Energy Market Reforms

Tuesday 4th November 2025 Lords Chamber

Question

14:46

Asked by

[Earl Russell]

To ask His Majesty’s Government what further consideration they have given to the case for energy market reforms following their decision not to implement zonal pricing.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)]

My Lords, the review of electricity markets arrangements has concluded. This Government have decided to retain a national electricity market pricing regime and have established a programme called reformed national pricing. The purpose of the new programme is to deliver a cohesive package of reforms to improve the efficiency of our future power system. We will publish further detail on the reformed national pricing later this year, which will give market participants and investors clarity on our approach.

[Earl Russell (LD)]

We still have some of the highest energy prices in Europe. Does the Minister agree with me that reducing the costs of energy for everyone has to be an absolute priority? What progress is being made on producing a clear programme to redistribute energy levies, and will the Government examine in detail the Greenpeace policy proposals to remove gas plants into a regulated asset base, which it is claimed could save £5.1 billion a year by 2028?

[Baroness Hayman of Ullock (Lab)]

Delivering lower bills and a secure energy supply for families and businesses is absolutely at the heart of what we are trying to achieve through these reforms, particularly with moving towards renewables—that homegrown renewable energy sprint, as we are calling it—in order to get where we can as quickly as we can. The quicker we reduce our reliance on fossil fuels, the more quickly we can reduce bills and do more about getting off the gas grid, which I think is at the heart of the noble Earl’s second question. Of course, the Government are always happy to look at contributions from different groups and NGOs, but the important thing is that we focus on that transition to renewable energies to bring those bills down.

[Lord Naseby (Con)]

On energy market reforms, should His Majesty’s Government not take advantage of the news that the North Sea oil reserves are now considerably higher than anticipated, and of a better quality and cheaper than imports of gas and oil, and therefore help to bring down energy prices?

[Baroness Hayman of Ullock (Lab)]

As I have just said, the Government’s focus to bring down energy prices is moving away from reliance on fossil fuels, and I am sure the noble Lord is aware that oil is a fossil fuel. Our focus is on moving to a more renewable energy market, to take away that reliance and bring down energy bills through that route.

[Baroness Winterton of Doncaster (Lab)]

My Lords, I hope my noble friend the Minister can assure me that the Government are still very focused on helping with the development of small modular nuclear reactors and that she will ensure that they are built in this country —for example, in places such as Sheffield Forgemasters.

[Baroness Hayman of Ullock (Lab)]

I thank my noble friend for the question. Nuclear energy is part of the Government’s strategy in order to have sufficient energy for this country and to move away from gas power stations, for example. Personally, I am keen on small modular reactors: they are very important as part of our nuclear energy mix. I know that colleagues of mine in Cumbria have been pressing that we should have them there, as well as in Sheffield.

[Baroness McIntosh of Pickering (Con)]

My Lords, I refer to my interest as honorary president of National Energy Action. The warm home discount—for those households in greatest fuel poverty—has remained at £300 for the last few years. What plans do the Government have to increase that figure so that the poorest, most fuel-impoverished households will receive more money off their bills?

[Baroness Hayman of Ullock (Lab)]

Clearly, it is absolutely critical that we support families who struggle to pay their electricity bills. We do not want people to be cold in the winter. I am not aware of any plans to increase that payment at the moment; I will get back to the noble Baroness if I am wrong. It is important to bring down bills but also to work with energy companies on their support for vulnerable customers, because there is a role for energy companies to play in that aspect.

[Baroness Sheehan (LD)]

My Lords, I declare my interest as a director of Peers for the Planet. In response to the Government’s Carbon Budget and Growth Delivery Plan published last week, Nigel Topping, the chair of the Government’s statutory Climate Change Committee, said:

“Our number one recommendation remains to make electricity cheaper. This means taking policy costs off electricity bills”.


Does the Minister agree?

[Baroness Hayman of Ullock (Lab)]

As I have said, one of our key priorities is to reduce bills for consumers, particularly for vulnerable customers. We will look at all aspects of how best to do that.

[Lord Sikka (Lab)]

My Lords, energy companies made £30 billion profit last year, which is over £500 per household. This fuels inflation and poverty. Some 128,000 people die in fuel poverty each year. There is an urgent need to end profiteering by excluding gas-generated electricity from Ofgem’s marginal pricing formula. Can the Minister explain why, after 35 years, Ofgem’s pricing formula has not been reformed?

[Baroness Hayman of Ullock (Lab)]

My noble friend asks about marginal pricing and refers to gas, because gas and electricity prices have been coupled together for many years. The market currently operates on the principle of marginal pricing, and the cost of electricity often tracks the cost of gas because gas generation frequently sets the wholesale price. It is a complex area. There are good reasons why the electricity market operates on that basis. Comparable countries tend to operate in this way as well. Over time, we need to rely less on gas, which means that electricity prices will become increasingly detached from the price of gas and be more frequently set by other generation, such as renewables. We see that as the way to bring prices down to support vulnerable people and to enable them to pay their bills. That is why our focus is on increasing renewable energy.

[Lord Swire (Con)]

Increasing the capacity of the grid —particularly bringing more offshore power onshore—will see a dramatic escalation in the number of overhead power lines to distribute the power, as well as more onshore substations. Given the huge profits made by some of the energy companies, what are the Government doing to mitigate the visual impact of this increase in energy distribution? Can these energy companies not be invited to contribute towards a fund that will see, where possible, the burial of overhead power lines?

[Baroness Hayman of Ullock (Lab)]

There are two aspects to this. There is the National Grid, and in Scotland there is ScottishPower. We also have the district network operators, so we have different levels of pylons. It is not quite as straightforward as having a simple pot. The important thing is that we build the renewable energy that we need. We also need to look at battery storage. Not all electricity generation needs to be connected up through power lines. The last figures I saw on burying power lines showed it to be about 11 times more expensive. It depends where they are—through a national park, for example—and what the current situation is. It is important that we have the renewable energy connection, and we want to bring down prices, but we must build the connections in the right place. Connections are not just built in a straight line. Electricity companies spend a long time ensuring that the route chosen is the best one: they talk to people. This is part of creating the renewable energy future that we need.

[Lord Hunt of Kings Heath (Lab)]

My Lords, does my noble friend the Minister agree that, alongside decarbonisation, one way to reduce prices for many people would be to encourage them to use flexible electricity? In other words, through battery storage and other modern techniques, consumers can be encouraged to use electricity at a time of abundance and thereby reduce their bills. The Government set up a task force this summer. Does my noble friend the Minister believe that it can spearhead reform in this area?

[Baroness Hayman of Ullock (Lab)]

I just mentioned battery storage, so that is a very appropriate question from my noble friend. As I said, over the summer we announced our decision not to introduce zonal pricing and, instead, to implement this ambitious package of reforms to improve the effectiveness of our current national pricing model. We will publish more detail later this year—including on the role of flexible assets such as storage and consumer-led flexibility in addressing constraints, because flexibility will be a critical part of lowering costs and achieving our clean power ambitions. We recently published the Clean Flexibility Roadmap, which contains a comprehensive, actionable plan for unlocking the kind of greater flexibility to which my noble friend refers.

[The Earl of Courtown (Con)]

My Lords, the decision not to implement zonal pricing will mean the continuation of payments to turn off wind farms when they produce excess power, which are projected to reach £8 billion by 2030. Given the scale of this, and following on from what the noble Baroness, Lady Winterton, asked, do His Majesty’s Government agree that they should focus their efforts on securing a baseload of energy by investing in nuclear power in order to offset the strain placed on wind farms?

[Baroness Hayman of Ullock (Lab)]

We need both. We need renewable energy—I have talked about including wind farms and solar, for example—but that baseload of nuclear power is also important. That is why we are also investing in nuclear and making commitments to nuclear power. It is about finding a balance and getting both, because we need to make sure that we have sustainable, secure energy for the future.