A bunch of things have come up that we ought to tie together.
Gordon MacDonald raised a question about electric heat, which is related to the question that Willie Coffey has just asked. In many places in Europe, such as France or Scandinavia, there is already a lot of electric heat. In Denmark, there is a lot of district heating but there is a lot of renewable electricity generation, such as wind. In Norway, there is a lot of hydro power, which is really low carbon. In France, there is a lot of nuclear power, so there is a lot of electric heat there. The French have a big question about what to do when the existing nuclear power stations close and what to replace them with. That is a large part of the answer to the question about the difference in Europe.
With regard to the kind of heating that is used elsewhere, if it is storage heaters, perhaps they are more efficient than the ones that we have here, which are notorious for not working well. We mentioned prioritising rural areas because heat pumps should be more effective there, but there is still work to do on that. I hear people talking about heat pumps not working as well in our damper climate as they do in other places—even in Scandinavia. I am not sure about that and I am a little worried about it. There is a question about the effectiveness here and what manufacturers can do about it.
On the question of where the electricity comes from, I mentioned the French and Norwegian context, which is a big answer to the question of why there is so much electric heat in those places. We are doing well in developing renewable electricity generation, and there have been fantastic reductions in the cost. In the most recent round of auctions for contract for difference for offshore and island renewables, astonishingly, the cost came in at around £40 per megawatt hour. Relative to what we were expecting, even five years ago, that is amazing. One or two people have suggested that onshore renewables would now be lower than that.
Is there a need for a contractual framework to underpin it? I suggest that there is. It is still a challenge to get enough of the energy bought ahead of time, in order to give confidence in the investment. That suggests a CFD-like arrangement for onshore wind. It is not a subsidy; it provides a contractual confidence base. Nevertheless, people are trying to develop onshore wind on a commercial basis.
One big issue with renewables is the variability. That is acknowledged in the CCC’s “Net Zero” report. Looking to the 2040s, we have to manage that variability. A credible scenario is what we call mid-merit generation, which is dispatchable and can ramp up and down to fill in the gaps. It would have to be low carbon; it might need to burn hydrogen that has been manufactured in a reasonably low-carbon way. The 2040s are not that far away. Given the lifetime of gas turbines, we must address that seriously in sufficient time.
Making things more interconnected would also help to manage variability. We might have a surplus or our neighbours might have some spare availability. As committee members can imagine, if there were a connection with Norway, the Norwegians could save their hydro and sell it to us or we could sell them our surplus wind, so there could be mutual benefits. There have been slight hold-ups and one or two projects are now on hold because of uncertainty over Brexit, but we hope to get over that delay and get some certainty back in there. I hope that that will answer some of those questions.
Something else that comes up a lot but has not really been tackled is the issue of cost. At the moment, our best estimate is that the measures that we have been discussing—energy efficiency, heat pumps or whatever—are more expensive than gas supply. Incidentally, another reason for our being in the position that we are is that—as others, including Fabrice Leveque, have said—we have so much heat. Some 80 per cent of our homes are run on oil or gas. The only other country in Europe that does that as much as us is the Netherlands, so it would be interesting to look to that country to see what else it is doing.
The CCC’s estimate is that getting to net zero would cost some 1 to 2 per cent of gross domestic product over the period to 2045 or 2050. That does not sound like a hell of a lot, if I might put it in those terms. However, we must admit that it is a significant cost.
There are two further aspects of cost that we should think about. One is how much the costs of the different technologies might come down. I expect the cost of installing hybrid heat pumps to do so, although there is not a big market for them at the moment. I am not sure about the cost of installing conventional heat pumps, but it is to be hoped that it will come down. On a lot of the technologies that involve hydrogen, which might become cheaper, we can only make best estimates at the moment. We are hoping that we will see trends similar to those that we have already seen on wind generation.
One of the biggest policy questions is how we then recover such costs. On whom should they fall, and in what ways? We cannot deny that there are costs, but how should we split them? We have to do it, because the climate emergency is real. Should they fall on individual consumers, on the basis of the kilowatt hours that they consume, or should we somehow socialise them? We have also talked about grants. How should we pay for those, and on what basis should they be formed? Should there be just grants or a combination of grants and loans towards the capital cost? Should they be recovered from levies on other sectors, to give them an incentive? The approaches that could be used might involve either carrots or sticks.
Therefore the major questions are about where the costs fall and what instruments we, as policy makers, have either here or at UK level.