Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations 2025

Lord Lilley Excerpts

Monday 23rd June 2025 Lords Chamber

I am sure that the Government can make much better use of their scarce resources; instead of filling corporate coffers, the money could be used to end the two-child benefit cap and avoid the disability benefit cuts. So why do the Government favour corporate welfare over human welfare? I look forward to hearing the Minister’s reply.

[Lord Lilley (Con)]

My Lords, it is an unusual pleasure for me to be able to support the noble Baroness, Lady Bennett of Manor Castle, but tonight my cup floweth over, since I am also able to agree with the noble Lords, Lord Kerr of Kinlochard and Lord Sikka. I agreed with almost every word that both had to say. The noble Baroness, Lady Bennett, and I approach this issue from opposite perspectives. The noble Baroness is primarily concerned about reducing CO₂ emissions; I am primarily concerned about reducing the cost of energy. But we both reached the same conclusion that this statutory instrument is fundamentally indefensible.

The whole process of subsidising the Drax power station illustrates the absurdities to which net zero is leading us. It is not just the cost, or the pretence that we are reducing CO₂ emissions when this is the biggest emitter of CO₂ in the country; it is about all the attempts to cover up and obfuscate both the enormous costs and the minimal benefits. When you start believing in fairy tales—the fairy tale that achieving net zero will be costless—you end up denying reality and being economical with the truth.

Let me give a few examples of that obfuscation. The excellent report of the Secondary Legislation Scrutiny Committee, on which the noble Lord, Lord Kerr, sits, drew attention to the failure of the Explanatory Memorandum to even mention Drax. Yet it is over-whelmingly the major beneficiary from the proposed contracts for difference. Clearly, the department hoped we would not see that this was yet another bung to the company. That report also highlighted the repayment made by Drax of some £25 million. Yet there is no clear explanation of what exactly the company had done wrong that required that repayment. It is pretty clear that it is, in effect, hush money to cover up non-compliance with the sustainability regulations.

Another example is the reference in the PAC report Government’s Support for Biomass to the investigation conducted by Bloomberg in 2022, which concluded that Drax may previously have gamed the system to the detriment of consumers. It alleges that

“Drax shut down power generation and sold wood pellets on the open market to avoid paying back £639 million of subsidies as wholesale electricity prices spiked”.

Although the Department for Energy Security and Net Zero reassured the PAC that

“the new arrangements will be more robust, it did not offer any explanation of how it had made sure that there would be no loopholes that allow Drax to continue to game the system”.

Then there is the failure to publish the KPMG review of the Drax supply chain. The Secondary Legislation Scrutiny Committee called on the Government to publish that audit before this debate. I am not aware that the Government have done so. The Minister did not in his introduction explain whether he had done so and, if not, why. I will ask him to address that issue when he returns at the end of this debate. The report may not belong to Drax, but as the noble Lord, Lord Kerr, said, the Government are the customer. They insist on a number of conditions that Drax has to fulfil; they could easily insist that publication of that report is one of them.

Will the Government commit to reporting to Parliament the outcome of the independent audit commissioned by Ofgem? When I worked in the City as a financial analyst, if ever I came across a company about which there were so many unanswered questions, I would have guessed it was run by Robert Maxwell or someone of that ilk.

So, how much is Drax costing us? Since 2022, support for Drax has cost the Government—that is, the taxpayer—£6.5 billion. According to the consultancy Ember, that figure was rising at nearly £1 billion a year before this latest measure. This CFD will cost £113 per megawatt hour at the value of the pound in 2012, which has risen with inflation since then and will rise further in future. The PAC admits that that is

“far more than will be paid to offshore windfarms and other renewable generators”

under recently awarded contracts for difference.

The justification given by the company and, presumably, accepted by the Government is that electricity from Drax is dispatchable and therefore worth substantially more than intermittent electricity from wind or solar generators. That raises the question: why have the Government not accepted Professor Dieter Helm’s recommendation that all electricity generators should bid for the cost of firm power; that is, including the additional costs they will impose on the system for back-up power for when the wind does not blow or the sun does not shine? Instead, the Government palm us off with references to the levelised cost of energy, which is practically meaningless and not something that anyone ever pays.

Then we come to sustainability. Will the new sustainability criteria incorporated in the CfDs apply to electricity generated outside a CfD? CfDs will apply only 27% of the time. That is a question the PAC raised. Again, I hope the Minister will answer that when he replies to this debate.

The idea that burning wood pellets is sustainable, given that they emit more CO₂ per megawatt hour even than coal, is hard to credit, especially given the additional emissions involved in collecting the timber, drying it, pelletising it, and transporting it from western Canada, often across the continent and then across the Atlantic. The theory is that felled trees will be replaced and fallen branches would have decayed and emitted CO₂. I planted 30 trees around my house nearly four decades ago, not to mention more since, and it will be several decades before they are ready to fell. Lots of old branches that were lying around then are still lying around and have not yet rotted, perished and emitted their CO₂.

Anyone who thinks that sustainability is to be measured on a timescale of at least half a century, and probably a century, cannot seriously be arguing that we are in a climate crisis. If we have a century to get the CO₂ back that we are emitting now, we are not in a climate crisis. That, in effect, is what the Government are saying by asking us to go on subsidising Drax. I shall certainly support the noble Baroness, Lady Bennett, if she calls a vote on her amendment.

[Lord Birt (CB)]

My Lords, we are a remarkably united House tonight. I too support the amendment tabled by the noble Baroness, Lady Bennett of Manor Castle. I am not the first to say that the case for biomass is very weak. It is, in effect, a historical anomaly. As others have said, biomass emits more carbon than coal. As the noble Lord, Lord Lilley, just pointed out, it takes decades—perhaps half a century, perhaps even longer—to reclaim that carbon from the atmosphere.

Actually, Drax’s homework has been marked. Nobody has mentioned the remarkable and excellent “Panorama” documentary made by Joe Crowley just under three years ago, which demonstrated very clearly that Drax was burning primary ancient forests, which would be exceptionally difficult, if not impossible, to replace. That, in my view, is unconscionable. Nobody has said this so far, but Drax is not an organisation that inspires any confidence. For those who saw “Panorama”, it put up a remarkably weak case for what it was doing. Its handling of a senior executive whistleblower—again, not mentioned so far—was, to put it mildly, unsavoury.

I appreciate the difficulties that Drax presents for the Government. It is a major employer. It produces a significant share of our national electricity supply, as others have pointed out—we could not possibly close it down tomorrow—and it gives that energy supply on tap. The question for the Minister, which I hope he will address in his closing remarks, is: will the Government, who must have heard the passion, power and effectiveness of the arguments from across the House this evening, now consider a proper long-term plan for the phasing out of Drax and for reinvesting in real renewables?