Michael Shanks MP: speeches

Speeches

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  “Under new management,” indeed! The tough thing about being the acting shadow Secretary of State is that it is not, of course, his script that the hon. Gentleman is reading out. This Government are fixing the mistakes left by the previous Government. I gently point out that eight previous Conservative Energy Ministers stood at this Dispatch Box and—deal after deal after deal—announced a worse deal than this for bill payers, energy security and sustainability. The hon. Gentleman seems to have forgotten that today. In fact, only a year ago—such is my love of his contributions in this House that I have read up on Hansard —he was saying that he had “absolute confidence” in the deal the previous Government made with Drax. Let me outline why this deal is so different from those his party made in the past. The hon. Gentleman first asked about subsidy and mentioned a figure, which is what it will cost to deliver the necessary dispatchable power. He missed the fact that it is, of course, half of what was paid under the previous Government—nearly £1 billion a year—to Drax. We have halved that amount to lower bills for consumers. Secondly, the hon. Gentleman spoke about sustainability. We agree on the importance of tightening up the sustainability, which is why we have moved from 70% to 100%. I would gently say, again, that he was quite happy to support public money going into unsustainable biomass year after year when he was in the Energy Department. We have said that we will not pay a penny of subsidy to Drax if there is unsustainable biomass in the mix. Thirdly, what the previous Government did not do, of course, was any sort of deal to control the runaway excess profits—record profits—that Drax was able to obtain as part of its deal. We have put in place a mechanism to claw back that excess profit so that the people of this country do not pay over the odds for their energy. Fourthly, I will address the important point about energy security. Year after year, the Conservatives exposed us to the lack of a plan for what the energy system would look like in the late 2020s and into the 2030s. This Government have had to take tough decisions quickly to secure that supply for the future, and that is what we have done. We have decided that running Drax when it was not necessary—when there were clean, cheaper alternatives in the system—will no longer happen. To the hon. Gentleman’s specific point on Drax running less, I say that limited generation times mean that it will run only when we need it for capacity to meet demand in the system. The alternative—he asked for the figure, which I set out in the statement—would be £170 million more every single year. Finally, on the future of BECCS, we are open-minded at this point on the role it will play. However, I agree that it is important that we come to a decision on that soon. The review we have outlined is about bringing together all the various bits of science that we know are there in different reports and trying to work out a credible pathway for whether power BECCS will play a role in the system. We will make that decision as soon as possible. I will finish by saying that this is an extremely different deal. It will deliver benefit for the hard-working people of this country, ensure that sustainability is at its heart and protect our energy security in the years ahead.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  My hon. Friend makes an important point. I think we should consider two aspects of the analysis of the importance of Drax to the system. First, in comparison with the counterfactual of building new gas-fired power stations, our analysis is that the deal we have agreed, which involves the use of gas on the system for 27% of the time, costs £170 million less. Secondly, on energy security, the assessment is that even if we wanted to go down that route, there would be risks about whether we could build that capacity in the time that we have. This is all about the decisions taken by the last Government, who did not look far enough ahead and did not have that capacity on the system. Even if we did want to proceed with new gas stations, there would be questions about whether we could build them in time. This deal is about protecting bill payers, halving the subsidy from £1 billion and ensuring that there is dispatchable power when we need it as we build the clean power system. As we move towards the 2030s, what comes next is long-term planning for a clean power mix, but also about the long-duration and short-duration storage mixes that will help us to make decisions that are different from the one we were forced to make this time.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  The point of having an independent adviser is that, while the role of the Low Carbon Contracts Company as the counterparty to the contract for difference we have agreed and the role of Ofgem as a regulator are incredibly important, we think there is also a role for someone independent to make sure they are analysing the particular questions about biomass and sustainability, while also having an eye on the science as it moves forward. Part of the challenge is that, over the years, the sustainability information we have, and the types of forestry and where the biomass comes from, have changed. The adviser will play an important role in advising my Department, Ofgem and the Low Carbon Contracts Company on this deal in the years ahead. It is important to say that we want to make sure we also have an independent review of what the future looks like, so that in five years’ time we are not looking at the same decision as we are now.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  With permission, Madam Deputy Speaker, I would like to make a statement about support for biomass electricity generation. My apologies to the House for it having to put up with even more of me. In January 2024 the previous Government launched a consultation on supporting large-scale biomass generators when existing support ends in 2027. That consultation outlined their proposals to continue to support biomass as a “valuable...form of dispatchable power”. Since this Government came to office, we have carefully considered responses to that consultation and assessed the case for a new support mechanism. Biomass currently plays an important role in our energy system, but we are conscious of concerns about sustainability and the level of subsidy that biomass plants have received in the past. With that in mind, I want to report to the House on our conclusions about the role of Drax power station in Yorkshire in the years 2027 to 2031. In coming to the view I will express today, we have taken advice from the National Energy System Operator on questions of security of supply, analysed the effect on consumers of support for biomass versus the alternatives, looked at issues around subsidy and sustainability in the existing arrangements, and considered longer term issues around decarbonisation. First, on security of supply, we inherited a situation from the previous Government where there was no long-term planning for our energy system and its resilience. In the system we have inherited, large-scale biomass provides around 5% of our annual electricity generation, serving a specific role as a source of firm power. To meet our needs between 2027 and 2031, we could seek to replace Drax with new gas-fired power stations, but in the timescale we have there would be significant risks to relying on that approach. In that context, NESO has advised us that Drax plays an important role in delivering security of supply between 2027 and 2031. Secondly, on price, we have undertaken comprehensive analysis of the costs of biomass against alternatives. Our central projections show that, on the right terms and in a much more limited role than today, biomass generation at Drax is the lowest cost option, including when compared with gas-fired power stations, for bill payers during this period. Thirdly, we have looked at previous arrangements for subsidy and sustainability. This Government’s view is that they simply did not deliver a good enough deal for bill payers and enabled Drax to make unacceptably large profits. At the same time, they demanded levels of sustainability that are not now in line with the latest scientific evidence or global best practice, including supply chain emissions well above the European standard. We have concluded that if Drax is to continue to play a role in our power system, these arrangements must urgently be improved going forward. Fourthly, we have looked at issues with decarbonisation. Our finding is that there is a potential role for bioenergy with carbon capture and storage—or power BECCS—but realistically this will take time to implement and therefore cannot form the primary basis of this decision. On the basis of that assessment, and given the circumstances that we inherited, the clear evidence is that Drax is important for delivering a secure, value-for-money power system in the period 2027-31. But we have also concluded that we cannot allow Drax to operate in the way in which it has before, or with the level of subsidy that it received in the past. On that basis, we have secured heads of terms that will form the basis of a very different agreement with Drax for support during the period 2027 to 2031. Let me set out the terms of the agreement. First, it will ensure that Drax plays a much more limited role in the system, providing low-carbon dispatchable power only when it is really needed. Drax currently operates as a baseload plant, running around two thirds of the time. That means that it provides power even when other renewable sources are abundant. That must not continue. Under the new arrangement, Drax will be supported to operate only at a maximum load factor of just 27%. In other words, it will operate less than half as often as it does currently. That will be guaranteed by the design of the dispatchable contract for difference that we have agreed. When renewable power is abundant, Drax will not generate, and consumers will benefit from cheaper wind and solar instead. Secondly, reflecting that change, the contract will deliver much better value for consumers. It will significantly reduce the amount paid in subsidies compared with the previous support mechanism. The new deal halves the subsidies for Drax—equivalent to a saving of nearly £6 per household per year. Furthermore, our analysis shows that the deal will save consumers £170 million in subsidy in each year of the agreement compared with the alternative of procuring gas in the capacity market. I can also inform the House that the deal limits the expected rate of return for Drax to a level below that of monopolies regulated by Ofgem, but while that is our central estimate, unlike the last Government we are not prepared to take the risk of prices soaring in response to volatile fossil fuel markets, so the agreement includes a built-in windfall mechanism, with rates of 30% and 60% that would claw back excess profits made by Drax, guaranteeing a much fairer deal for consumers than in the past. Thirdly, we will introduce tough new measures on sustainability. We will increase the proportion of woody biomass that must come from sustainable sources from 70% to 100%. We will significantly cut the allowable supply chain emissions to a level in line with the much stricter regulations currently operating in the rest of Europe, and we will exclude material sourced from primary forests and old-growth forests from receiving support payments. There will be substantial penalties on Drax if those criteria are not met, and we will go further to ensure greater confidence that the standards will be met. I can inform the House that we will also appoint an independent sustainability adviser to work with my Department, the Low Carbon Contracts Company and Ofgem to ensure that our monitoring and enforcement measures are robust and keep pace with the science. To be clear to the House, taken together the measures represent a profound shift from the past on both sustainability and value for money. In that context, this is the right deal for security of supply and price in the period 2027 to 2031, given the circumstances that we inherited from the previous Government. Nevertheless, we recognise the strength of concerns in this House and across the country about the use of unabated biomass. It is not a long-term solution. We are determined that the next time such decisions are made, the Government are not left in the circumstances we have been. We will do the work that was not done by the previous Administration on strong and credible low-carbon alternatives, so that in four years’ time we will have proper options. To help that process, we are setting up an independent review to consider how options for greenhouse gas removal, including large-scale power BECCS and direct air carbon capture and storage, can assist the UK in meeting our net zero targets and ensure security of supply out to 2050. The review will take representations widely on the issues and report back in due course. The steps that I have set out are about fulfilling our duty to ensure security of supply and the best deal for bill payers. We have come into office, faced up to the circumstances left by the previous Government, and delivered a step change in value for money and sustainability. The Government will do whatever it takes to deliver energy security, to protect bill payers now and into the future. I commend this statement to the House.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  My hon. Friend makes the point for me. He forgets, of course, that the Conservatives are under new management, so it is all fine—we just forget everything that happened in the last 14 years and move on. Of course, we have had to pick up the pieces from the last 14 years, and while the Conservatives will not take responsibility for those decisions, we have grasped the challenges and are moving forward as quickly as possible. The truth is that not only did we inherit an energy system without the long-term planning it should have, but Drax did not have a deal that was good for the climate, good for energy security or good for the hard-working people of this country, who paid year after year for the subsidies that the previous Government negotiated. We have halved the subsidy every year, putting money back into people’s pockets and, of course, making sure that any excess profits come back to the Exchequer.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  I was not aware that it is the Reform party’s policy to reopen the coalmines—

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  First, let me say that I have spent the last hour answering questions from Members on both sides of the House. I have not lectured anyone. I have, however, stated the facts—for instance, that if oil and gas are extracted from the North sea, they are sold on the open market for whatever price the international markets have at any given moment. That delivers neither energy security nor confidence to bill payers. While Opposition Members may want us to go back to the fossil fuel casino and hope we can play a better hand this time round, I think we should be building a secure power system that delivers both energy security and confidence that we will not be exposed to the price spikes we have been exposed to in the past. If the right hon. Gentleman wants to take that as a lecture, he can take it as such. On the role that Drax will play, of course we looked at all the assessments around Drax to date. Frankly, we have put in such a robust process on sustainability, and independent assessments of some of that, because of the questions that the right hon. Gentleman raises: we know that there have been questions in the past, and we want to make sure that there are tough penalties if Drax does not comply. Raising sustainability from the level under the previous Government—70%—to 100% means that we will not pay a penny of subsidy if Drax fails the sustainability tests that we have set out for it. That protects consumers right across this country and delivers the dispatchable power that we need.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  Transparency is important, so I am very happy to publish what we can. Elements of that analysis, such as details of how Drax runs its power station, will be commercially sensitive, so I will have to look at exactly what can be published. I know that NESO has today published a summary of its advice, to give clarity on its view on the security of supply questions. I am happy to take the hon. Gentleman’s point away and write to him.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  On the start of my hon. Friend’s question, I agree. This Government were deeply concerned about sustainability practices at Drax and, frankly, about the level of subsidy that was part of the deal negotiated by the previous Government. We inherited a dire situation in terms of long-term planning for our energy security. What we have sought to do with this deal is answer all those questions—on sustainability, on security of supply, on excess profits and on the role of Drax in the system for dispatchable power, which is important. On the role of Ofgem, I know that the audit of some of Drax’s practices is still under way. I am rightly not privy to the details of that, because it is Ofgem’s review, but we have a wider review of the role and remit of Ofgem under way at the moment, and I think that would be an opportunity for my hon. Friend to feed in his thoughts on the future of Ofgem.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  The right hon. Gentleman is right that we want “credible low carbon alternatives”. I will look at the specific points he mentions, but we do not see such generators as key to the review we want to undertake. We want to look at carbon capture and other technologies and, crucially, how we store some of the renewable energy that we are generating in abundance that we cannot use at times of peak demand, including long-duration energy storage and, increasingly, short-duration energy storage batteries that are powering more than they have done in the past. I will look at the specific points the right hon. Gentleman raises.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  My hon. Friend summarises the importance of the deal clearly. We have limited the expected rate of return for Drax to a level below that of monopolies regulated by Ofgem. We have halved the subsidies provided to Drax that were in every single deal from the Conservative party, year after year, saving £170 million each year of the agreement. We have introduced a windfall tax with 30% and 60% rates to be clawed back should Drax have excess profits. We are delivering on energy security and on tougher sustainability requirements, but at the heart of the deal is better value for money for the hard-working people of this country.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  That is good to know. I am proud that, as a country, we have moved past coal-fired power generation, which is incredibly destructive for our environment. We closed the last coal power station, at Ratcliffe-on-Soar, last year. Its workforce proudly recognised the role they played in powering the country for many years, while also recognising that the drive to net zero is important. While we are building a clean power system that delivers energy security for the future, the Reform party would take us back to the stone age.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  After an urgent question and a statement, I hope that I will not still be standing here in 15 years’ time, and I suspect the House will support that. Let me be really clear. I do not remember Drax being the poster child for the clean energy transition. I have outlined clearly why this decision is important in terms of energy security, but we wish that we as a Government had had more options. Unfortunately, those options were not there, so we have made the best of a difficult situation to get an incredibly good deal that delivers value for money, improves sustainability and delivers on energy security. In the 2030s, I want to see our clean power system delivering cheaper bills and industrial manufacturing jobs across the country. I hope that, in 15 years, the right hon. Member and I will have a conversation about how that is delivering for our constituents.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  The right hon. Gentleman will not draw me into the ongoing competition on small modular reactors, but he has made the case for his preferred company. Last week, the Prime Minister announced that we have a new commitment to reviewing the 2011 planning statement so that we can have much more new nuclear across the UK. That is particularly important because previously there were only eight designated sites. Small modular reactors, of course, open up possibilities right across the country, and we want to see much more of that. We are moving as fast as possible to make sure these reactors are under way, and I hope that we can move at such a speed that the Scottish Government will change their objection to having small modular reactors in Scotland.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  We do not have a mechanism to claw back past profits from any company—that is not something that Governments are able to do. What we can do is move forward with a fair system that reduces the subsidy considerably, and has excess profit mechanisms and a windfall tax in place to ensure that if the company generates additional profits, we can claw that back for the British public, which is important. The level that we have agreed in the deal brings the subsidy down to a considerably lower level—half what it was under the previous Government.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  The Chair of the Select Committee is absolutely right about where Drax, and biomass generally, fits in our wider energy system. What we want to build at pace is a clean power system that takes us off the volatile fossil fuel markets. That is important, but there are short-term issues around ensuring we have the dispatchable power we need when we need it. The Government have taken long-term decisions, for example in the first funding scheme for long-duration energy storage in 40 years. We hope to see modern new technologies of long-duration energy storage but also some classics from the history books, with pumped storage hydro playing a critical role in the system and delivering the dispatchable clean power we need. But there is a short-term question we need to answer that the previous Government did not have an answer for: how we get to 2031. We can build new gas units. Our analysis and the advice from NESO was that that was more likely to deliver energy security and in the end be cheaper for bill payers, who ultimately pay the bill. Our long-term ambition is to build towards that clean power system. This is an important step to get us the energy security that we need in the system.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  I can give my hon. Friend that assurance. We have significantly reduced the ability of Drax to make profits, but we have also ensured that if there are excess profits, they are clawed back on behalf of the British people. The additional rates of 30% and 60% in the mechanism that we have designed will ensure that any unexpected profits are clawed back. That was not the case under the eight previous Energy Ministers in the previous Government who signed off deals on Drax year after year. This is a new way of operating that protects our energy security, as well as protecting the hard-working people of this country.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  My hon. Friend is right that one of the really important outcomes of the new deal is that instead of cheaper wind and solar power being displaced by Drax when it operated with baseload capacity, Drax will only operate when we need it on the system. That means that the cheaper, cleaner power sources that we are building in abundance, of which we want to see much more in the years ahead, can generate and deliver cheaper power for the people of this country. On my hon. Friend’s wider point, it is important that we explore the role that hydrogen can play in the system. We are looking at a number of different technologies at the moment. Just last week, I met some investors looking at the future of the gas system to take forward some of those questions, and I am happy to discuss that further with my hon. Friend in the future.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  The hon. Gentleman makes an important point, although I would gently point out that the shadow Minister and I agree on a lot more than he likes to pretend—or I like to pretend, perhaps. The hon. Gentleman is right to say that we are aware of the importance of the jobs at this particular power station and in the supply chain, and we will be working with Drax on what that looks like. We are of course changing the role that Drax will use the power station in Selby for, and I will ensure that I have those conversations about the supply chain. I would be happy to speak to him more about that in due course.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  At the risk of getting into trouble with those responsible for tax matters, I simply say that this is a windfall mechanism that does exactly the same thing, and it does exactly what the Conservatives failed to do in 14 years, which is to ensure that there is a good deal and good value for money for the British public, delivering on energy security and, crucially, getting us to a point where our clean power plan for 2030 delivers energy security, climate leadership and jobs right across the country. It is the ambition of doing something different in this country and doing it fast, and we are committed to delivering it.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  My hon. Friend makes an incredibly important point. The sustainability criteria are important, but he is right that making sure they are met is important too. This is a contract for difference agreement and we will work with Ofgem to work out exactly what its role is as the regulator, but to go above what has been in place before, we have announced that an independent adviser will work with my Department, the Low Carbon Contracts Company and Ofgem to make sure that the latest science and the latest awareness on different elements of biomass are key in our decision making, and that there is a real audit trail in place. The other really important thing is that there is now no room whatsoever for Drax not to comply with the sustainability criteria. Its compliance must be 100%, and there will not be a penny of subsidy for anything that is not sustainable. That is important, and the audit trail will be part of that work.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  I am tempted to say that we will have to ask the Conservatives that question, but they are under new management, so they do not know why the previous Government that they were all Ministers in made the decisions that they did. The truth is that for far too long—under, I think, eight different Conservative Energy Ministers—they signed off deal after deal with Drax with uncapped profits and nowhere near the sustainability criteria that they should have had, letting Drax do whatever it wanted with that power station. We have put a stop to that. Let us be really clear: we have halved the subsidy, taking £6 off every single bill in this country every single year, we have increased sustainability to 100%, and we are delivering the energy security this country needs, but we should not have been in the position on coming into office where there were nowhere near enough long-term plans for the future of our energy system.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  I agree with the hon. Gentleman’s point, and I reiterate that we wish we were not in the position we were in when we came into government, whereby this was the only option that would deliver security of supply out to the early 2030s. We have sought to get the best possible deal for sustainability and for bill payers, but I agree that we need to be building what comes next. Last year we announced that, for the first time in 40 years, the Government would be funding long-duration energy storage, and I have held a number of meetings with developers on pumped hydro and also on new, modern forms of long-duration energy storage. There are some really interesting, innovative ideas out there. Ofgem is currently putting in place the technical specifications for the cap and floor scheme, and we want to get that rolling as soon as possible. From all my meetings with developers in Scotland, I know that there is huge potential around pumped hydro in particular. They are waiting for certainty from the Government in order to move forward, and we are determined to give them that.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  I thank the hon. Lady for her questions. Her tone means that I will resist the urge to say that, although I made fun of the shadow Minister for the eight announcements, it was of course the current Liberal Democrat leader who agreed the first support deal for Drax. But we will move past that on to her important questions about security of supply. The place we want to get to by the end of this period is one where we are not forced into making a decision like this again. It is really important to say that. We have a strong deal that protects bill payers, improves sustainability and delivers energy security, but we want to have options. The truth, as the hon. Lady rightly points out, is that we came into government without those options because of the decisions made by the Conservative party. That is a really important point. As for the point about excess profits, there was previously no mechanism to claw them back. We made that a key part of the negotiation and we managed to get it into the deal. Even if our estimates are wrong—and the estimates, of course, mean that the profit will be below the level expected of the regulated companies by Ofgem—we can claw back the additional profit from Drax. That is important to the system. Both the hon. Lady and the shadow Minister raised the question of KPMG’s reports. I know that my Department has seen them and engaged with them, and I know that Ofgem is still engaged in the audit process. I will take those questions away and see what can be done about sharing those reports.

• 10 Feb 2025 · Biomass Generation · Hansard source

  More

  My hon. Friend is right that this is a good deal, in the short term, to ensure security of supply into the early-2030s, which was key to NESO’s advice on the basis of security of supply. In the process, however, we have sought to halve the subsidy that Drax was given by the previous Government and deliver on the sustainability criteria, taking that from 70% to 100%. This is a good deal for the people of this country. My hon. Friend also touched on the important work we need to do in the broader energy space to deliver energy security. That is why clean power 2030—our sprint to deliver decarbonised power—is so important, delivering good jobs in supply chains across the country.