view is on Jackdaw and Rosebank, or any other project, it is in all our interests for that process to be done as robustly as possible, in a way that does not end up tied up in a legal process again. It is in everyone’s interest, whatever your view, for that process to be done properly. We are now considering the information, and the regulator has to gather all the information on scope 3 emissions to make a decision. The issue is not sitting on someone’s desk; it is going through a process that the previous Government would have gone through in exactly the same way. I just wanted to clarify that point. On the wider point, I absolutely recognise the role that North sea gas in particular plays in our security of supply; the vast majority of North sea oil is exported so there is not the same security-of-supply argument to be made. We have never said that we will stop any of the North sea production currently ongoing, nor have we said that we will rescind existing licences, which is the reason why Jackdaw and Rosebank can come forward as applications. We are not rescinding licences for those, but we are saying that all the evidence points to new licensing having a very marginal impact on future production. Therefore, we took the pragmatic step of saying that so-called tie-backs, which we will introduce through transitional energy certificates, are the best way to manage existing fields for the lifespan and to get the economic value that is left in existing fields. The North sea has been in decline for 20 years. We have been a net importer since 2003, and that is a long-term trend. We need to build what comes next.

I appreciate that we need to move on, but to summarise, what you have just said is that because the contention is that there is not going to be masses—the amount is up for negotiation—of new gas production from the North sea, you and DESNZ say that it is not worth it. Therefore, we would prefer to increase our imports of LNG because we will need the gas anyway. We would prefer to lose the jobs, investment and tax returns because DESNZ has decided that there is not enough to make it worthwhile. Is that correct? That is what you just said.

No, it is a pragmatic realisation of what the situation actually is: that all the new licences issued in the past have made a very marginal difference to production. In any event, the time it takes from a licence being issued to actual production is between five and 10 years, so there is not any immediate response. All the evidence points to the fact that, although the North sea has been a hugely important contributor to our energy security and economy for the last 60 years, it has been in decline for 20 of those years. That is not going to reverse. What we have said is that we will not issue new licences to explore new fields, but we will take the pragmatic step of saying that if there is a tie-back to an adjacent field that would improve the economic viability of an existing field, which is the most economically likely production in any event, we will look at those applications and take them forward in a pragmatic way. Alongside that, is the recognition that the future of the North sea workforce, supply chain and energy production comes from the next technologies, which we need to invest in at speed right now. That includes floating offshore wind, hydrogen, CCUS and all the decommissioning work that needs to be done on what has been in the North sea for 60 years. That is where we get the real economic advantage from the North sea. I am afraid that pretending that the facts on what has been in decline for 20 years are different does not change the fact—

Minister, I am not pretending anything. I am not pretending about any of this, and I am sure that is not what you mean. As you know, I live in the north-east of Scotland, and I speak to the industry very regularly. I live next to people in my constituency who are losing their jobs every single day. More job losses were announced yesterday; they are not public yet, so I will not say what they are, but I am sure the Minister knows what I am talking about. There are more job losses in the north-east every single day because of the decline being driven at an expediated rate in the oil and gas sector, largely because of this Government’s policies. Whether there is a declining amount of oil and gas in the North sea or not, and whether the rate and speed of production is declining, which is up for negotiation, the fact is that an industry is being driven down much faster than it needs to be. That is impacting the UK economy, the Scottish economy and the vital local jobs and skills that we need for the transition. I do not buy the Minister’s argument that because there might not be as much oil and gas in the North sea as there used to be it is not something that is worth producing. We will go back to the first question. Would expanding the production of oil and gas in the North sea increase supply? Yes or no?

There is quite a lot in that which I should respond to. First, on the jobs point, you and I have engaged on that issue on a number of occasions. I would suggest that in the 20 years that have passed, there have been neighbours in your constituency who have lost their jobs without the investment in what might be the energy transition. That is what we need to do. I genuinely say that assuming that the oil and gas industry can remain in the exact same state forever—you shake your head, but that is the argument that you are making, because you are also against the investment in what comes next, and that is simply not a reasonable position to take. We have an incredibly skilled workforce in Aberdeen and the north-east—you are absolutely right to make that point—but we have to build the transition so that they can take those skills into the jobs that come next. If I have a frustration with the framing of the job losses, it is only this: every single job loss is a very serious problem for that individual, for their family and for the community, but we need to look at the workforce as a whole. Often the Robert Gordon University figure is, first, fundamentally misquoted as 1,000 jobs a month, which is not what that research says. Secondly, it says the number of jobs being created in other parts of the energy system. Our transition does mean people moving from one part into the other. The challenge is if there is a gap between the oil and gas jobs and the other jobs; that is the gap we are trying to fix. But it is simply disingenuous to say that every job loss in oil and gas does not result in any new job being created somewhere else in renewables. Just to put the figures on the Committee’s record, Robert Gordon University found that by 2030 the mission could support more jobs in renewables than were lost in oil and gas—the equivalent of 1,400 jobs a month between 2024 and 2030. We are going to see a change in the workforce, but you can’t just look at one side of the balance sheet, in isolation from the other side of the balance sheet; we have to look at both. Energy transition does mean people moving from one to the other. The bit I worry about and take very seriously is people who are not moving into jobs somewhere else. That is why we have launched the “North Sea Future Plan” and the North Sea Jobs Service, which will take people through the process, provide the training they need to take up those new opportunities and support them into those new jobs. I wish we had been doing that 20 years ago, when we first knew that we were losing thousands of jobs in oil and gas, but we didn’t. I take responsibility for the Labour party’s role in that when we were in government 20 years ago, but we also had 14 years of the Conservatives not taking it seriously. So there’s plenty of blame to go around. It does not solve the issue. We are determined to tackle it.

Minister, I know a lot of people in the wind industry and I know that after the Ukraine war began, the coupling with gas meant that the price of electricity went through the roof and the wind turbine industry made a huge, one-off, two-year surplus of billions of pounds of profit. This is going to happen again now. I am sure you are very aware of this, but we are going to have a boom in profitability, with no benefit for the consumer.

You raise an important point. We can get into the complexity of inframarginal rent, which I can bore the Committee with at length, but the point you make is important. That is why we supported the previous Government’s introduction of the EGL—the electricity generator levy. We are looking at the moment at the role that it is playing right now. The purpose of the EGL is to make sure that those generating electricity further down the merit order do not profit unnecessarily from the higher price of gas. It is in place at the moment to try to reduce that, but we are looking at what more could be done in that space.

It is worth adding that the more modern renewables contracts do not allow that; they provide a fixed price through contracts for difference. During the energy price spike, the electricity price spike that you talk about was actually paying back to consumers from some of those projects. It is only the older projects under the renewables obligation that have the impact that you have described.

Minister, what are the biggest barriers to this Government successfully achieving clean power by 2030?

We have set the hugely ambitious target that we will have decarbonised the power system, with 95% of our electricity coming from clean sources—from renewables, from flexibility and from nuclear. It is very ambitious, but what we have sought to do is set up, first, the machinery of government to help deliver it. Secondly, we know every single project that will help us get to that target. We know all the renewables projects. We are driving forward much more on consumer-led flexibility. We also know things like the storage targets and the grid that we have to build. So we are driving all that forward. The challenge is partly how we can ensure that we keep the momentum going. We will say more about how we think we should be going further and faster on that, in the light of the situation in the middle east, very soon. One of the biggest challenges, without any doubt, to everything we are trying to achieve is the state of the grid, because at the moment we have a huge amount of particularly wind that is generating electricity, but constrained. That is a failure of connecting the projects that we had built and strategically planning what the grid should look like in the future. We are changing that with a strategic plan for the energy system, but also with the biggest investment in the national grid that we have ever seen. It is worth reminding people about the scale of some of this. The grid was largely built in the 1960s, and we have built bits of it since, but this is the greatest grid upgrade since the original grid was built. Every bit of grid that we build helps reduce those constraints and get clean power into homes and businesses across the country. That leads to the delinking that we were talking about at the beginning. If we are going to achieve our clean power mission, the hardest bit is making sure that the grid is built on time.

After the recent global energy shock, how realistic is the Government’s target to reduce bills by £300 by 2030?

We remain committed to that, but it is obviously difficult. The Secretary of State has said previously that the current situation underscores why the clean power mission is so important, but it also underscores just how quickly consumer bills are affected by fossil fuel crises that happen halfway around the world and that we are not protected from. There is no doubt that it is more difficult, but we have taken significant decisions as a Government to remove costs from bills. For example, the renewables obligation being taken over by the Treasury reduces bills. There are also decisions around how the renewable obligation and feed-in tariffs are costed against inflation, which will bring the cost of those down. There is no doubt that it is a challenge, but we remain committed to tackling it. There is work going on led by the Secretary of State and my colleague Martin McCluskey—who will be well known to this Committee—looking at every single penny that is on a bill, because the truth is, over many years, we have built up a complex range of things on the bill, all there for well-meaning reasons at the time, but we are going to look at every single one of them and see what more we can do to bring those costs down.

Minister, we know that we need a huge mix of energy to get to that target. What challenges have you met trying to engage the Scottish Government over nuclear energy?

First, even though we are in the heat of an election campaign, I should put on record that I have had a very good relationship with my counterpart in the Scottish Government, and we have worked very constructively on the clean power mission because we share the same objective, and that has been genuinely very welcome. There are areas where I would like the Scottish Government to go further, but we have worked very well together. That has also been an important signal for investors because they have had 14 years of two Governments simply not talking to one another, and that has put off investment. It is important to put that on the record. However, there is no doubt that on nuclear we have a fundamental disagreement. It is critically important right now, at a moment where energy security is right at the top of everyone’s concerns, that we look at every possible way to protect our energy security—and new nuclear is a critical way to do that. I know that you know this very well from your proximity to Hunterston—which I visited a few weeks ago—but nuclear power has been a part of Scotland’s energy mix for decades. It has produced some of the most skilled nuclear engineers anywhere in the world who are now working in England on projects, because we have not got new projects in Scotland. That is a huge shame. For our energy security and for jobs and skills in communities, I sincerely hope that the people of Scotland change their Government on 7 May and we can get forward with looking at sites for new nuclear projects in Scotland.

You have mentioned the effect of the cost of the product, if you like, on bills, but transmission charges in Scotland’s renewables sector are expected to double by 2029-30. What assessment have the Government made of the impact on Scotland’s renewable sector relative to the rest of the UK?

It is a really important question. First, I should say TNUoS—transmission network use of system—charging is a matter for Ofgem. We obviously take a very serious interest in it. It does play an important role in making sure that the cost for the consumer is managed around the way we build the system—in other words, how do we build the most strategically aligned system that reduces the cost? Of course, building renewables in parts of the country where we must then build more grid increases the transmission costs, so it does serve a purpose. However, we understand that there is a concern that the volatility in the TNUoS rate often makes it hard for developers in parts of the country to predict what they should bid in the CfD auction. I am very aware of that, and we are engaging with Ofgem on that work. They have carried out a targeted review of charging to look at how some of the fixed costs are recovered and at what more we might be able to do, but it is a complex balancing act to make sure that we recover the costs of building transmission infrastructure, and send the right incentive to where we should build things. Alongside that, we are doing the strategic spatial energy plan. It will be the first time the country has one GB-wide plan for holistically designing the energy system around future demand and the capacity for different technologies in different parts of the country. It will gradually start to take the place of what transmission charging might do, so we will have a balance of transmission charging being the market driver for decision making, and the strategic spatial energy plan having more of a directive steer on the system we want to see. Together, that should lead to a better designed system. The ultimate aim of all this, of course, is to reduce costs for consumers.

How do you expect that to affect participation in Scotland in contracts for difference round 8?

Given what is going on in the middle east, we made a commitment to bring forward auction round 8 in July to give certainty to developers on the timeline that we would move forward on. We know of projects in the pipeline that we hope will apply to that, a number of which, for obvious reasons, are in Scotland. We have confidence in that process. There is concern from developers about transmission charging, which I understand, but there is also a wider confidence in what we are seeking to do. I hope that gives confidence to investors that this is still a clear pathway to clean power, and everything else we are doing. Secondly, every other lever we are bringing to bear to try, first, to reduce the costs of bills going into the auction round, and secondly, to give confidence that we are not only setting this ambitious course to clean power by 2030 but building the grid, changing the planning system and doing all those things in the background that help to make projects more viable. I will reflect on AR 7 for a moment, which was the most successful renewables auction that we have ever seen. It was a hugely successful story for Scotland, with a floating offshore wind project, several offshore wind, solar and onshore wind projects, and the thousands of jobs created by those projects. The clean industry bonus is creating industrial opportunities in Scotland as well. We had huge success in AR 7 and hope for the same in AR 8. We will look at all the factors that are critical to making sure that the process is as efficient as it can be.

Thank you. You mentioned Ofgem. What discussions, if any, have you had with Ofgem about the potential mitigations for projects that might become unviable due to rising transmission charges?

I have regular conversations with Ofgem. It is important that I say that transmission charging sits with Ofgem, so although I have conversations with them and we discuss what more we might be able to do in that space, it is their responsibility and I do not influence that process. We are looking at—and Ofgem is in the same place on this—what the enduring solution to the volatility in transmission charging is. We recognise that being able to factor in the cost of building the transmission is important, but not knowing whether it is one level or another at the start of a 20-year contract is what presents the most difficulty to developers. Ofgem is very aware of that and worked through a number of possible options for short-term solutions. After consulting, some of those ended up not being possible, but it is still looking at options and at what the enduring solution is.

This links closely to the strategic spatial energy plan, as you say, and to reformed national pricing, where we hope to be able to set out more details shortly about how we will deliver the framework that the Minister described.

Good morning, Minister. You stated previously—in front of another Select Committee last month, in fact—that investment in the electricity grid was “not optional”. However, it could be argued that the pace of that investment and the resulting cost passed on to bills is a policy choice. I think we would all agree there is no doubt that demand for electricity will increase, not least because of the use of heat pumps and EVs. I have two questions for you. First, do you agree with the view that we are really playing catch-up, that the UK now must build twice as much transmission infrastructure than was built over the past decade, and that we had a decade of under-investment? Secondly, how are you ensuring that the right balance is struck in relation to the pace and what is passed on?

Thanks—that is a really important way to frame the question. You are right that we are playing catch-up on the grid. I make this point regularly: even if we had a Government who were not minded to deliver a clean power system, we would still have to upgrade the grid because in places it is creaking under the pressure of demand that cannot connect, and in other places it has just come to an age at which we need to upgrade it. It is a critical piece of national infrastructure that we have to invest in. Clearly, at the same time we also want to reduce constraints so that—although, yes, there is an investment cost to building the grid—at the end of that, there is a reduction for consumers. In building the grid now, yes, there is an upfront cost. There is no shortcut to that. We have to build the grid, and it has to be paid for. But, at the end, it reduces the constraints significantly to a point where the cleaner power brings down people’s bills, so there is an outcome at the end that is important. In terms of pace, we need to do this as quickly as possible because for every month that we constrain wind we are wasting millions of pounds that could otherwise bring down people’s bills. The faster we build this, the cheaper people’s bills are. It is also a huge economic opportunity. We are seeing thousands of jobs created in Scotland from the transmission upgrades that SSE and Scottish Power Transmission are taking forward. We also want much more of the transmission infrastructure to be built here in Britain, which comes with supply chain benefits. It is an economic opportunity now. It is critical for the long-term future. As a country we cannot tolerate the sheer number of demand projects, which will help us to deliver economic growth across the country, that simply cannot connect to the grid. The faster we can build the grid, the more we get economic growth in the system, and we also reduce constraints and improve the overall picture for consumers.

I appreciate that it is always difficult to give a timeframe, but when do we reach the tipping point when it benefits my constituents, for instance? When can my constituents in West Dunbartonshire, and customers across Scotland for that matter, see the benefit of that infrastructure investment in their bills? When do the scales tip in favour?

I am trying to find a particular number—I will write to the Committee with it—for one piece of network build from Norwich to Tilbury. There is a figure for it that I will share with the Committee—it eludes me right now—but if we are successful in building that the sheer amount of the reduction in constraints and the impact on bills is really significant; that is just one example. The impact of some of these big transmission projects will be felt immediately. Others will require us to piece together the whole system in order for them to make a difference. I would make the point again that every time we switch on a wind turbine and get the power to people’s homes, and with every solar panel we switch on, we reduce our exposure to gas and, in doing so, bring down bills.

Minister, on the subject of standing charges, rural and remote Scotland is suffering a major depopulation crisis. School rolls have, in some instances, halved. Youngsters are leaving the area. We have a massive old-age population, with a 78% increase in the number of people over the age of 75, so we have a major issue and energy costs are one of the biggest problems. It would shock people to discover that in remote Scotland the standing charges are 30% higher than in London. I know that Ofgem is conducting a review of that. Can you give us any good news on that issue?

First, I totally reflect the point that you make. I might be minded to suggest that there are several other reasons why there is depopulation in parts of Scotland. It is driven by decisions made by the Scottish Government on investment and other things as well; it is not entirely down to energy costs, but I am sure that the Committee will look at that in other ways. On standing charges, we absolutely appreciate the point. We are looking at what more we can do around the standing charges and innovative ways that we might change the way consumers pay for the same things, rather than them just being on the standing charge. But those charges do reflect the cost of getting electricity to certain parts of the country. Clearly it is much more expensive to get electricity to rural and island communities than to large population centres.

Hang on; we are generating the electricity. It is more expensive to get it to people in London, so surely it should be cheaper for those in rural Scotland, where we are generating electricity, not the other way around.

The wind may be in your community, but the projects are paid for by everyone across Great Britain, not just by people in the highlands. I think we should be careful about going down that route. But I recognise your point. We also have schemes in place to mitigate some of this. We signed off, just a few months ago, the continuation of the hydro benefit scheme, which has been in place for a long time and is paid for by consumers across Great Britain, to reduce the costs for people in the highlands. That is in recognition of the particularly acute costs of building the grid in the highlands. There is also a wider piece of work, right across Great Britain, about how we bring down standing charges and how we make them as fair as possible for consumers, and we are working through that.

On businesses and standing charges, there is a charity that I am connected with, in Fort William—you’ll not be surprised to hear—and our standing charges have just tripled to £10,000 a year for a hospitality business. We were just told by the supplier that that is an Ofgem requirement. As you can imagine, a £10,000 a year standing charge for a hospitality business is very painful—and it is a threefold increase. I will write on that separately.

Please do; I am not aware of that particular example, but I am happy to get involved and find information on these things. Clearly, we are trying to do the policy work to reduce standing charges, but it is a decision for Ofgem in that case, and for the individual supplier. But I am very happy to look into it.

Good morning, Minister. We heard just last month that the Government have announced plans to trial bill discounts for consumers in areas with high network constraints, but there has not been much detail on that as yet. Can you tell us how that will work in practice?

Yes; we will take that forward later this year. It is—I don’t want to say an experiment, but it is a pilot to see whether we can make this work. Our belief is that there absolutely should be a way to make it work, but we want to make sure that the market responds in the way that we think it will, and that consumers can really benefit in the way that we think they will be able to. To go back to the first principles of what we are hoping to achieve with that, the work we are doing around half-hourly settlement, smart meter roll-out and consumer-led flex is all about trying to put consumers in the driving seat of their own energy, being able to switch on and turn up demand, or turn off demand at times of peak pricing. There are already a number of tariffs in the energy market where people can do that. If you have an EV, for example, it is now quite possible to plug it in and have the charging switch on and off throughout the night, depending on the cost of electricity. We want to extend that and ask whether, instead of paying money to turn off wind behind a constraint, we could offer that electricity at a reduced cost if people could turn up demand. The balancing of the system is such that we either have to switch off the wind or increase the demand; there is no other way for us to utilise it unless we reduce the constraints. So while the constraints are in place, is that a common-sense way for consumers to benefit, by turning up demand and soaking up some of that wind that we would otherwise be paying to switch off? We want to do that on a relatively small scale to begin with, just to make sure that consumers are actually able to take advantage of that and that the process works efficiently, but our hope is that, if that is the case, we should be able to make much more of it in future.

The National Energy System Operator announced a scheme yesterday—a sort of practical example of how this can work—that would enable people to get financial rewards for using electricity at times of excess supply in the summer. That is a practical example of how these arrangements can be put in place.

Yes, I think I read yesterday about maybe doing your washing when it is sunny and windy outside, so a lot of this will be about behavioural change. I am sure you will appreciate that a lot of the language about some of this stuff can be quite opaque to the average person on the street, so will there be some work to give practical hints that people can understand, in everyday English, about what they can do to try to get some of that control back over their own billing?

You are absolutely right. We have a target of, I think, 12 GW of consumer-led flex in the clean power road map, so we have real ambition in this space in terms of how much consumers can benefit from this, but it has to be driven by consumers getting a benefit. That also helps the system, so it is of mutual benefit, but we want to make sure that this is not about the Government saying you should switch off at particular times to help the system. It is about saying, “Could you switch on, to take advantage of cheaper tariffs? Could you benefit from this?” We need to make sure that the offer is available to everybody, and that people can move on to tariffs where they can take advantage of it. Where we have still not seen smart meters being installed sufficiently, we are doing a lot of work to increase the pace. That will be important. All the communications we are doing will be about reaching, particularly, the people who will benefit most from this: those who are spending too much of their income on energy costs and who could really take advantage of this, without having to hugely change their lifestyle.

I am aware that the trial will be only in certain parts of the country to start with. How narrowly defined will the local discount areas be, and what criteria will determine which communities qualify?

We are at the very early stages of designing what this will look like, so I cannot go into any of that detail at this point. We want to do quite a lot of work in the background to work out a coherent pilot that gives us the evidence we need. It also needs to be defined clearly enough so that people know they are part of it, and so we can demonstrate the impact it is having. There is quite a bit of work to do. We are hoping to roll out plug-in solar by the summer. That will be the first time it is available in the UK—it is very common in other European countries. Then, as we move into the winter, we will give a lot more detail on how consumers can benefit from our offer on wind. There will be more detail throughout the coming year.

Okay. We know that constraint costs reached £1.8 billion last year—an eye-watering sum that, as you say, could be put to better use in bringing down consumer bills. How much of a reduction in those costs do you expect from consumer flexibility and giving the consumer more control?

That will clearly be important, but it is not going to reduce the cost entirely. We think it will play an important part. Apart from anything else, it is better for it to be in consumers’ pockets rather than going on switching off wind. As a principle, we think it is really important. It is not going to deal with the entire constraint, and we have not said that it will. It will help, but fundamentally, constraints occur when we do not have enough network capacity, so the only way to reduce them is to build more network and to build a more efficient system in the future, so we are not building more grid than we need. To go back to Mr McAllister’s point, the more efficient the grid we can build, the cheaper it is for consumers. But it will play a part. I repeat the point that constraint payments are something we absolutely need to reduce as a country. They are an appalling waste of money. People might be surprised to know that the vast majority goes not on turning off wind, but on turning up gas somewhere else in the country to compensate for the wind being turned off. It is in all our interests to reduce those constraints, and that is why building the network as fast as possible is key.

I have one final question, Minister. COP26 in Glasgow, in 2021, was perhaps the halcyon day of political consensus around the need to move towards clean power and energy independence. A key part of that was the role of renewable energy. What efforts are you making to bring back that consensus, which has fragmented, perhaps not to the benefit of consumers?

That is genuinely a hugely important question. The consensus is why we achieved as much as we did as a country. I half joke that I am the only person left standing who defends the previous Government’s record on building renewables—because they don’t any more—but it was an important mission for us to be on. I have told this story before, but I was at the closure of Britain’s last coal power station, Ratcliffe-on-Soar. I met a number of international journalists, from Asia in particular, who were genuinely curious about how a country that had Governments of the left and right alternating over many years had phased out coal over a period of time. It was because we had a consensus on climate change being a real and present threat to the country, and a consensus that renewables were the right thing for us to move forward on. That consensus is critical. It is fractured, but not broken. There are still significant numbers of people, in all political parties, who believe it is the right thing to do. Perhaps even more importantly, the public believe it is the right thing to do: poll after poll says that they think the Government should be doing even more to tackle climate change. This is not some future threat, but a very present reality, with flooding and the need to respond to increasing numbers of storms. We have to do everything we can to tackle it. Now is the moment to redouble our efforts, because we have been subject to the volatility of fossil fuels again and again. Half the recessions we have faced as a country have been caused by fossil fuel shocks that we have played no part in. We have to get off that rollercoaster as fast as possible. We are doing everything we can to rebuild that consensus and to work globally on new partnerships in clean energy. I was at the G20 in South Africa last year, and it was clear that every single country is moving towards a transition away from fossil fuels. They are starting from different places and going at different paces, but the world is on this journey. By working together, particularly with our partners and allies in Europe, we can achieve both climate action and the energy security we need in an increasingly uncertain world.

Minister, I want to ask a brief supplementary on the issue of trial discounts. You mentioned smart meters. Does that suggest that, to benefit from those discounts, you would need to have a smart meter?

I don’t know categorically, if I am honest, but it is obviously the easiest route into tariffs that involve time of use. My understanding is that those tariffs are dependent on having a smart meter so that you can access live electricity use, but I can write to the Committee on that.

I am sure you are right about that, but any further information you could give us would be gratefully received.

What can GB Energy do that the Department for Energy Security and Net Zero cannot?

We set up Great British Energy with two principles. First, we believe in 21st-century public ownership. We look around Europe at other countries with publicly owned energy companies that have built a huge amount of the projects we see in the UK, and we think it is right and proper that the UK should have an equivalent that takes a stake in projects and invests on behalf of the British public. We have the belief as a Government that public ownership is a good thing. Secondly, we think it is operating in a space where the private sector is not. We have been clear throughout that Great British Energy should not be replacing anything that the private sector would otherwise do, but it is filling in the gaps. One thing I would highlight is that, on supply chains, it is making investment decisions to unlock the industrial benefit that comes from these projects. Too often, we have built these great renewable projects somewhere else and towed them into British waters, and we are determined to change that. The private sector cannot do that on its own, and Great British Energy has a £1 billion supply chain fund to help. We believe in public ownership, but we also believe it is filling a gap that is not being done elsewhere.

Why couldn’t DESNZ do that? Why did we have to set up GB Energy, apart from wanting a publicly owned energy company? Why could DESNZ not have invested that money? There was £8 billion put into GB Energy. That is a huge amount of money, some of which will go into administrative costs and so on. Why could DESNZ not have streamlined the process and just done it in-house?

Because we want the public to have a stake in those projects. We do not want to be giving grants with no return; we want to be investing for a return so that the British public own something. This is a fundamentally different way of thinking about it: we want to drive forward investment, but we also want the British public to own a stake in it so that there is a return on the investment in due course. Taking a stake in, for example, the Pentland floating offshore wind project in Scotland is investing to make sure that the project happens. Perhaps DESNZ would have done that anyway, but for the 20-plus years that it will be generating, there will be a return for the British public to invest in what comes next. Secondly, the investment is also thinking about where the private sector does not immediately go to invest. The local power plan, for example, says that we should have far more community ownership of energy, driven by £1 billion from Great British Energy. But it is more than just an investor, it is a developer: it is helping with expertise, moving these projects forward and supporting communities. It plays a bit more of a role than the Government could, but the main difference is that it takes a stake.

In November, when we had GB Energy’s CEO in, he said that there were nine permanent jobs and 15 jobs on loan in GB Energy. What are those figures now?

Great British Energy is ramping up its recruitment. There are more than 120 people currently working for Great British Energy. I do not have the exact number. I can write to the Committee, but it has been increasing its workforce.

Are they permanent positions, or are they on loan from other Departments?

There is a mix. Some are civil servants who are helping with the start-up and will go back to their jobs elsewhere in the civil service, and some are based in the headquarters in Aberdeen. I can write to the Committee with more detail. There are over 120 people working for GBE. The Bill received Royal Assent in August last year. It has had to go through the pay case process, as everyone would expect, to ensure that we are spending public money carefully. It has now done that. Senior roles are being advertised in Aberdeen at the moment, and the rest of the workforce will build from that. I want to make one point, and it is not a point that you have made but others have: it is right and proper that we scrutinise every single job in that organisation. I know you will agree with that, but others on this Committee have not always done so. The idea that we should just ramp up to having thousands of people working in Aberdeen without a pay case behind it—

Will there be thousands working for GB Energy in Aberdeen?

We have said that there will be hundreds working in the office, but there will be thousands through the investments that Great British Energy makes. We will be careful to ensure that every single job is critical to delivery and plays a really important role.

Will those employees be employed by the private companies in which GB Energy takes a stake, or will they be GB Energy employees?

They will predominantly be working on the projects that are being taken forward by developers and others, but they will be unlocked by the investment that Great British Energy makes.

On the more practical side of delivering the funding, how will you strike the balance between devolved and reserved matters? Obviously, you will be working with the Scottish Government in some areas and not in others, so how is that being balanced and managed to make sure there is accountability where there needs to be, but without double-accounting in other places or too many people trying to pull money in different directions?

That is a really important question. To date, we have tried to work with the Scottish Government on devolving funding to schemes that are already in place so that we are avoiding duplication. Particularly on community energy, for example, the funding has gone via CARES, the Scottish Government scheme, to projects across Scotland. We are looking at whether that is the right model for the future. We also want to be really clear that this is investment across the United Kingdom, and we therefore want to be sure that it is going to the most important projects. Great British Energy will have more of a view on directing that investment to where it is most necessary. There is no suggestion that we are going to be in a world of Barnett consequentials for devolved Governments, for example. Each project should be decided on its individual merits. I think Scotland will benefit disproportionately from that, given the nature of the energy landscape in Scotland, but we want to avoid this simply being another source of funding for the Scottish Government. It has to be specifically for projects that we want to see come forward.

Minister, why is the target of generating 8 GW of community energy by 2030 included in the clean power action plan but not the local power plan?

Our ambition remains as high as it was in the clean power action plan, but the local power plan was about delivery in the rest of this Parliament. We took the view from all the engagement we had with the community energy sector and communities themselves that, in the shorter term, it is probably not an achievable number but that our ambition should stay in that space in the longer term. We want to see as much community ownership of energy as possible. We want a combination of communities directly developing and owning projects and shared ownership, where communities can take a stake in much bigger projects. Our ambition is still there, but there is a recognition that, for the period we want the local power plan to deliver on the regulatory changes and the £1 billion investment from Great British Energy, we think that target is probably slightly more ambitious than is deliverable, but there is no ceiling to our ambition for how much community ownership we would like to see.

What is the breakdown for how that £1 billion of funding will be allocated across the four nations?

We have deliberately not divided it by parts of the UK because, as I said earlier, we want this investment to be driven by the merits of individual projects. We obviously also want to make sure that we are keeping an eye on the question of whether every part of the UK is benefiting from it. This is not an all-or-nothing approach, and we want to make sure that good projects everywhere are having a fair crack at accessing the funding. If a much stronger set of projects come forward in Scotland than in England, Scotland will receive more funding than England. We are not doing a population share of the funding. The £1 billion will be made up of a mix of things. Great British Energy will have an investment in particular projects, where it takes a stake alongside the community. Some of it will be grants to help move forward on the initial project development phase. Some it is also expertise. We recognise that local communities come forward with phenomenal capabilities and ideas, but often do not have the expertise to move the project forward. We want Great British Energy to become the expert that can lend support and lend templates. It is the idea of community energy in a box: “If it has been done over here, can we share that learning over there?” It will play a really important role alongside just the funding.

Minister, the local power plan aims, as I understand it, to accelerate locally owned clean energy projects, yet the grid capacity in Scotland, as we have heard, is effectively full, or fully committed until about 2035. How is the local power plan meant to succeed in Scotland when community-led projects may find themselves unable to access a connection?

I absolutely recognise that problem. I have had a number of conversations across Scotland and with Community Energy Scotland on this issue. I would say it is also an issue in other parts of the UK, although it is acute in parts of Scotland. First, that underscores the need to build the grid. Secondly, there are a number of community energy projects that can connect at a much more local level, so we should think of not just the transmission infrastructure. Many community energy projects are below the level at which they would connect into the transmission grid, and the distribution grid tends to have a bit more flexibility for those projects to come forward. I have looked at the proposals that have been made. I was in Stornoway a few weeks ago, and the Western Isles council made the point to me again. I am looking at what more we might be able to do to guarantee access to the grid for community energy projects, but I want to be clear: when we go down that road, it becomes very difficult for a Government to say that one project is more valuable than another, and grid capacity is a problem for everyone. We are looking at all those options, but it is quite challenging.

When SSEN spoke to us recently, they indicated that designating community energy in the grid connection process is crucial to achieving the Government’s ambition of 8 GW of community power by 2030. How do you respond to that assessment?

We recognise that point. We are going to legislate as soon as possible for a definition of community energy groups, which seems like a very straightforward thing to most people but is actually quite complex. The key thing is that we need to make sure we include those who should be included but exclude those who might seek to use it as a means of bypassing other costs. We will legislate on that definition. That is key to unlocking quite a lot of other things, because there is currently no definition in legislation. As I say, we are looking at all other options. In terms of access to the grid, we have to be careful that we are not prioritising one scheme over another without clear evidence of how that would play out in practice. To give an example, in the connections reform process that we have sought to move forward on, we have deliberately not taken individual decisions as a Government. We have set the parameters and allowed NESO to make those decisions based on the overall system. If we start breaking it down too much into the Government’s preference for this type over that type, it becomes much more complex, but I have not ruled it out and we are looking into it.

There will have to be prioritisation, presumably, if the grid is not big enough to cope with everyone who wants to be on it. Even if NESO is making the decision rather than the Government, a decision is still having to be made about prioritisation, and presumably they will have to work to a very clear set of criteria.

We absolutely are doing prioritisation work. I will give you the example of a community energy project that I met recently. In order for them to move forward with the development and funding case, they want the guarantee of a grid connection before they do any other work. That is very different from most other projects that are already through the planning process. One of the key drivers for connections reform was to clear out any project that was not ready to connect, so that we had only the projects that are ready to connect right now. There is a slightly different set of requirements, which I entirely understand, because a community energy project does not have the capacity to take on debt for development, and they would not do it unless they had line of sight to a grid connection. I completely understand the challenge, and I am seeking to find a way through it, but I want to be clear that it is not straightforward.

Understandably. I think we might have been talking to the same community energy projects at some point.

The Scottish Government are piloting giving communities the opportunity to lease land to repower wind farms. What assessment has been made of that model? Can it be adopted across the UK?

We are really interested in that as a model. Repowering is going to be absolutely critical, particularly for onshore wind. We have huge capacity, and if we can look at how we change the ownership as part of that, I am clearly very keen, because we believe in public ownership and communities having much more of a stake. One of the other things is whether portions of that repowering can be given to communities. The repowering is not a like-for-like replacement; given where technology has moved, it is often a turbine with significantly increased capacity. If there is a way to say to developers, “You can repower this site, but can you give a share of that to the community?”, we would like to look at that. That is where GBE’s shared ownership funding might step in as well. We are looking at a whole series of ways to make repowering more straightforward, because that is one of the quickest ways we are going to get to not just 2030, but maintaining these projects when they start to come offline in the coming years.

You will not be surprised to hear this question, Minister, because we have discussed it before—

Community benefits!

Community benefits—but there is a bit of a twist. For the people who are watching this online, the highlands got £9 million of community benefit last year, and Scotland got less than £30 million, from a multibillion-pound industry. In 2014, the Scottish Government put forward guidance of £5,000 per megawatt and recently, 12 years later, they increased that to £6,000, but if you were a developer in 2014, you would actually be paying £8,000 now. So what they have actually done is reduce the community benefit by £2,000 per megawatt, which is pretty shocking. If that £5,000 had increased in line with the price of energy, it would be well north of £12,500 now. Highland Council, Shetland Islands Council and other people have been recommending £12,000, and that was before the energy price spike we are seeing now. I am very concerned that when you announce your review of community benefit, you will be following the Scottish figure of £6,000. I would really like reassurance that communities suffering the impact of the industrialisation of their hills will get properly compensated.

I thank you for raising that, because it is genuinely really important. You have put it in a very good way. I cannot be drawn on the Government’s response, which we will publish soon, but we are in a pre-election period and cannot do that now. We consulted on our minded-to position to make community benefits mandatory. At the moment, it is a voluntary arrangement, and we have consulted on what the levels of that should be. I want to say that I completely understand the point, and I have a personal understanding, given that my constituency is surrounded by two of Europe’s biggest onshore wind farms. I agree with some of what you said, Angus, but I also think that the balance we have to strike is that most of the community-benefit cost is passed through in the cost of the CfD. This is not a benevolent gift from developers; it is almost entirely passed through into the strike price that all consumers pay. Our concern, therefore, at a moment when bills are the absolutely top priority for everyone, is how we make sure that we are not increasing the cost of energy for people, while recognising that community benefits are really important as well. All I can say at the moment is that I hear what you are saying. I agree with much of it. We will come out with a response to that consultation in due course. The other thing that is really important is not just the value of community benefits in monetary terms, but how it is spent. We have looked carefully at really good examples—I think there is one in your constituency, in fact, Ms Stewart, which is a great example—of more longer-term thinking. Some community benefit funds are really good at 20-year investments in communities, which make a real difference. Others, we still see, are much more light-touch interventions that do not genuinely make changes in communities. So it is also how the money is spent that we want to look at, as well as the quantum.

I have a second one on that. Nowhere or nobody seems to talk about pumped storage in community benefit. Coire Glas, being built by SSE, is 1.3 GW, and around Loch Ness, about 5 GW of pumped storage is being built. These are multibillion-pound projects. Glenn Earrach Storage has volunteered to pay £20 million, and yet SSE and the others are saying that they will pay nothing. Neither the Scottish Government nor indeed your survey, which I filled out in May last year, mentioned pumped storage. This is so big and involves so much money that I really hope that it would be incorporated into your community benefit.

Let me take that away. I think the reason that the consultation focused on established technologies was that we have a good sense of what the equivalent megawatt community benefit would look like and what it has been in the past—in solar and onshore wind, for obvious reasons. There tend to be bespoke arrangements for nuclear, for example, and the work of nuclear projects on community benefits already far exceeds that, in most projects. I will look at the specific point of LDES and I can come back to you.

That concludes our questions this morning. Thank you very much, Minister and you, too, Mr Mills, for contributing so much to our inquiry. This is its last session, so we look forward to sharing our report with you—hopefully, all going well—before the summer recess.