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Thomas Docherty (Dunfermline and West Fife) (Lab)
Thank you, Sir Roger, for calling me to speak. I am grateful for the opportunity to serve under your chairmanship again. It is the first time that I have done so since your well deserved recognition in the new year’s honours list.
For the sake of clarity, I should draw Members’ attention to my entry in the Register of Members’ Financial Interests and point out that at the last election I received a donation from the union Unison, which has a small number of members at Longannet power station in my constituency.
As Members will be aware, Longannet power station sits at the most westerly point of my constituency. It has been generating electricity since 1970 and it has the capacity to put some 2,000 MW into the national grid. Scottish Power, or its parent company Iberdrola, has been the owner of Longannet power station for a number of years.
Members will be aware that the previous Labour Government established the carbon capture and storage competition, and I will say some more about that shortly. At the tail-end of last year, the current UK Government took the decision to end Longannet’s bidding for the £1 billion pot of money and today I hope to tease out from the Minister exactly where that decision leaves the future of carbon capture and storage, both in Scotland and more generally.
As I said, Longannet power station has been successfully putting up to 2,000 MW into the national grid in Scotland for more than four decades. Several years ago, it had a significant upgrade, which will give it a life through most of this decade. As is the case with all fine pieces of engineering, however, there is only a limited life span left for the power station and of course there are serious questions about how we will keep the lights on in Scotland.
Being a grown-up, I do not think that the Scottish National party’s rather ludicrous plan for 100% of Scotland’s electricity to come from wind turbines and other renewables is at all sensible or deliverable. If someone is a grown-up and has a real energy policy, they have to look at the alternatives to that plan. I firmly believe, as I have done for a number of years, that clean coal technology must be part of an energy mix including nuclear power stations. There should be some role for renewables and fossil fuels, mainly coal, although I accept that there is a limited role for gas. However, I was disturbed to learn from a much esteemed source this morning that 80% of the gas that we now use in the UK comes not from UK shores but from overseas. Security of supply is an important concept. For the benefit of the SNP, which clearly does not understand the concept, let me explain it. If we are dependent on overseas sources of energy, we must have comfort that those sources of energy are reliable, can be delivered safely and are not prone to outside threat.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Given recent events in Japan, does the hon. Gentleman think that nuclear power is reliable and safe?
Thomas Docherty
Clearly, the hon. Lady was not listening two minutes ago when I said that nuclear power was part of a balanced energy policy. In the UK, nuclear power has been delivering electricity safely and securely for nearly six decades now. When she speaks in the debate later, I would be grateful if she could say whether she thinks that having a policy of 100% renewables is a saner option than having a balanced energy policy that does not put all the eggs in one basket. Moreover, perhaps she would like to tell me how many wind farms she has supported in her own constituency. I say that because one of the things that we often see is that certain politicians make great proclamations about their support for certain types of energy but the moment that anyone tries to put those types of energy in their own backyard they suddenly seem—bizarrely enough—to oppose that particular scheme. Unlike the SNP, I have always been consistent: I have always argued that we should have a balanced energy policy; I have always argued that we should keep the lights on; and I have always spelled out how and where I would do that.
Jo Swinson (East Dunbartonshire) (LD)
I congratulate the hon. Gentleman on securing this debate on a very important issue. Does he agree that it is important to have carbon capture and storage not only for energy security but for environmental reasons? Even if Scotland, with its renewable potential, were able to have a much greater percentage of its energy supplied by renewables, that would not be the case in the rest of the UK and in other countries around the world. Consequently, if we are to tackle carbon dioxide emissions, clean coal and carbon capture and storage have to be a part of any solution we find.
Thomas Docherty
I am most grateful to the hon. Lady for making that point. She is entirely correct that this issue is not only about security of supply, although that is the single most important aspect.
Gordon Banks (Ochil and South Perthshire) (Lab)
Following on from the comments of the hon. Member for East Dunbartonshire (Jo Swinson), does my hon. Friend agree that there is also an economic and industrial factor to carbon capture and storage, and that the decisions taken in Holyrood and Westminster do nothing to create the momentum for the UK to be a leader in carbon capture and storage?
Thomas Docherty
Yet again, I find myself in full agreement with my hon. Friend, who, as my neighbouring MP, has taken a close interest in Longannet power station. I hope that he will be able to make further points in the debate shortly. As I was saying, security of supply must be the biggest single priority, but as colleagues have just mentioned there are other issues and I will turn to each of them in due course.
Where do we go from here on the issue of security of supply? We have two choices. We can have a balanced energy policy that has clean coal technology, nuclear power, some renewables and, regrettably, a limited proportion of gas, or we can put all the eggs into one basket, as the SNP has said in its manifesto that it will do. As I said earlier, I hope that the hon. Member for Banff and Buchan (Dr Whiteford) will spell out exactly why we should have 100% windmills and hydro, and how she will achieve that goal during the next decade.
As I have mentioned, a very regrettable decision was taken by the Government on 19 October last year that, for obvious reasons, was very disappointing for my constituents and indeed for the whole of Scotland. That decision was that the Longannet scheme was not going to go ahead. However, there is a recognition that that decision was a pragmatic one and that the Government have a duty to the taxpayer. The problem with carbon capture and storage is that it is an unproven technology. No Government or private company have yet come up with a viable, large-scale carbon capture and storage scheme. I must say that successive Governments have been very late to understand that there comes a point when people have to push back from the metaphorical table and say, “We could throw billions of pounds of taxpayers’ money at something and we still have no guarantee that that is going to work”.
Regrettably, successive Labour and Conservative Governments have had a very poor track record of backing winners when it comes to new technologies and there is a genuine debate about whether Governments should try to back winners or whether they have a duty simply to put in place a market for private companies to come up with winners. Perhaps the Minister will be able to say more about the Government’s thinking on that issue.
I make no criticism of Iberdrola or of Ministers for the decision that they ultimately made. Building on the excellent work of the Leader of the Opposition, my right hon. Friend the Member for Doncaster North (Edward Miliband), when he was Secretary of State for Energy and Climate Change, the current UK Government offered a £1 billion fund for carbon capture and storage. The only observation that I would make—as I say, it is not particularly a criticism but more a general observation—is that many colleagues misunderstood the nature of the competition. The competition was not a case of “last man standing wins the prize”; it was a marathon, and to qualify for the funding one had to reach the finish line. Regrettably, but for obvious reasons because Longannet was the last entrant in the competition, there was an assumption that it would receive the £1 billion. The UK Government and Iberdrola, the Spanish energy giant that owns Longannet, were clearly in the region of £500 million apart on the start-up and ongoing costs of Longannet. That is regrettable, particularly for my constituents, but I do not think this was doable for the UK Government.
What was bizarre was the intervention by our blustering First Minister, who outrageously leaked the confidential commercial information to a Scottish newspaper, showing, again, that he really is not a grown-up. Also, while he was pandering to the galleries and attacking the UK Government, I noticed from answers I received from UK Ministers that he did not offer a single penny of Scottish Government money to fill the gap. If the First Minister had been prepared to offer £500 million, we could have taken Longannet forward but, as ever with the SNP, all we get is bluster, grudge and grievance, with no solution. Perhaps when she speaks, the hon. Member for Banff and Buchan will spell out what the SNP Government would have done, because all they have done is their usual trick of having a pop at someone else and not offering any solutions.
As the hon. Member for East Dunbartonshire (Jo Swinson) said, there are some genuine issues here about not just security of supply, but the environment. I firmly believe that carbon capture and storage is a technology worth pursuing, and my preference remains for a coal station for the simple reason I have spelt out already: that I would be reluctant to go down the route of investing in a gas technology over the next 30 years, because gas is not an indigenous supply. I recognise that there is a strong case for Peterhead, which has been championed by my hon. Friends the Members for Aberdeen South (Dame Anne Begg) and Rutherglen and Hamilton West (Tom Greatrex). I hope the Minister will be able to outline in some detail where we are with that.
Dame Anne Begg (Aberdeen South) (Lab)
Part of the problem with the Longannet development was that it was coal-fired. It would have had better energy returns, because a large proportion of the UK’s energy still comes from coal-fired stations, but has not experimentation with carbon capture and storage for gas been more successful than the Longannet trial was proving to be?
Thomas Docherty
I am most grateful for my hon. Friend’s observations. She is indeed correct. There have been some positive signs. My note of caution, however, is that there is a danger that we will go down the route of that classic British tradition, whereby Europe and the United States pursue one path and the UK does its own thing. One need only look back at the nuclear programme. While the rest of the western world was going down the water reactor route, the British, in our own quaint way, went down the gas reactor route, meaning that we had wonderful technology—what I would call the Betamax technology of nuclear power stations—but technology that was not compatible with anyone else’s.
Gordon Banks
I will certainly not make any comments about Betamax or VHS. Does my hon. Friend not agree that, given the number of coal-fired power stations in the UK and the world, and the number of new ones coming on line in the developing world, the holy grail is carbon capture and storage for such stations? If we do not get our skates on, we will be left behind, economically and industrially, and will have to watch others develop the technology and create jobs in their economies, while having to import the technology and ability ourselves.
Thomas Docherty
My hon. Friend is exactly right. That is the holy grail. I am not sure if that makes my hon. Friend the Member for Rutherglen and Hamilton West the Sean Connery or the Indiana Jones of the analogy, but it is the holy grail that we should be pursuing, and it can be achieved. My point about Betamax is that it was a fine piece of technology, and our advanced gas-cooled reactors in particular were, and still are, superb engineering kit. I see that the SNP is now a convert to the case for AGRs, championing Hunterston and Torness having life extensions in the years ahead, but when the rest of the world is going down the VHS road, it is slightly disturbing to think that we are going to pursue gas at the expense of coal. Coal is the long-term priority, and there is a significant market, if we can get the technology to work: we can export it not just to developing countries, although that would be a big market, but to many western and European countries that are also very coal reliant.
I should perhaps say a little about the technology itself, and its benefits for Scotland. As Members are undoubtedly aware, the trick with the technology is not just to capture the carbon but to store it. The Peterhead scheme is, as I understand it, very similar to that for Longannet, in that it would seek to push the captured carbon up into the North sea, into land owned by the Crown Estate. It is important to recognise the Crown Estate’s role, and perhaps the Minister can outline how that will work. Reuse of the now extinguished gas and oil fields off our UK shores is also provided for. Interestingly, the Longannet scheme was a tri-party approach, involving National Grid, Iberdrola and one of the largest oil and gas companies, which had an extinguished field. I hope the Minister can say more about how he will encourage the private sector to do more such partnership work.
It is worth saying that no short-term danger is posed to the Longannet power station by the current carbon capture and storage project not getting the go-ahead. The lights will not be turned off at the station tomorrow morning, but there is a question about its medium-term future. There is a genuine debate to be had about whether it would be the right decision to build another coal power station, whether Iberdrola should be encouraged to seek a further life extension, and if so what Government support could be offered, or whether, as at Cockenzie in East Lothian, a decision is made to shift the type of fuel. Whatever the options, I sincerely hope that the UK Government will do all they can to offer genuine support to Iberdrola as it seeks to take this forward, and I would be grateful if the Minister found time—for either himself or his colleague Lord Marland, who has, to be fair, been a big supporter of CCS—to meet with me. Whatever decision is made about Longannet, I hope, ultimately, that when we get successful CCS we can either retrofit the station or, if we do persuade Iberdrola to go for a new build, that we can get it included. For the benefit of my constituents, I would be grateful if the Minister spelt out what support the Government will be able to give to any new build fossil fuel plant that might be needed to keep the lights on.
I am conscious that other Members wish to speak, so I will draw my speech to a close.
David Mowat (Warrington South) (Con)
I thank the hon. Gentleman for giving way. I have listened very careful to his arguments about coal and gas. It seems that this technology is a long way from being proven, and it would be a big win if we could get it to work for either gas or coal. I want to address the point about Longannet. The Government’s most recent publication, “The Carbon Plan”, which came out about a month ago, states that the first decision about an operational plant for CCS will be made in 2018. That is a long time after the current generation of coal is scheduled to be switched off, so there is an issue there if we expect this technology to save some of the coal stations that are planned to be switched off in the next five years.
Thomas Docherty
I am most grateful to the hon. Gentleman, because he has reminded me of an important issue. If the project had gone ahead at Longannet, the full 2,000 MW would not have been converted to a CCS scheme. Forgive me if my figures are slightly out, but roughly only 20% of the capacity would have moved across. He is entirely correct to say that it is a long-term technology. The problem with energy and its supply is that by its very nature it requires long-term decisions, which is what makes the SNP’s ludicrous plan for 100% renewables so unachievable. They have no “plan McB”—to use the First Minister’s slogan. When the hon. Member for Banff and Buchan addresses the Chamber, I would be grateful if she spelt out how an SNP plan McB would work, given that it is so clearly failing on its plan McA.
Ian Swales (Redcar) (LD)
Congratulations, Sir Roger, on your ennoblement—that is not the right word, but congratulations on your award. I congratulate the hon. Member for Dunfermline and West Fife (Thomas Docherty) on securing the debate. It is an extremely important issue for the long-term future of our country from the point of view of both power and industry.
I have more than 25 years’ experience in the electricity and heavy process industries. The delay in carbon capture and storage implementation at Longannet is disappointing. The UK is in a great position to exploit CCS. As Lord Oxburgh, president of the Carbon Capture and Storage Association recently put it:
“Experience gained in the North Sea oil and gas industry, and the abundance of offshore geological sites where CO2 may be stored underground have allowed the UK to become one of the global leaders in CCS. Capitalising on this early leadership is vital”.
We certainly can be leaders. The same technology that has been so successful in the complicated job of extracting, storing and processing oil and gas from the North sea can be modified to put carbon dioxide back under the North sea. There is a skilled work force, and academia is already doing important support work. Professional bodies such as the Institute of Mechanical Engineers are very clear that the technology is perfectly practical, and there is a great future here if we move quickly. The global market in the technology alone is conservatively estimated at $10 billion.
A similar story could have been written some years ago about wind technology. We are one of the windiest countries in the world, but thanks to Government dithering and lack of public and private investment, we are playing catch-up and importing most of the technology and equipment. Having worked mainly in the private sector until May 2010, I am baffled at the interminable time scales I see in this job. When someone says something will take six months, my questions are: so what will happen tomorrow and the next day, and how can we shorten the critical path? I am then met by blank looks. I am sure that the giant new Tesco store being built in my constituency would not have gone from a green field to a functioning supermarket in six months with politicians and civil servants running the project. My challenge to the Minister is: how fast can we go and what is getting in the way?
We should be ambitious about CCS in the UK. It is needed to decarbonise our power production and our heavy industry. The areas that get CCS infrastructure will become magnets for new power and industrial investment. That means that we can protect energy-intensive industries, which are currently being challenged by European Union and United Kingdom climate measures, and help to reverse the decline in our manufacturing sector. Failure to act will lead to more announcements like the recent one on the closure of the UK’s last aluminium smelter. Ironically, it is in Northumberland next to the North sea, and the owners had considered using CCS to keep the plant going. It is now too late.
Where should CCS investment take place? Again, we should be ambitious. There are four obvious prime locations: the Aberdeen area, the Forth, the Tees and the Humber-south Yorkshire area. They all have merits, and the Department of Energy and Climate Change should kick-start development in them all. A long-term strategy should be developed for CCS infrastructure.
Thomas Docherty
I have listened carefully, and disturbingly I find that I must agree with a lot of what the hon. Gentleman says. On his point about funding all the schemes, surely the great challenge is that there is a finite pot of money. How should that problem be addressed?
Ian Swales
I thank the hon. Gentleman for that challenge. I do not necessarily see it as my job to represent the Treasury, but £1 billion for less than a quarter of the Longannet power station was not a good use of money. Having talked to people in the industry, I think that there are better ways. Conglomerates of private sector companies want to get into the sector, and we need to be more imaginative about how we make that happen.
Dame Anne Begg
One problem is that at the moment, the private sector cannot see that it is a worthwhile business proposition. One of the difficulties faced by CSS in this country is that the economic arguments do not yet stack up.
Ian Swales
The hon. Lady makes a good point, and that is where we must challenge the private sector and be imaginative about the schemes. I will come on to a scheme I am familiar with that is not in Scotland, but for which there is already a conglomerate of companies ready to roll—household names in the gas and pipeline industries and lots of different companies. It can be done.
To those who say that such development is highly expensive, I say that we need to look more at the overall longer-term finances for the Government, industry and energy generation. For example, it has been estimated that the CCS project proposed for Teesside can generate a peak of £1 billion a year in extra petroleum revenue tax for the Government, through oil companies using CO2 to get more oil from their North sea wells. That possible extra oil recovery from the North sea is estimated at 4 billion barrels. The use of CO2 for enhanced oil recovery is already widely practised in the United States.
The debate is about Scotland, but a project is ready to go in Teesside, and the necessary list of major players in pipelines, processing and so on are ready to start. More than 30 large CO2 emitters in the power and industrial sectors can be connected to the system. Interestingly, a few of those are using biomass, which raises the prospect of net carbon-negative power—sequestering CO2 from the atmosphere. By generating clean power and running clean industry, CCS can make a huge contribution to UK climate change targets. A clear and ambitious UK-wide strategy, action to remove roadblocks to progress and a sense of urgency are needed from DECC, so that the UK can genuinely lead in this exciting new industry.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
I congratulate the hon. Member for Dunfermline and West Fife (Thomas Docherty) on securing the debate. I am rather disappointed that he chose to squander his opportunity today; instead of asking the Government about progress on the plans for carbon capture and storage in the UK, he preferred to take pot shots at the First Minister, who not only is not here but does not have the power to make decisions on CCS that will be made under the current constitutional arrangements.
I want to focus on CCS in Scotland. I share the hon. Gentleman’s disappointment and frustration over the abandonment of the Longannet project. It promised job security for the folk involved, offered technological innovation and would have brought significant investment to Fife. I regret that it hit the buffers, but it is not only the people of west Fife who have been frustrated by the slow progress of carbon capture projects in Scotland. Peterhead, in my constituency, has long been recognised as having leading potential as a site for CCS. Indeed, Scottish and Southern Energy asserted that Peterhead represents the best site in the UK for a gas demonstrator CCS project. By no means is that a new plan. The previous CCS plan for Peterhead was abandoned in 2007, after expectations were raised and then dashed. Frankly, delays and indecisiveness on the part of Government led BP to scrap its plans and turn its attention to projects overseas. The problem was that the previous Government were not decisive enough.
Thomas Docherty
The hon. Lady has commented on two decisions, but will she clarify whether a Scottish Government, if they had the powers, would have gone ahead with both those schemes? Would they have put up the £1.5 billion to £2 billion needed for Longannet and the sum needed for Peterhead?
Dr Whiteford
I do not deal in hypotheticals. I wish that the hon. Gentleman would turn his attention to where we are now and how we are going to progress, because important questions need to be answered.
Dr Whiteford
No, it is not. The Scottish Government’s commitment to carbon capture and their involvement in discussions about Longannet and Peterhead have been constructive throughout the process. I hope the Minister will comment on how he has worked with the Scottish Government on the carbon capture and storage projects.
The Peterhead project was resurrected in 2010 when Scottish and Southern Energy Group revived the idea, and last November it joined forces with Shell to make progress on the plans. Those companies are committed to a gas demonstrator at Peterhead, using storage in the Goldeneye field and the existing North sea infrastructure going out from St Fergus. The Goldeneye field is available and has the right pressure and capacity to make the project viable in technical terms.
I do not think there is much argument any more with the view that we need to mitigate the environmental impact of fossil fuels if we are to have any hope of meeting our international commitments and obligations in tackling climate change. We need to continue using fossil fuels, but we also need to make them cleaner. It is also evident—I was surprised by the hon. Gentleman’s comments on this—that gas will remain a crucial part of our energy mix. What are the Minister’s views on the role of gas in the UK’s energy supply? It is important to understand the role that CCS might play, not just from the perspective of energy security, but from that of the sustainability of our planet.
Dr Whiteford
I will, and I hope the hon. Gentleman’s intervention will be better than his previous one.
Thomas Docherty
I am not sure whether I heard the hon. Lady correctly, so will she clarify whether she thinks it a good thing that we would import 80% of our gas not from Norway, but from Kazakhstan, the middle east and other slightly insecure regions?
Dr Whiteford
I agree with the hon. Gentleman that energy security is crucial, but the point about gas is that I do not think we have a choice any more, and the reason why we will have to use gas, wherever it comes from, is the previous Government’s indecisiveness. They refused to make decisions, for example, on whether to have new coal at Kingsnorth. After 13 years in government, it is very easy for the previous Government to put pressure on the new Government, but they need to take some responsibility for their own decisions when they were in office and their failures, which have made us very dependent on external gas at present.
That, however, does not negate the argument for a CCS gas demonstrator project at Peterhead. We are where we are and we are dependent on gas, but the proposed Peterhead site fits in extremely well with both the UK’s strategic objectives and the EU’s strategic priorities. It is also very well located for old oilfields in the North sea. We are in a good position to use them—it is probably a better position than that of anywhere else in Europe at present.
David Mowat
I agree with the hon. Lady that gas is the default solution to energy where decisions have not been made. On gas from overseas, I think I am right in saying that the majority of our coal also comes from overseas at the moment, but we can rest assured that, from 2015, Europe is likely to be flooded with cheap shale gas from the US, so I think our concerns about that particular fuel source are misplaced.
Dr Whiteford
I am grateful to the hon. Gentleman, who has considerable expertise in this area, for making the important point that it is not just gas but coal that comes from overseas. The point about CCS technology is that it is extremely marketable and the UK has a comparative advantage in that market. A number of coal demonstrator projects are taking place elsewhere in Europe, whereas gas is not being explored to anything like the same extent internationally. That could give us a proper comparative advantage in gas CCS technology. It is about not just our domestic markets but international marketability.
The key issue is funding. There is no doubt that the collapse of the Longannet project and the Treasury’s announcement that it would reallocate the underspend has created a great deal of anxiety and uncertainty. However, Shell and SSE have made it clear that they would require funding in the next two to three years to make the project viable, and revenue support during the operational period. In that respect, the energy companies have argued that spreading the finance too thinly over too many projects risks jeopardising all of them.
What proportion of the funding will the Government make available during this Parliament? What discussions have been had about the prospects of levering in further investment from sources other than those in the public sector? What is the Government’s response to the argument that the UK needs to focus its efforts on funding and risk management? The Government have published a timeline for implementation. How likely is that timeline to be met and how is it progressing?
We have to recognise that this is a demonstrator plant. It carries investment risks and might not go smoothly and completely according to plan, but that is why it is so important for it to have Government backing. I hope the Peterhead project will progress apace.
Gordon Banks (Ochil and South Perthshire) (Lab)
I congratulate my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty) on securing this debate, which is extremely important to Fife and central Scotland, as well as to the UK in general. I am disappointed with the Longannet decision. It affects my constituency, which borders that of my hon. Friend more or less at Longannet, very much. Many of my constituents work at Longannet and I would have had high hopes of many more of them finding employment in a successful carbon and capture storage plant there, but we are where we are.
It is vital that we have a balanced energy policy. We have to embrace renewables of all natures and there has to be a role for fossil fuels and, indeed, nuclear. We have to have a guarantee that, when we press the light switch, the light comes on. Unless we embrace all available technologies to ensure that that happens, we will find ourselves socially and economically challenged.
We need to determine—we can only do this through full-scale trials—whether carbon capture and storage is a real option for future economic prosperity, as well as for dealing with the knock-on environmental issues, which are the driving factor. It is equally important to determine what a successful CCS programme—developed and branded in the UK—could deliver to the UK economy in terms of revenue and the skills of our constituents.
The Scottish Government did not do anything in relation to the Longannet decision. There was a lot of hot air from the First Minister, and it is hot air that we are trying to stop. It would have been much more constructive for the Scottish Government to have done something to facilitate the development of Longannet. Did the Minister have any discussions of that nature with the First Minister?
In an intervention, I made the point that, with coal-fired power stations in the UK and throughout the world—an increasing number are coming online in countries such as China—CCS is the real gain and the holy grail. We need to focus our minds on it in the UK, while bearing it in mind that both the public and private sectors have limited resources to invest. I will come to that in a moment.
Can the Minister confirm the expected release date of the CCS roadmap, because that is absolutely vital for the private sector embracing the challenge of this technology and seeing the Government as a partner in this? Unless the Government play their part, we cannot expect the private sector to play its part. That in itself will create jobs, technology and developmental skills that I hope we can build on and in some way export. CCS could create 13,000 jobs in Scotland and 14,000 jobs elsewhere in the UK. By 2025, the sector could be worth more than £10 billion a year to the economy, which, in addition to the environmental impact, makes CCS a bit of a no-brainer. We have touched on how many times we have been left behind.
Ian Swales
Does the hon. Gentleman agree that, if CCS is worth £10 billion to the economy, those who will benefit have an incentive to help to get things going? It does not seem to make sense to rely only on Government funding.
Gordon Banks
The hon. Gentleman is perfectly correct, but what the private sector needs is for the Government to show a willing lead. What happened at Longannet could be construed as not demonstrating that. The Government need to step up to the plate here and throw the gauntlet down to the private sector.
As I was saying, how many times have we been left behind and missed the boat in the UK in terms of various different technologies? The hon. Member for Redcar (Ian Swales) talked about wind technology. It is a crying shame that we are where we are with wind technology. We are largely importing the technology and the equipment to build turbines. That really has been a missed opportunity. Although CCS may be costly—I will come back to that matter—it is an opportunity we cannot afford to miss.
We need something from the Government to show that they are embracing CCS and that demonstrates to the private sector how serious they are. The hon. Member for Warrington South (David Mowat) raised the point about CCS being expensive. Yes, it is. There are no cheap or quick fixes to our energy position, but we have to consider what the fixes are and CCS is potentially one of them. Governments in Holyrood and Westminster need to step up to the plate, and I am not sure they are doing that.
Thomas Docherty
Does my hon. Friend have any views on what Governments can do in terms of the planning system, because it strikes me that one of the great challenges we face, particularly given the long lead-in time on a new-build plant, is ensuring that that type of decision is not held up unnecessarily through the planning process?
Gordon Banks
My hon. Friend makes a valuable point. We must determine what becomes a priority in the United Kingdom and ensure that people’s lives are not blighted by decisions that are trying to make things better. There is a real need to recognise that we must have security on a core range of issues, one of which is energy. I embrace the possibility of ensuring that future CCS opportunities and, indeed, new build with carbon capture get the relevant scrutiny and are of benefit to the UK, Scotland and the immediate community. Future CCS opportunities need to be fully valued and evaluated in that process.
In conclusion, the Longannet decision was extremely disappointing. It did not send the right message to the energy sector or to the people working in it. Today, the Minister has an opportunity to try to undo some of that damage and I look forward to his comments with bated breath. I hope that he will take that opportunity on board.
David Mowat (Warrington South) (Con)
Thank you for letting me speak, Sir Roger—I had not intended to do so. I want to make two points in relation to some of the comments I have heard: one in favour of CCS and one expressing some reservations. I will mention the latter one first, which relates to cost.
Many hon. Members have talked about the benefits of CCS technology. Of course, we live in a country where energy is still 90% fossil fuel generated, and anything that can enable us to make the transition from that in a carbon-free way, such as CCS, is attractive. Yet there seems to be something wrong. What the Government should be doing is setting a price for carbon and then letting the private sector do the work. We do not know the details about Longannet but, for whatever reason, that approach is not enough. People are saying that we have to invest a further £1 billion here and have a further pilot scheme there. What the Government’s role ought to be—this is the energy market reform—is, as it is with nuclear, to set a price for carbon, give industry that stability and let it make the investment. For example, let us consider Iberdrola.
Ian Swales
The hon. Gentleman might be interested to know that the pressure I feel in my constituency is essentially coming from industry, not from power generators, because industry can very much see what is happening to it competitively and so on through carbon pricing. Does he agree that there may be a carbon pricing method that can incentivise the power sector to play its part in bringing this new technology on board faster?
David Mowat
I do not, no. If this technology is to work, it has to be done on the same playing field as everything else. I mentioned the price of carbon. The other thing about CCS technology that is not in doubt is that it requires an injection of power over and above what a power station is currently using—in the order of 25% for coal. That is an immediate increase in emissions and everything else just to make CCS work.
Gordon Banks
I want to press the hon. Gentleman and ask him whether he is advocating that the Government should not be spending this £1 billion.
David Mowat
I am willing to accept that this technology is new and that the Minister might therefore say it is a bet to try to get it to work in our country. I agree that our country is uniquely well suited for CCS because of the offshore gas fields. In places such as Germany, people have been resistant to CCS because the fields are onshore and they do not want CO2 under them. Our country is in a uniquely good position for CCS, as it is for wind, and I do not necessarily begrudge the Government spending the money. However, I repeat the point that, structurally, the energy market reform sets the price for carbon and we should let the market decide. We will watch with interest whether the market does decide that this technology is worth pursuing. That is my negative point. I shall now make my positive point.
Thomas Docherty
The hon. Gentleman is certainly bringing a different perspective to the debate. Does he not accept that Governments have given subsidies and financial support to both nuclear and renewables for a decade-plus and that CCS pump-priming would be no different from the support that those industries already get?
David Mowat
That is a fair point. In the energy market reform that has been published, the Government are very proud of the fact that they are giving no subsidies to nuclear in going forward—[Interruption.] Well, that is a different argument. The Government have subsidised and continue to subsidise renewables. That takes me to my next point.
Dame Anne Begg
Does the hon. Gentleman accept that it is not simply about the economic argument because if we leave the market to decide, it will always go for the cheapest option? There is also an environmental argument and the Government need to be involved on that basis because this is still a new technology with demonstrator projects. Until the technology can be proven, the market and the industry will not make the investment. The Government may therefore need to make that investment to pump-prime and ensure that we get the environmental benefits.
David Mowat
Just to be clear, I completely buy into the Climate Change Act 2008 and its requirements. However, the way that the Government have chosen to meet their environmental obligation is by setting a price to carbon. That is what makes CCS viable because, obviously, the companies will save the money from burning the carbon at whatever the rate is—£30 or £50 a tonne—and so on. That is my point. The level playing field that the Government are trying to obtain through the energy market reforms is being achieved over the medium term by the price of carbon.
Let me now make my point about CCS from a more positive point of view. What worries me a little about the Government’s position on CCS is a little similar to what worries me about the Government’s position on nuclear. Both CCS and nuclear have one thing in common: they are extremely good at reducing carbon, but they are not renewables. The Government have an issue to work through, and I have said this in other forums. The Climate Change Act 2008 requires us to reduce our carbon emissions by 80%—a huge and difficult target, but it is right that we are trying. My concern is that, in 2009, the EU 20-20-20 directive required us to increase our use of renewables by a factor of five over a decade or so. That objective is not necessarily consistent with the objective of reducing carbon.
It is possible that CCS may lose out, like nuclear, through a little bit more ambivalence on the part of Government. I looked at the Government’s carbon plan. It estimates how much of our electricity will be produced from CCS by 2030 and how much will be produced from renewables. I am not anti-renewable at all, if it can be made to work in a cost-effective way. The Government’s estimate for 2030 is a factor of five difference between renewables and CCS. I do not know whether CCS will be made to work or not. We should try, and it would be great if it did, but I am worried that the emphasis of policy is not on carbon reduction. The emphasis of policy is on renewables, and that might take us to, or down, a sub-optimal path.
Ian Swales
Just one point of clarification: those two things are not necessarily entirely separate. A new 300 MW biomass power station has been announced for Teesport. A CCS network in the area could actually feed into that. As I said earlier, we could end up with carbon negative power as a result of doing that, so they are not entirely separate. While 300 MW is not a huge amount, it is worth noting that the Longannet project was only 400 MW.
David Mowat
I agree. I mentioned CCS and nuclear as opportunities. Biomass is also an opportunity. In common with the first two, it is also not a renewable. As I said, I am concerned that the emphasis of policy is in the wrong place. The 2008 Act was a hugely ambitious plan to try to achieve. We should not be diverted from doing so and we should look very hard at optimising that.
[Mr George Howarth in the Chair]
Finally, we have not really covered nuclear in any detail, other than an exchange at the start between two hon. Members from north of the border—the hon. Member for Dunfermline and West Fife (Thomas Docherty) and the hon. Member for Banff and Buchan (Dr Whiteford). People say to me that there is no cost-effective option. On the facts, it would appear that nuclear is cheaper than some of the other options, but of course the market needs to determine that. I agree with that. The carbon price will allow that to happen. That needs to be the case with CCS.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)
It is a pleasure to serve under your chairmanship, Mr Howarth.
We have had an interesting and wide-ranging debate on CCS in Scotland and other related factors. It is not a surprise that the debate has sometimes ranged beyond CCS projects in Scotland, because so many aspects of energy policy and energy considerations are tied up with the potential—the potential projects and the success, or otherwise—of CCS. I am sure there are many other issues, from the contributions we have heard, that the Minister will wish to reflect on. He missed the very start of the debate, but what is gratifyingly clear from the whole of the debate is that—despite one comment from the hon. Member for Warrington South (David Mowat)—nobody taking part in the debate fails to see the potential of CCS and its impact. From time to time there is a view that, because CCS is unproven and has not been demonstrated on a commercial basis, it is a distraction. I do not believe it is a distraction. It is integral to achieving the right, balanced energy policy and the right mix of energy sources, and to reducing carbon emissions at the same time. It is interesting and positive, therefore, that that view has not been expressed during the debate.
I congratulate my hon. Friend the Member for Dunfermline and West Fife (Thomas Docherty) on securing the debate. He touched on many issues from the perspective of representing the Longannet power station. Everybody felt disappointed with the announcement that Iberdrola and the Government had concluded that the Longannet project was not able to go any further without significant additional funds. In fact, even with the significant addition of funds, there may well have been other technical issues that made it impossible to go further. That decision was not necessarily a party political issue. It is, I think, a deep disappointment to everybody who is interested and committed to energy policy.
Some of the commentary around the issue was unhelpful. I had the pleasure—it was not that much of a pleasure—of rereading some of the comments made by the First Minister and other members of the SNP immediately after that decision. While I understand that the predecessor of the hon. Member for Banff and Buchan (Dr Whiteford) was caught up in the moment at his party conference shortly afterwards, his description of the Government turning their back on a world-leading technology and £1 billion of investment not being there was perhaps going further than the facts allowed. That was disappointing in many ways, but not necessarily that surprising.
Thomas Docherty
Does my hon. Friend think it is interesting that, for all the bluff, bluster and ranting from the SNP, when push comes to shove they would not have put a single penny into the scheme? We have heard nothing today about how much it is prepared to fund.
Tom Greatrex
I think my hon. Friend is trying to tempt me into one aspect of a constitutional debate that we will have, and I am sure we will have plenty of opportunities. I join other hon. Members in seeking clarification from the Minister on what offers of funding for CCS were made, if any, from the Scottish Government. It would be interesting to learn more about that issue if he has the opportunity to address it in his winding-up speech.
I want to reflect on some of the contributions to the debate, because so many aspects of energy policy are tied up in them. My hon. Friend the Member for Dunfermline and West Fife touched on security of supply. My hon. Friend the Member for Ochil and South Perthshire (Gordon Banks) touched on the importance of the industrial and technological potential that undoubtedly exists in the UK. The clock is ticking, however, and he gave an apposite warning about the potential for missing out on that, as indeed did the hon. Member for Redcar (Ian Swales), who has experience in the industry and related industries. The hon. Member for East Dunbartonshire (Jo Swinson) made the important point that this is also about reducing carbon emissions, which is fundamental to our energy future.
Scotland has had a relatively long, and sometimes chequered, past—and present—with CCS: from Peterhead to Longannet, and back to Peterhead again. There is also the potential of the Hunterston project, which is currently caught up in the planning process. Other hon. Members referred to the difficulties that can arise with the planning process.
At various points, there has been lots of excitement about the potential of all those projects in Scotland. There is a real opportunity for Scotland to be a world leader in this low-carbon technology. Much of the academic expertise is in the UK, particularly in Scotland, notably Edinburgh. It would be a shame if that potential was not realised first in the UK. As my hon. Friend the Member for Ochil and South Perthshire made clear, we should not overlook the potential for jobs and the value to the economy. Many hon. Members have touched on Scotland’s potential, particularly within the UK. It has access to geological formations off the North sea that are ideally suited to carbon storage, and we have heard about the issues in Germany and elsewhere regarding under-land storage.
All those things make it important that the Government remain committed to CCS, including, potentially, in Scotland. That does not mean that the decision on Longannet was not disappointing, as I have said: it was bad news for the plant, for the local economy and for Scotland. My two hon. Friends here today with local connections made that point eloquently. However, as my hon. Friend the Member for Ochil and South Perthshire said, we are where we are and we have to deal with the realities. The important thing now is that the potential demonstrated in the work at Longannet is not lost, so that we do not have to start from scratch.
I am pleased to have found out in my discussions with Scottish and Southern Energy—or SSE as it is now formally known—that some work undertaken at Longannet is being used to help inform current work in relation to Peterhead. It is important that we do not have to start from scratch each time, because then our ability to get ahead of the game would almost certainly be lost.
It is important and significant that we understand the difference between CCS being encouraged through other aspects of energy policy, including carbon pricing, in the longer term—as the hon. Member for Warrington South mentioned—and where we are now, because this technology has not yet been proved commercially on a significant scale. The real potential has been demonstrated, but it is reasonably widely accepted, if not universally, that to get that benefit Government intervention and support is needed in the initial stages.
The hon. Member for Banff and Buchan touched on the Peterhead project, and many hon. Members who are not here have commented on the decisions made in 2007. I am tying this issue into Longannet because sometimes, as I have said, party politics gets in the way of the realities of projects that have potential but, for whatever reason, cannot be taken further forward.
The predecessor of the hon. Member for Banff and Buchan talked about the Peterhead project being lost to Abu Dhabi. He is a frequent traveller, at the moment, to that part of the world. I wonder whether he would, either through the hon. Lady or at some other point, inform us what happened in Abu Dhabi, because I understand that BP’s hydrogen power project has still yet to get the go-ahead there. Sometimes the simplistic sloganising around this issue does a disservice to the technological, practical and engineering hurdles that we still need to get over. Sometimes, the degeneration of this important matter into an “England versus Scotland” or a “Scotland being done down” debate does it a disservice.
Funding is important and I am sure the Minister will have expected me to mention that, given that I have used many opportunities in the past few months to seek answers on this issue. It is important that we get clarity from the Minister today, including about the funding that is available going forward. At the time of the Longannet decision, the Minister’s boss, the Secretary of State for Energy and Climate Change, said at Energy questions that there would be no backsliding from the Treasury, that the £1 billion would be available for CCS funding, and that that was an absolute commitment. Yet the day before the autumn statement—I am sure the Minister recalls the radio interview—the Chief Secretary to the Treasury made it clear that the £1 billion for CCS would be subsumed within the £5 billion infrastructure plan, although he was not clear about what would then be available for CCS. The ramifications of the interview on 5 Live that morning were pretty significant and have caused a degree of concern in the industry that has not yet abated. Perhaps the Minister will comment on that and say what that means for the timeline for the development of CCS.
The subject of the debate is projects in Scotland. The Minister will be aware of SSE’s projections regarding when it expects such projects to be up and running: that is, before the end of current comprehensive spending review period. There is a degree of doubt and concern about that, because the Government are saying that the £1 billion will be available, but not necessarily in this Parliament. How can they make that commitment ahead of the next CSR? The industry is concerned about certainty and stability in relation to that funding; it is important that it know exactly where it stands.
Again, will the Minister make clear how much of the £1 billion that his boss said there would be no backsliding on will be available during the current CSR period? How much of the £1 billion previously set aside for CCS will now be used for other infrastructure projects? Will those other infrastructure projects in the Treasury infrastructure fund exclude CCS, and is the money being double-counted? What form will the remaining funding take? Will it be up-front capital, or fixed or variable payments over time?
I am asking the Minister these questions again because on 29 November 2011, I asked the Chancellor during his autumn statement to provide some clarity, but he was not able to do so. On 1 December I asked the Secretary of State for Energy and Climate Change to provide some clarity, but I am afraid his answer was not clear. On 6 December I asked the Chief Secretary again to provide further clarity, but, again, he was unable to do so. On 15 December I even asked the Leader of the House to provide some clarity, and he said that he thought the issue had been dealt with with the appropriate degree of clarity beforehand.
Four Cabinet Ministers were, in the space of 11 sitting days, given an opportunity on the Floor of the House to spell out clearly and without ambiguity exactly how much money was available for CCS in this Parliament, what the impact would be on the timeline for distributing that funding and whether the funding was, potentially, being spread far too thinly to have a positive impact. On each occasion the Government were found wanting: rather than providing potential investors with the clarity they were asking for, they preferred to provide further confusion.
The Energy Minister even claimed, in a written answer to me, that the Chief Secretary to the Treasury had not made any announcement on CCS funding. People who heard the interview I have mentioned would beg to differ: although it may not have been a formal announcement to Parliament, that statement by the Chief Secretary has caused such a degree of concern that it is incumbent on the Government to provide the clarity we need now.
I should like to touch on the European NER300 funding package. The lack of clarity about Government funding for CCS projects has a knock-on effect on other sources of funding, which hon. Members have mentioned, whether private or public. One such source is the European Union NER300 programme. The six CCS projects competing for funding from the UK are also doing so at European level.
The Peterhead project is seeking funding. The chief executive of SSE, Ian Marchant, has made it clear that the development of the commercial-scale CCS demonstration is dependent, to some extent, on levels of support from both the EU and the UK Government. The criteria for accessing EU funding are clear. Before any allocation of EU money for a CCS project that is seeking both member state and EU funding:
“Member States will be asked to confirm the value and structure of the total financing of the projects concerned, and any project for which confirmation is not forthcoming will be replaced by the next highest-ranked project.”
Those words are chilling, and unless that criterion has changed, they highlight the urgent need for the Government to get in place their plan in relation to CCS, so that that opportunity is not missed.
The Government held an industry day just before Christmas, which many people were hoping would answer some questions. Given the questions and answers published on the Minister’s website and the views of people who attended that event, I do not think it answered many questions, other than to say that at some point questions would be answered. I hope the Minister takes this opportunity to answer those important questions.
Scotland is at the forefront of this pioneering low-carbon technology, which could hugely benefit our energy security and how energy policy is taken forward across the UK and more widely around the world. However, as hon. Members have highlighted, the right support from the Government is needed to get that opportunity up and running. It is time for the Minister and the Government to bring the uncertainty to an end, to provide clarity and to come clean on CCS.
The Minister of State, Department of Energy and Climate Change (Charles Hendry)
It is a great pleasure to serve under your chairmanship today, Mr Howarth. I begin with an abject apology to you and to the House for my late arrival. I am afraid that there was confusion in my office about the time at which the debate started; I therefore turned up slightly late. I apologise profusely and will write to Mr Speaker to make my apologies known to the House.
In particular, I had wanted to hear the comments of the hon. Member for Dunfermline and West Fife (Thomas Docherty). He has shown a strong personal commitment to the issue that goes way beyond the interests of his constituency alone, to look much more broadly at the interests of carbon capture and storage and future energy development in the United Kingdom and particularly in Scotland. I am profoundly grateful to him for his interest and the expertise that he has shown, and I was keen to hear his remarks in full—I will read them—but of course I accept his request for a meeting. If he and other hon. Members wish to talk to me about their concerns in more detail at any point, they are more than welcome to do so.
We have had an extremely valuable debate, characterised by the extent to which hon. Members have spoken with both commitment and expertise. It reinforces why we all desire the issue to be seen as outside politics, and there is an enormous prize for our whole country. People looking to invest want to see as much clarity and agreement between the parties as possible, to which the tone of the debate has been conducive. We are all frustrated about the pace of progress and we are all disappointed that the Longannet project could not be made to work within the budgetary framework, but we are all equally committed to taking the issues forward, to ensure that the United Kingdom is one of the most attractive places in the world in which to invest in CCS. The UK has unique facilities, which should put it at the forefront of developing CCS, and Scotland is at the forefront in the United Kingdom. The industry’s potential for Scotland, for existing industry and for new industries that want to support CCS and to provide part of the supply chain is extremely comprehensive.
The frustration was outlined before the general election by Paddy Tipping, then the Member of Parliament for Sherwood and a member of the Select Committee on Energy and Climate Change, who said it was a competition without end—the competition for CCS seems to have gone on for ever. Given that we must now proceed with new urgency on setting a new competition, it is not lost on any of us that we wasted the chance over a number of years to take the opportunity forward, and we must now do so with extra vigour.
Thomas Docherty
Does the Minister share my observation that part of the problem with the previous competition was people’s apparent belief that it was a case of the last bidder standing, rather than of having technology that worked? Can he ensure therefore that much more robust criteria are set down at the start, so that everyone understands what the competition is?
Charles Hendry
My concern was always that the competition was too narrowly focused. Given the requirement for post-combustion technology, the interest in pre-combustion technologies, such as the BP project at Peterhead, could not qualify. The assumption at the time was that the technology could then be sold to China and elsewhere to retrofit old plants, but the Chinese are now clearly quickly developing their own technology that they want to sell to the rest of the world, so we need to look at a wider range of technologies. An added complication, which I will come to later, is retrofitting an old technology to an old plant, with the significant extra costs inevitably occurred in bringing that plant up to scratch, to give it decades of future life, on top of the cost of the CCS alone.
We all agree that CCS can play a fundamental part in delivering our secure, low-carbon energy needs. It provides us with a generation option that other technologies do not: its flexibility can provide a balance between the intermittency associated with renewables and the base-load nature of nuclear. It allows fossil fuels to play a full part in our low-carbon future and allows the decarbonisation of industrial emissions. We—the whole of the United Kingdom and the Government—remain firmly committed to working with industry to achieve that.
We have made available £1 billion of capital funding to support early CCS projects, and I will say more on that in a moment, in response to the questions. We are establishing a market for CCS electricity through our reforms to the electricity market. We are continuing to lead the world in putting in place the regulatory framework to support CCS, including legislation on third-party access to pipelines. We are supporting essential research and development, including opening the UK’s first carbon capture demo at the Ferrybridge power station. We have also established the CCS development forum, which has drawn together around 40 members from the industry to be directly involved in delivering CCS in the United Kingdom, together with representatives from the international academic and non-governmental organisation communities.
There are many different ways to achieve the decarbonisation of the power sector. At this stage, it is not possible to predict which will be the most cost-effective route or what exactly the power sector will look like in 2030. Nevertheless, we can use economic models to produce projections, using the best evidence currently available. Analysis undertaken for the carbon plan of the Department of Energy and Climate Change suggests that around 40 to 70 GW of new low-carbon electricity generating capacity will be needed by 2030, depending on demand and the mix of generation built. In response to the point made by the hon. Member for Banff and Buchan (Dr Whiteford), a strong continuing role for gas is envisaged in that mix.
Ian Swales
The Minister mentioned economic modelling. Do the Government have any wider modelling that takes into account the whole picture, not only carbon capture and the grants that might be required to get it going, but—my earlier point—petroleum revenue tax resulting from enhanced oil recovery?
Charles Hendry
My hon. Friend makes an interesting and valuable point. Our focus so far has been on how to advance the technology and to make it commercially viable and on how to bring down the cost. Our focus therefore has been on the energy sector, but he is absolutely right about a range of other benefits, not least in PRT or revenue that might come through enhanced oil recovery, which I will come back to, as well the supply-chain opportunities, the wealth that that creates for the economy and the tax revenues that will come into play.
Our analysis shows that CCS could contribute 10 GW of capacity to the UK electricity market by 2030 and up to 40 GW by 2050. I want to be absolutely clear that we are not setting targets for separate technologies. The industry’s ambition for CCS, as set out by the Carbon Capture and Storage Association strategy paper last year, is significantly higher than in our modelling, seeking 20 to 30 GW by 2030. We would be happy with such deployment, provided that it is the most cost-effective way to meet our decarbonisation targets—an issue raised by my hon. Friend the Member for Warrington South (David Mowat). We must do three things to make that possible: provide incentives for investment, bring down the costs of the technology and tackle barriers to deployment.
The key to delivering the investment that we need in the UK electricity sector is confidence, for both technology developers and investors in the long-term future for their technology, and in the certainty of opportunity for those who want to take forward CCS and other low-carbon technologies. That is why the Government are implementing the biggest reforms to the electricity market for a generation, to provide the certainty that investors require and to create an industry for CCS, rather than only a few pilot projects. We are committed to reforming the electricity market to incentivise the deployment of low-carbon generating capacity.
Electricity market reform is a game changer for CCS. The reforms that we have announced offer the prospect of a future market for CCS electricity that will drive investment in commercial CCS plants. We are considering reforms that offer a range of benefits: longer-term contracts to provide stable financial incentives; support for early CCS projects, with contracts designed to recognise the associated uncertainties; an emissions performance standard set at the equivalent of 450 grams of carbon dioxide per kWh; and a carbon price floor that will further incentivise investment in low-carbon generation. With such incentives in place, the deployment rate for CCS will be dependent on the costs of the technology and how they stack up against nuclear and renewables.
If CCS is to be competitive with other low-carbon technologies, we and the industry must work together to understand the costs and how they can be reduced. There are two elements: technical discovery, through both research and development and learning by doing, and reducing the perceived risk of investing in a new technology, which leads to higher premiums for investment. We are tackling these issues in two main ways: through our £125 million research and development programme, which will continue to provide support for projects such as the UK’s first carbon capture pilot at Ferrybridge, which was opened by the Secretary of State for Energy and Climate Change last year; and through our new CCS delivery programme, which will support larger-scale projects, delivering learning by doing, moving the technology forward and reducing risk premiums. The programme will focus on achieving the overall outcome of cost-competitive, low-carbon electricity from fossil fuel power stations in the 2020s, thus achieving exactly what we want, which is a long-term industry in the sector.
Thomas Docherty
The Minister will recall that I previously met him to discuss transmission charging. At that time, we referred to the fact that fossil fuels that come up and down are charged on their capacity rather than what goes to the grid. Will he set out briefly the Government’s thinking on that and how we can change the system?
Charles Hendry
The hon. Gentleman’s point is critical to the whole Scottish electricity sector. The work is being taken forward by Ofgem through Project TransmiT, which is considering the appropriate regime for charging when electricity is transmitted over long distances. It will set out its thoughts during the next few weeks, and that can be discussed in more detail. I am very encouraged by the progress that I understand is being made to find a formula that will work for those who are developing projects north of the border and in other parts of the country. More detail will be available shortly, but it is critical to the development not just of CCS in Scotland, but to the whole electricity generating sector north of the border.
We are putting in place a strong financial offer for early CCS projects, and it is one of the best offers anywhere in the world. It includes the £1 billion that is available for the up-front capital costs of projects, the potential for low-carbon contracts for difference to support operational costs and the potential for European new entrant reserve funding, which we fully support.
In response to the point made by the shadow Minister, the Chief Secretary to the Treasury has said that, realistically, because the programme is being put back, the money that we had anticipated being spent in this spending round is unlikely to be spent, and it cannot be spent in the time scale originally intended. If Longannet had gone ahead, it could have started to be drawn down this year and certainly into 2013. With new projects coming through, that will happen at the very end of this spending round and primarily into the next one. However, there is a clear commitment, and the £1 billion remains.
In response to the point made by the hon. Member for Banff and Buchan, good progress is also being made on finding additional sources of funding to bring into the process. Discussion is taking place with sovereign wealth funds overseas to trap their investment in this area. We are seeing a greater appetite from industrial investors to put in their own funding, instead of the Government providing funding. Projects involving enhanced oil recovery might also make a significant financial contribution.
Tom Greatrex
I am grateful to the Minister for his partial answer to one of my questions. May I press him on how much of that £1 billion will be available during the current CSR period and the current Parliament if demand is present and whether the projects are advanced enough for the money to be available to spend? How much of that £1 billion could be spent on CCS during this time, or has it been subsumed into a wider infrastructure pot?
Charles Hendry
Certainly, the funding that was assumed would be spent on CCS in the middle of this spending round and that will not now be spent and cannot be spent is being made available to other infrastructure projects. I am sure that the hon. Gentleman welcomes that, because it will help to drive forward our economic recovery. Until we have seen the scale and type of the projects and the extent to which they will co-operate and collaborate, we cannot set out exactly what the funding will be. Some of them will access the new entrant reserve fund; some will be more dependent on a predictable income stream through the contracts for difference; and some will need more up-front funding. Until we know exactly what the projects will be, we cannot say exactly how they need to be financed. I understand why the hon. Gentleman wants clarity now, but until we understand the nature of the front-runner projects, we cannot say with certainty exactly how that funding should come forward.
Tom Greatrex
I am grateful to the Minister for his response. How much money would be available if those projects were advanced to a stage where they would be considered to be appropriate for that funding? How much of that funding would be available for projects in this comprehensive spending review period if they were in that position? Would the figure be up to £500 million, £200 million or £300 million? How much would be available from that £1 billion during this CSR period if the projects had the applicable framework for that money?
Charles Hendry
The hon. Gentleman is tempting me to go out of line, but I am reluctant to pursue that approach. Until we understand the nature of the projects, I cannot explain to him how they will be funded. They will all have a different funding requirement for longer-term running costs or up-front capital, which may come from one or two sources. We want to make it clear that we want projects to try to find other investors to enter the process. There will inevitably be a process of discovery and of trying to find out exactly what the best projects are, but we have made it absolutely clear that that £1 billion remains available. The hon. Gentleman understands that the time scale has been moved backwards because of the decision on Longannet, but the £1 billion remains ring-fenced.
Dr Whiteford
I appreciate the Minister’s candour in outlining how he is trying to find alternative sources of funding, but Shell and Scottish and Southern Energy hope to begin a full-scale field study of the Peterhead project in the second half of this year. They have made it clear that they will need funding in years 2 and 3, and it would be helpful if the Minister indicated what the funding prospects were for that time scale.
Charles Hendry
The hon. Lady makes exactly the point that I am keen to focus on: there are investors who might want to come into the project—international investors who want to be part of the early development of this game-changing technology because of its global potential. We are encouraging them to try to talk to other potential investors, and we are looking at a range of projects. We are discussing one that could come through the new competition, but it is not the only one. Other projects are viable and would have greater scope for accessing the new entrant reserve fund, but until we have seen their scope and the collaboration and co-operation between different industrial players, it is hard to come to a final decision. However, I give the hon. Lady the commitment that we have a real desire to take the competition forward much more rapidly than the previous competition, and during the next few weeks, we will provide the details.
We had an industry day in December, and during the next month we will have a further industry day to provide more detail on how the competition will work. We will then open up the competition shortly afterwards with a tight time scale to encourage firms to come back. Having lost time, we want to make up for that and to see the full range of projects that can benefit from funding and find out how we can take that forward.
Gordon Banks
While the Minister is winding up, will he respond to a point that I made that fits in with the one that he is making about new competition and external funding? What discussions has he had with the Scottish Government about them playing a financial role? Did the First Minister approach the Minister’s Department on Longannet or any future projects?
Charles Hendry
I was not remotely close to winding up until I took so many interventions, but I must now do so swiftly. On Longannet, the Scottish Government did not offer funding but, to be fair, they were not asked for funding. The project is seen to be a UK energy policy with funding from the UK Exchequer. We had constructive discussions with the Scottish Government ahead of it. I think that we all share the disappointment at the reaction, and perhaps the lesson is not to announce decisions just before the Scottish National party’s annual conference. We must try to move forward in a way that takes such issues out of politics. The gain from what can be achieved to the United Kingdom is so substantial that we all need to pull together and to work together.
The hon. Gentleman said that the decision on Longannet did not send out the right message, but it was the only decision we could have made, because at the end of the day there was so much difference between what it was going to cost and what was available. We want to take the technology forward, but we cannot do so at any price. Even if funding had been available from the Scottish Government, it could not have made up the difference to enable the project to go ahead.
Much more work needs to be done, and we are taking it forward urgently on regulatory reform, storage, the supply chain, transport and storage infrastructure and planning. In England, we can certainly make it clear through national policy statements and the infrastructure planning commission that that process will work much more smoothly and without the time delays about which people have expressed concern, although planning in Scotland is a matter for the Scottish Government. More details will come forward very shortly—
