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Mr Mike Weir (Angus) (SNP)
I am pleased to have secured this debate and thank the Backbench Business Committee for recommending it.
Developing the United Kingdom’s offshore wind resource would provide a significant supply of clean, secure energy. Scotland, of course, has huge potential to provide a large proportion of energy from this source. There are proposals for a number of wind farms around our coastline, including three off the coast of my Angus constituency. Between them, the projects off the coast of Angus alone could supply more than 2 GW of electricity.
In addition, developing this resource could create a significant domestic manufacturing and export industry. RenewableUK has estimated that employment in the offshore renewable industry can grow from the current 13,000 jobs to over 44,000 by 2023. The Centre for Economics and Business Research has found that investment in offshore wind will deliver £8.4 billion of gross annual value added to the UK economy by 2020 and that the sector could boost exports by £18 billion a year by 2030.
This is not purely projection. As part of electricity market reform, the Department of Energy and Climate Change established a final investment decision enabling process—a bit of a mouthful, but never mind—which enabled a number of projects to move forward with investment decisions, having been awarded early contracts for difference. This enabled five offshore projects totalling nearly 3.2 GW of capacity to come forward. On the back of this, there was a significant boost to the offshore supply chain when Siemens, the dominant supplier of offshore turbines in Europe, confirmed that it would proceed with a major manufacturing facility in Hull for its new offshore turbines. This was a clear demonstration of the direct link between visibility of deployment at scale and securing wider investment in the supply chain, and it demonstrates that this is not just a Scottish issue; it applies also to the north of England.
If we are serious about the re-industrialisation of the UK, the “march of the makers”, or whatever slogan one wants to use, we need to ensure that we actually invest to get these industrial developments built and producing.
Ms Margaret Ritchie (South Down) (SDLP)
Is the hon. Gentleman aware that in Northern Ireland, there was an application to explore having offshore wind farms on the County Down coast, but that fell foul of electricity regulation rules and did not fulfil the time requirements? Does he agree that that was a lost opportunity for economic investment?
Mr Weir
I am not familiar with that case, but it sounds like it was. Offshore wind farms give the opportunity to provide not only clean energy, but employment. That is important for the hon. Lady’s area and mine, and for much of Scotland. That point was reinforced in a report from the think-tank Green Alliance, which found that CfDs form part of a strong new investment framework for offshore wind, but that a lack of clarity over post-2020 policy and funding
“is contributing to a shrinking of the offshore wind project pipeline”.
That seems to be the case in Northern Ireland, given what the hon. Lady said.
Clear decisions over future support for the sector will need to be taken in the early days of the next Parliament if the pipeline is to be sustained at levels necessary to support continued growth of the sector out to 2030. Specifically, the report finds that:
“The UK will need a minimum of 25GW of offshore wind by 2030, of which 10GW is projected to be in operation by 2020. Currently, 13GW of additional offshore wind projects are at an advanced stage of development, and a further 20GW have entered development.
Policy, regulation and funding challenges mean the pipeline is shrinking. 8.2GW of offshore wind projects were withdrawn in the 12 months to June 2014, with other projects since shelved. New projects must compete for government funding which will only be sufficient to deploy an additional 1.2GW in the five years up to 2020.
However greater policy stability could result in capital investment worth in the region of £1.8 billion a year between 2015-30 into the UK offshore wind supply chain, over three quarters of which is made up of small and medium sized UK companies.”
That shows the potential; at this stage, much of it is just potential.
Previously, of course, these developments were funded through the renewables obligation, under which developers built projects, gained accreditation and received a fixed sum on top of the market price. However, under the new system of contracts for difference introduced under the Energy Act 2013, projects must be developed to a point at which they have planning consent and a grid connection offer; then they can bid into a competitive allocation round to secure a contract for difference, which tops up the market price to a specified strike price.
I stress that this debate is not an attack on the change in the system. It is fair to say that most, if not all, parties in the House supported the change to contracts for difference.
David Simpson (Upper Bann) (DUP)
Although I support the hon. Gentleman’s message on this subject, a number of businesses and others in my constituency are concerned about the cost of green energy, and believe that it is not properly regulated. Does he agree that we need proper regulation to make it more efficient, and so that more companies can use it?
Mr Weir
Clearly, there is a balance to be struck between the interests of the bill payer and the interests of creating renewable energy. We all have to take that into account. My point is that as well as being clean, renewable energy also produces investment in industrial development and creates jobs. I agree that there is a balance to be struck. We must always bear in mind the impact on the bill payer of all these projects, and we must always seek value for money. The point that strikes that balance will vary over time.
Mr Christopher Chope (Christchurch) (Con)
Does the hon. Gentleman agree that there is much better value for money for the taxpayer in subsidising nuclear power than offshore wind?
Mr Weir
I am sure that the hon. Gentleman will be gobsmacked to know that I do not agree. I will mention that later. No doubt, he will make his own points on that subject.
When I served on the Energy Bill Committee, I raised concerns about the changeover process from renewable obligations to the contract for difference regime. That seems to be part of the problem that we are experiencing. The renewables obligation comes to an end in 2017. The difficulty arises because of the way that the CfD process is being introduced, particularly in respect of whether and at what level funds will be available in future years.
Two developments off the shores of my constituency have a combined total of 1,234 MW and both are bidding in the first round of contracts for difference. The Government are currently considering that first round of CfDs, which are due to be allocated, I understand, around the end of March. Therein lies part of the difficulty. New projects have to bid for contracts for difference through a competitive auction process, and offshore wind projects will compete not only with each other for the budget, but against other renewable energy projects. Offshore wind has been grouped with wave, tidal, biomass, combined heat and power and Scottish island wind. There is a total budget for all these technologies of £235 million, which is split between £155 million for 2016-17 and £80 million from 2017-18.
RenewableUK has estimated that this would be enough to bring forward around 700 MW of capacity—just over half of what could be produced by the two developments off Angus alone, never mind any others that might be in the pipeline. RenewableUK has estimated that up to 3.5 GW of capacity could have entered into the current allocation round, and by the time of the second allocation round, expected towards the end of this year, the number could rise to over 9 GW.
I am told that the amount of money allocated to the first round, which is under way, is significantly less than the industry expected, and that is causing considerable unease in the industry. It can be seen from the figures I have quoted that there is no way all three Scottish entrants could achieve a CfD. Indeed, given that there will certainly be bids from other parts of the UK, there is no guarantee that any of them will get a contract at all. That leaves the industry facing a dilemma. As Gordon Edge, director of policy at RenewableUK, put it:
“There is enough money on the table for 700-800MW in this allocation round if all the money in the ‘less established’ pot goes to offshore wind”,
which he considered likely. He said:
“There are a number of large offshore wind projects coming forward that are significantly larger than this. Developers of those projects are left with the choice of carving out a piece of their development to fit—which is likely to make the economics more challenging—or sitting it out in the hope of a better opportunity later. If the budget for the next allocation round is the same as the first round, then less than 10 per cent of capacity we project will be eligible to bid can secure a CfD. It can take hundreds of millions of pounds to get offshore wind projects through consent, which is why the industry is getting very hot under the collar.”
There is a real danger that some developers will begin to consider whether they are prepared to continue to pump large sums of money into projects if there is not at least a real chance that they will secure a contract for difference.
I raised that issue with the Secretary of State at the last Department of Energy and Climate Change questions. I said:
“Many offshore wind developers have expressed concern that owing to the structure of the current contracts for difference allocation round, only one development will be given a CfD, imperilling many of the others. Can the Secretary of State give them any reassurance that there will be greater consideration of offshore wind in future CfD allocations?”
The Secretary of State responded:
“First, it is worth putting it on the record…that Britain leads the world in offshore wind”—
that is perhaps true, and is welcome—
“with more offshore wind farms installed than in the rest of the world combined. In the current round of CfD allocations—of course, it has not been completed yet, so I cannot talk about the details—we have ensured that we have sufficient allocation for offshore wind, but we have also ensured that the levy control framework includes further allocations for it, so that the consumer can benefit from dropping prices.”—[Official Report, 18 December 2014; Vol. 589, c. 1551-1552.]
The difficulty with that is that the allocations for future rounds are not clear, and that is causing a great deal of concern in the industry.
What the Secretary of State said is all very well, but there is no certainty about the future budget, because the Government are giving no market signals about what the budgets are likely to be in future allocation rounds, and in future years, and there is no visibility beyond the current delivery plan, which extends to 2018-19. That uncertainty will almost certainly lead to developers looking again at developments. Without the confidence that budgets will be available, it is impossible for them to assess the allocation risk, and that will act as a deterrent to investors. Uncertainty could increase the cost of development, rather than create the savings that the Government are looking for.
For those projects that are not successful in the current round or whose capacity is too large to be supported within the available budget—the only definite figures that are available are under the current budget—lack of foresight could increase uncertainty yet further. The industry has suggested that it needs clarity on the frequency of allocation rounds and foresight of at least two allocation budgets at any time. Will the Minister say whether the Department is considering or is prepared to consider that in the near future?
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
I congratulate the hon. Gentleman on securing the debate. Given that there are some technologies for which the Government are prepared to agree contracts for many decades into the future, does he agree that the Minister should indicate whether they will take a similar approach to renewables?
David Mowat (Warrington South) (Con)
Perhaps to answer that point, the strike price at Hinkley Point was 50% lower than the strike price we are talking about with the offshore industry. Until that strike price comes down, the issue will remain.
Mr Weir
We are in danger of having a debate within a debate. I will return to the points I was making on offshore wind, although nuclear power does come into this to some extent. If we are serious about the long-term development of offshore wind, we need clear targets and commitments for developers and we need to ensure that we give certainty to support supply chain investment and development. That would undoubtedly also involve providing the necessary conditions for competition, innovation and cost reduction, all of which are supposed to be the Government’s aims. Instead, there are mixed messages on energy policy and continuing uncertainty. Strike prices are set only to 2018-19 and the levy control framework is set only to 2020. There is no real commitment to a decarbonisation target. RenewableUK described the 2020 deadline as being like a cliff edge, because of the uncertainty on what comes after.
Those points were also raised in the Green Alliance report I mentioned, which concluded:
“The research has identified five actions the next government should take to realise the industrial and decarbonisation potential of offshore wind:
1. Set a 2030 carbon intensity target for the electricity sector of 50gCO2/kWh”—
given the Government’s previous response to that, I am not holding my breath—
“2. Confirm the scale of funding available to support delivery of low carbon energy infrastructure during the 2020s under the Levy Control Framework.
3. Provide more certainty for low carbon generators by confirming the timing of funding allocation rounds for the rest of this decade.
4. Stabilise the supply chain by committing to minimum levels of offshore wind deployment in the 2020s (dependent on generators meeting cost targets).
5. Draw on international experience to derisk UK offshore wind development and ensure a robust pipeline during the 2020s.”
The hon. Member for Upper Bann (David Simpson) made a point about the impact on the bill payer, which we also have to take into account. We cannot say that we will just pump money into any sort of development, irrespective of the impact on bill payers. It is not necessarily about putting more money into offshore wind. As I have said, by investing in offshore wind, we get more than just clean energy; we get industrial investment, jobs and the economic regeneration that many of us are looking for in our areas. It is about certainty and giving the industry a clear signal that the huge amounts of money it is putting into developing these projects will not be wasted and that there is a plan beyond 2020 to ensure that these developments will come on stream, produce energy and increase industrial investment.
Albert Owen (Ynys Môn) (Lab)
I congratulate the hon. Gentleman on securing this debate. Is another big issue not the cost to projects of connecting to the national grid? Many of these offshore wind developments need new infrastructure and the grid. The grid has a long-term forward plan. If we have short-term CfDs, short-term investment needed for consent and no guarantees of grid connection, the whole situation is even more uncertain than he is outlining.
Mr Weir
The hon. Gentleman makes a good point. I have spoken on many occasions about the difficulties that grid connections pose for many renewable generators, particularly in more remote areas such as the north of Scotland. There are a huge number of issues in relation to that. To be fair, efforts are being made to address some of those problems with the proposals for new lines down the east and west coast of Scotland and various other connections, but those are long-term projects. They will not be done quickly. The point is also that although many of these offshore wind projects are looking for consents now, it will be several years before they come on stream. I understand that from getting a CfD, it can be up to three years before the first turbines are operating or in place. There is a long-term aspect, but it is not beyond the wit of regulators to bring the two together.
Albert Owen
I understand what the hon. Gentleman is saying, but the point I am trying to make is that each of the individual projects will have to meet the cost of grid connection. It would be better to have the national infrastructure of the National Grid acting in the national interest by ensuring that the cost is spread across the country and not met just by the individual projects. A new grid connection costs hundreds of millions of pounds, which can in many cases make a bid uneconomic. That is my point.
Mr Weir
Again, I do not disagree with the hon. Gentleman. He tempts me into a discussion about the postage stamp model of transmission charges, which is a similar issue, but I shall not go there because I am coming to a close and other people want to speak.
The industry also raised concerns about the levy control framework and called on the Government to address the political uncertainty about whether 2020 is a budgetary cliff edge. Offshore projects have a four to five-year horizon from being awarded a contract for difference to the commissioning of the first turbines. The industry is concerned that there is no clear indication about what will be available post 2020.
The Minister may say that it is difficult to give a clear indication about the future—indeed, we cannot be certain about what the Government will look like in six months, never mind six years—but giving some indication of the projected budgets and the intended direction of travel would go some way to addressing the industry’s concerns. Ministers have not been so reticent about nuclear energy. They have, in principle, agreed with EDF a contract for difference at Hinkley Point at a strike price of almost double the current wholesale price of electricity. That contract will last for 35 years—more than double the length for renewables. There seems to be a willingness to do more for nuclear than for offshore renewables, which provide a much better platform for clean energy and for the industrial regeneration that is required in many areas of our country.
Peter Aldous (Waveney) (Con)
It is a pleasure to serve under your chairmanship, Mr Gray. I thank the Backbench Business Committee for granting this debate, and I give special thanks to the hon. Member for Angus (Mr Weir) for playing a key role in securing it.
The offshore wind industry is an interest to me mainly due to the key role it can play in bringing jobs and prosperity to costal communities such as Lowestoft and Waveney, which I represent. With deference to my Scottish colleagues, the southern North sea is, in many respects, the best location for developing large-scale offshore wind farms. It has relatively shallow waters, the weather is more appropriate and it has the right environmental and geological conditions, so it is well suited for such developments. East Anglian companies have already played a key role in delivering the rounds 1 and 2 wind farms, such as Scroby Sands, Greater Gabbard, Thanet and Sheringham Shoal. Local businesses will be able to do even more if we fully realise the opportunities in round 3.
Mr Weir
I do not dispute the fact that the southern North sea is excellent for wind, but I hope the hon. Gentleman is not going to set it against other development locations. There is huge potential in Scotland, which has a rather windy climate, although there are great challenges in some of the surrounding deep water. We must look at all potential locations and not just concentrate on one.
Peter Aldous
I fully agree, but we East Anglians tend to hide our light under a bushel. The full potential of the southern North sea has not been fully realised, so we need to raise our heads above the parapet. I do not want to be divisive as I compare different areas and energy technologies. I believe in a mixed economy.
There is the potential to do even more in round 3. Offshore wind can play a vital role in providing a low-carbon, secure energy supply. It can also create jobs regionally, as we regenerate coastal communities such as the one I represent, nationally—as the hon. Gentleman said, there is the potential to increase significantly the number of jobs from the current 13,000 to more than 44,000 by 2023—and internationally by boosting exports. People working in the oil and gas sector anywhere in the world will hear Suffolk and Norfolk accents, as well as Scottish accents. That is something we must repeat with the offshore wind industry.
A lot has been done since 2010 to deliver that success. The Government put in place a framework to give the industry a long-term, sustainable future. Siemens will be manufacturing turbines at Humberside, the green investment bank is playing an important role in leveraging in private sector capital and the Catapult in Glasgow is doing important work with the industry to drive down costs. The Government have placed the right emphasis on maximising the UK content in contracts to ensure that jobs are not exported. A planning regime for offshore wind has been put in place, which works efficiently and fairly, provided that developers are proactive and engage with local communities. Finally, the Government are pursuing local supply chain initiatives that will help local communities, such as the one I represent, to get the most from these opportunities. Lowestoft and Yarmouth now has an enterprise zone and assisted area status, and the two ports have been designated centres for offshore renewable engineering. That designation is applied around the country; it is a national strategy.
As a result of those initiatives, the UK remains on track to being the most important market in the global offshore wind sector, with more capacity installed than any other country and with the largest volumes projected by 2020. We are moving in the right direction.
Electricity market reform and the contracts for difference regime are at the centre of the framework. The Government are right to apply a budget to ensure that policy and energy costs are affordable. The CfD regime has three benefits. First, it de-risks investment in asset ownership. Secondly, the competitive allocation will drive cost reduction. Thirdly, it recognises the need to cap costs through the levy control framework.
The transition to contracts for difference has not been straightforward. With the benefit of hindsight, we can see that things should have been handled differently. First, too large a budget was given to the Final Investment Decision Enabling for Renewables contracts without ensuring competition or price reduction. Too many of the FIDER contracts were placed with the same developer, which created risk for the entire sector. Secondly, the budget for the first competitive CfD allocation was too low, although I welcome the increase in round 2 from £155 million to £235 million. That low budget surprised investors and supply chain companies and led to projects becoming less competitive. Unfortunately, it sent out the wrong signal to the market. Thirdly, the three-month delay in the 2014 allocation round was unhelpful in achieving the stable, predictable regulatory environment that we all seek. Fourthly, money appears to have been held back for future allocation rounds, which has caused the worry that the levy control framework budget may not be fully utilised. Finally, I am concerned that by not giving indications of the less established 2015 budget, further uncertainty has been created.
Those are the problems we face, but I make those comments with the benefit of hindsight. However, we must move on, and the Government must have regard to two issues. First, they must have consistent policies so investors, industrialists and developers know where they stand. Secondly, they must articulate a long-term vision for the industry beyond 2020. As the hon. Member for Angus said, the industry currently views 2020 as a budgetary cliff edge.
I have four suggestions on how we can provide certainty and a long-term vision. First, the current allocation round should be concluded as soon as possible. Secondly, details of the timing and budget for the 2015 and 2016 allocation rounds should be published as soon as possible. Thirdly, details of the levy control framework in the second delivery period post 2020 should likewise be published as soon as possible. Finally, the industry must be provided with a clearer picture of its potential long-term size and where the Government see it going. That could be achieved by setting a clear-cut tariff reduction trajectory for offshore wind post-2020 and moving to a narrower carbon intensity range.
Since 2010 a great deal has been achieved in laying down a framework that gives offshore wind a long-term future. The move to CfDs is the most challenging part of the framework. Things have gone wrong in the past, but if we get it right now the industry can realise its full potential and play a full role in bringing jobs and prosperity to coastal communities such as the ones that I represent.
Mr James Gray (in the Chair)
Seven Back Benchers are trying to catch my eye and 40 minutes remain available to us. I am not at all keen on formal limits, but it might be sensible as a courtesy to one another to limit one’s speeches to about four or five minutes each, if possible.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
Thank you, Mr Gray, and I will bear in mind your comments about the length of our speeches.
I congratulate the hon. Member for Angus (Mr Weir), and his colleagues who approached the Backbench Business Committee, on raising this important issue. It is important for all sorts of reasons, not least that renewables, onshore and offshore wind in particular, provide a secure energy source in the control of this country and do not lead to dependence on less secure sources elsewhere in the world. Recently, volatility in energy price markets has reminded us how prices go up and down and that when we depend on other countries, we are clearly less secure.
Wind is a form of energy production that, as has been emphasised, is clean and contributes to our commitment to reduce carbon emissions. It also provides real employment opportunities. The hon. Gentleman referred to potential developments off the coast of Angus. I am not sure which constituency they are off—that depends on the starting point—but although they are not off my constituency, it is certainly among those that could benefit from developing offshore wind power off the east coast of Scotland. I take on board the points made about the potential elsewhere in the North sea as well.
Some time ago, the major Spanish offshore wind turbine production company, Gamesa, proposed a major plant in my constituency that could have brought in excess of 1,000 jobs to our area and the south-east of Scotland. The proposal now seems very much up in the air, however, and one reason for that is uncertainty about the direction of Government policy, along with uncertainty arising from international pressures that are beyond our Government’s control.
A real problem is certainly the lack of consistency and long-term vision to which my colleague on the Environmental Audit Committee, the hon. Member for Waveney (Peter Aldous), referred. A clear message and vision on the Government’s part is essential; there needs to be a clear long-term policy. The long-term support mechanism, the levy control framework, is an important issue that needs to be addressed if we are to see more investment in the offshore wind sector.
Another issue is the small budget available for the newer technologies such as offshore wind and marine. The size of the budget restricts development in the offshore wind sector and has a knock-on effect on other, newer technologies. In my constituency, we had the recent bad news about the closure of the Pelamis wave turbine plant, adding to other problems in the wave energy sector throughout the UK. Among the many complicated reasons for the Pelamis decision was long-term uncertainty.
Another problem when the budget is so small is that the more established technologies are much more likely than the less established ones to get what money is available. In effect, the limited budget is more likely to go to offshore wind, and therefore less likely to go to other technologies such as marine renewables. That is another effect of having only a small budget for newer renewable technologies.
David Mowat
The hon. Gentleman is the second speaker to talk about the need for consistency. I am sure that is exactly what the industry wants and needs, but in an industry whose business model relies on large amounts of subsidy, Government interaction in the process is reasonable. The industry must understand that, despite the desire for consistency, the Government are entitled to do their best to bring prices down to a level closer to grid parity—something we would all like to see.
Mark Lazarowicz
I do not disagree with some of what the hon. Gentleman says; in fact, he made a point I was about to make. I of course accept that we cannot subsidise any renewables technology at any price, simply because renewables are a good thing; but we also have to recognise that as such technologies develop and become more mature, the price reduces dramatically. We could end up in a vicious circle: if we do not support newer and initially more costly renewables technologies at the start, their price will never reduce and they will not become commercial, in relative terms, over a longer period. That comes back to the point about the need for long-term consistency and vision, and to the hon. Gentleman’s point about the Government’s approach.
Some renewables technologies will of course be more expensive initially. However, if we do not take up the immense opportunities available to develop them, nationally and internationally, other countries will do so and we will lose out. That is what happened with wind, when countries such as Denmark took over our position on engineering and exports. No doubt countries such as China will also take a leading role in renewables if we do not. What we have is a short-term strategy, not a long-term vision. I fully accept that the Government have taken some steps in the right direction, but they should do more. I hope the Minister will give a positive response to the suggestions made by the hon. Members for Angus and for Waveney, and others.
Mr Christopher Chope (Christchurch) (Con)
It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate the hon. Member for Angus (Mr Weir) on introducing the debate. There are constraints on the length of the speeches that we can make today, so I hope to expand on some of my remarks when I open the Second Reading debate on the Control of Offshore Wind Turbines Bill on Friday 16 January in the main Chamber.
Hon. Members who have spoken so far have shown themselves to be subsidy junkies. The problem is that the contracts for difference are a way of using taxpayers’ money to subsidise what is in essence an uneconomic activity. Given today’s oil prices, it is just as well that we—the British taxpayer and energy consumer—have not entered into contracts for difference with those engaged in exploration and production in the North sea. With the dramatic reductions in the price of oil and costs remaining much the same, such contracts would cost us an absolute fortune. Is that not the problem with the subsidy road down which the hon. Member for Angus wishes to take us?
There has been no mention of the economic context, the budget deficit or the burgeoning national debt, which continues to increase because we are running an unsustainable and unacceptable budget deficit. Common sense surely dictates that low-carbon energy should be provided at the minimum cost to the taxpayer and the energy consumer. We can get much cheaper low-carbon energy from nuclear than we can from offshore wind, so why are we investing in offshore wind? My hon. Friend the Member for Waveney (Peter Aldous) said that we were leading the world and investing in more offshore wind than anyone else, but is there not a reason to be slightly cautious? Why is no one else doing it? Because they see it as totally uneconomic and wasteful of resources.
On a recent visit to Denmark, I discussed with Danish politicians their offshore wind programme. They have cancelled any new development of offshore wind off the Danish coast because of their bad experiences. Their industry, however, enjoys the prospect of being able to benefit from United Kingdom subsidies, so that it can develop offshore wind off our islands; that is something that the Danes are no longer prepared to do off the coast of Denmark.
In my constituency a lot of jobs and prosperity are based on tourism. The proposal to construct up to 200 offshore wind turbines, each up to 200 metres high, has generated opposition from the people of Christchurch, Bournemouth, Poole and south Dorset the like of which I have never seen before. The development would be close to the shore in an area that would impact badly on the Jurassic coast world heritage site. Why is that development even being put forward? It is because of the subsidies; if there were no subsidies, it would not be happening.
There is a planning inquiry at the moment, and if the development is approved we will effectively be subsidising, through our taxes, a development that will impact badly on the Jurassic coast world heritage site. Yet at the same time we are saying, as Government policy, that we are prepared to invest in subsidies for a tunnel under Stonehenge to reduce the impact on that world heritage site. We might think that an inconsistency in Government policy, since we are prepared to used subsidies to exacerbate the impact on the environment in which the Jurassic coast world heritage site is situated.
I say to my hon. Friend the Member for Waveney—and I hope the Minister will respond to these points—that we should be looking at new technologies, so that we are not dependent on technology already developed by overseas competitors and can be world leaders. Wave and tidal power offer a much better prospect. If we are to put taxpayer-funded subsidies into renewables, that is a better sector in which to do so than offshore wind energy. In any event, it is also sensible to invest more in nuclear.
Mark Lazarowicz
Just to be clear, is it the hon. Gentleman’s position that he is not in favour of greater subsidies for offshore wind but happy to see greater subsidies for other marine technologies? I support higher subsidies to allow those technologies to develop, but I am interested to hear what level of subsidy he is prepared to see given to them.
Mr James Gray (in the Chair)
Order. The debate is, of course, about offshore wind.
Mr Chope
I am against all subsidies for offshore wind. If we are talking about the potential for the Government to engage in an industrial investment programme—the need to find jobs in new technologies has been spoken about this morning—from my experience in my constituency, there is a lot more to be said for investing in nuclear technology. Just before Christmas I visited an establishment in my constituency that is at the leading edge of nuclear technology. It has a fantastic record. If we have to put in subsidies, that is the sector in which we should do so, because subsidies for nuclear energy are far lower than the equivalent subsidies for offshore wind energy.
We have more than enough offshore wind provision already. I hope that the Minister will announce today that the Government will not put any more subsidies into that sector in future.
Mr David Hanson (Delyn) (Lab)
It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate the hon. Member for Angus (Mr Weir) on bringing this important issue before us. I had planned to commence my remarks by saying that it was a pleasure to see such consensus across the House on the importance of long-term planning for the offshore wind industry, but thankfully the hon. Member for Christchurch (Mr Chope) has shattered that consensus. I will not be following his line of thought on these issues, but he made an interesting contribution to the debate.
I would much rather support the views of the hon. Members for Angus and for Waveney (Peter Aldous) and those of my hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) on these matters. Over the past 20 years, I have watched the offshore wind industry develop greatly in my constituency, in north Wales and off Liverpool bay. Some magnificent projects have been supported by Government investment and support, by the granting of visionary planning applications and by partnership between Government and the private sector. Those projects help both to meet the future energy needs of the United Kingdom and to create a supply chain, employment and investment in local industries and skills in areas such as mine.
In north Wales there are some big projects, such as the £2 billion Gwynt y Môr offshore wind project, which reached its halfway point at the end of last year, with 81 of the 160 turbines having been developed. At Christmas, we had the helpful announcement that a further 75 new jobs will be established in both the Liverpool area and in north Wales through the extension of the Burbo Bank wind farm, which is being developed by DONG Energy off the Point of Ayr in my constituency.
As part of the ongoing debate on this issue, I have had representations from Vestas Offshore Wind, which employs a number of individuals in my constituency working out of Mostyn docks. It delivers wind farm equipment to offshore wind farms. An alternative energy park has been developed there from the old industries in my area, through investment and long-term planning.
It is important to recognise—this goes to the heart of what the hon. Member for Christchurch was saying—that the area to the north of my constituency is very much a tourist area. Developments in both sectors are complementary, not alternative. It is important both to secure investment in offshore wind energy and to continue to recognise the environmental impact on the tourist industry.
Mr Gregory Campbell (East Londonderry) (DUP)
The right hon. Gentleman is talking about complementarity in tourist areas, such as the one that I represent. Does he agree that, in the private sector, site selection is very important, so as to avoid the type of problems that have occurred on a number of occasions when public opinion has mobilised and opposition has arisen to what are otherwise looked on as welcome developments?
Mr Hanson
The hon. Gentleman makes an important point. I will simply say that I will have been the Member of Parliament for my constituency for 23 years in April, and I have never had any strong representations about the massive investment in north Wales for the development of the offshore wind farms that are visible from the northern part of my constituency. That investment is important. It has helped to create employment and alternative energy sources.
I wanted to speak because the hon. Member for Angus made points that will be important for both the Minister today and, I hope, my hon. Friend the Member for Sunderland Central (Julie Elliott). The key thing that both should take from the debate is that whatever final budget is set, we need long-term stability, planning and investment decisions, so that we have a longer period for the immense amount of investment and planning needed to develop these types of sites.
Over the past 20 years I have reflected on the work in my constituency. Although there has been successful development, there is a story of missed opportunities. Siemens in Hull is now developing onshore manufacturing; Vestas, from my constituency, is developing manufacturing capacity on the Isle of Wight—a long way from my patch, but still in the UK. We were campaigning and arguing some 20 years ago for developments in manufacturing capacity to help support the development of the onshore and offshore wind energy industries throughout the whole country, and they have only now taken place. There have been missed opportunities, because the lack of certainty in the long-term commitment to onshore and offshore wind energy has meant that we have often imported manufacturing, rather than developing it locally.
RenewableUK has emphasised that as a minimum we need clarity on the frequency of allocation rounds, and foresight of at least two allocation budgets at any one particular time. We are not arguing for a 15-year or 20-year development, but we need to look at making early decisions on the 2015 allocation. I also suggest, particularly to my hon. Friend the Member for Sunderland Central, that we look, if we can, at a seven-to-eight-year period, beyond the next Parliament, so that decisions can be taken on investment. In that way, we can look at not just meeting our long-term alternative energy needs and supporting manufacturing, but how we can attract even more of the supply chain to the United Kingdom as part of a long-term commitment.
In my area, we have Vestas working at Mostyn and the North Hoyle wind farm, and we have the Burbo Bank and the Gwynt y Môr developments. That has all happened because the Government have made allocations and work has been undertaken. However, there is still more potential, not just in the north-west of England and the north of Wales, but in East Anglia, Scotland and elsewhere. We can develop an effective industry that meets our future energy needs, supports manufacturing and, whatever the budget constraints, provides certainty for investment decisions. We could and should be an international leader.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Happy new year to you, Mr Gray. I am pleased to have the opportunity to contribute to the debate. I am also grateful to the Backbench Business Committee for giving us time this morning to debate offshore renewables.
Like other hon. Members, I have a strong constituency interest in the development of offshore wind energy, in that one of the projects bidding for support in the first allocation round of contract for difference is based in the Moray firth, off the northern coast of Banffshire. Several of the ports along the Moray firth could benefit from the development of offshore renewables, with significant potential spin-offs for a wider supply chain bringing much-needed economic development to the area. I am sure other coastal communities also have the potential to benefit from such economic diversification, which is key to the future prosperity of such communities. In the north-east, there is also an understanding that the skills utilised in the offshore oil and gas sector are eminently transferrable to the offshore renewables industry, as well as a sense that we should grasp the opportunities to develop new and innovative technologies on our doorstep by building on our existing strengths.
Today’s debate takes place in the context of energy market reform. We should always remember that that is not only about keeping the lights on, bringing consumer prices under control and repairing a broken system, but about climate change and the need to reduce our greenhouse gas emissions and to mitigate, or adapt to, the effects of climate change that are already manifest.
I read recently that 2014 was the hottest year on record. We do not always notice that in Banff and Buchan, which is pretty cold, but we undoubtedly see the impact of a slightly warmer, slightly wetter climate and the effect of changing sea temperatures on our marine environment, with coastal erosion and increased landslips. And who could fail to notice the problems associated with increased flooding right across the UK? If we abdicate our responsibility to reduce emissions or pretend we can ignore climate change indefinitely—or at least for another decade or two—we are burying our heads in the sand. Environmental campaigners are fond of pointing out that the climate does not negotiate, and they are not wrong.
That is primarily why we need cleaner energy. However, we are also in the fortunate position of being able to take economic advantage of the opportunities renewable energy presents. Being in the vanguard of new technologies has the potentia1 to strengthen our manufacturing, our exports and our research base.
Mr Chope
The hon. Lady’s argument is surely an argument in favour of investing in adaptations to ensure that the impact of climate change is not felt so severely—for example, on the coast. If we have coastal defences, we can defend ourselves better against the consequences of climate change.
Dr Whiteford
The hon. Gentleman’s views on these issues are well articulated and well known, but we have to be a lot more ambitious. I do not want be shoring up our coastline—I would rather be preventing it from falling down in the first place. One way we can do that, and gain economic advantage, is by developing new, innovative technologies, which will have tremendous commercial potential if we develop them properly.
In that light, I am deeply disappointed that no decarbonisation target has been set for 2030. That is a real missed opportunity, and it undermines confidence in the Government’s commitment to the offshore renewables sector. The Government initially seemed much more ambitious about the development of offshore wind, and that raised a lot of expectations, leading to considerable investment from industry. Companies were actively encouraged to make bids for offshore developments, and they have invested hundreds of millions of pounds in bringing projects to consent.
However, the smoke signals from the Government have changed, and the goalposts have shifted somewhat since Ministers embarked on this journey. The budget announced last October for contract for difference bids was substantially lower than expected. The £235 million allocated for group 2 will support an estimated 700 to 800 MW of offshore wind capacity, which is a lot less even than some of the individual projects aim to generate.
I am not questioning the principle of a competitive element to the process, but the money available will, realistically, support only one—and possibly only part of one—of the seven projects in the frame. Given that companies will each have invested tens of millions of pounds just to get to this stage, the support on offer simply does not present sufficient incentives or prospects of success to encourage further development in the sector. I fear that the prospect of offshore wind on the Scottish coast is in real danger of withering on the vine.
It is important to point out that, under contract for difference, offshore projects will compete against not just each other, but other renewables projects, including more evolved technologies, such as onshore wind on the islands, which are now much cheaper and lower risk. Again, that is likely to jeopardise the development of a strong domestic renewables sector and supply chain.
I am concerned that the shifting goalposts, the mixed signals and the interminable delays that have characterised energy market reform are doing the UK considerable reputational damage in international markets, which will deter future investment. Those who feel they may have been led up the garden path this time will be reluctant to venture into our orbit again, which is not where we need to be in attracting investment. The Government need to send a signal that they remain committed to the offshore wind sector—if they are—and to let the sector know that there will be future allocations under contract for difference to make further investment viable.
Dr Whiteford
I will not, because I am conscious of the time, and I want to make a couple of points before I conclude.
I well recall how the Government made the same short-sighted mistakes in the 1980s, when early, first-generation renewable energy technologies being developed in Scottish universities were starved of funding. That simply meant that the research moved to Europe and beyond and that other countries created the manufacturing jobs that could and should have benefited our economy.
There is a grave danger that if we pull the rug out from under the fledgling UK industry before it has had a chance to establish itself, the chance we have will pass us by. Others will harness the technology and steal a march on us. We need not to be content with what we have, but to realise that there is more wind to be harnessed if we go out into deeper waters. However, that takes investment, and it means risk, and we need to take that seriously.
I represent an area that still has a lot of manufacturing, and we are keen to benefit from what is happening. That would have long-term benefits in terms of creating a stronger, more stable and more resilient economy.
There has been some mention of the Government’s direction of travel—the enthusiasm for fracking and the rush towards new nuclear. Others have spoken about the costs at Hinkley Point, but it is worth pointing out that EU experts have said that those costs are actually much higher—about £25 billion. Professor Peter Strachan of Robert Gordon university points out:
“The deal involves paying twice the current price for electricity, with UK taxpayers and electricity consumers locked into a binding contract for an extraordinary 35 years.”
If we also consider the massive decommissioning costs involved, those figures put into context the £235 million available for offshore wind through contract for difference in the current round. Offshore wind developers seem to be scrabbling around for the crumbs.
If it is possible to make a 35-year commitment to support the nuclear industry, it seems short-sighted to have the offshore renewables sector lurching from year to year and round to round. Obviously, we are not comparing like with like, but we simply will not have a renewables sector if we do not give it more certainty and security to develop these ambitious technologies. I would like the Minister to use this opportunity to indicate the Government’s ongoing commitment to the sector.
Renewable energy is an important part of our energy mix, but we need to think long term if we are to realise its full potential. The cost of new technologies is likely to reduce over time. Contract for difference helps to encourage that investment, but we will achieve the added benefits only if we remain in the vanguard. The point has been made already, but it is worth saying again that a native renewables industry is critical to our long-term energy security.
Several Members have said that we lead on offshore renewables. If we want to stay in the lead, we need to harness the stronger winds further offshore. Let us not abandon our initial ambition, and let us ensure that we give our offshore wind energy sector the kick-start it needs to achieve real economic benefits for us.
Albert Owen (Ynys Môn) (Lab)
Happy new year, Mr Gray. It is a pleasure to serve under your chairmanship. I thank the hon. Member for Angus (Mr Weir) and the Backbench Business Committee for this important debate.
I will try to carry out the difficult job of being a bridge between the anti-nuclear and anti-wind brigades in the debate, because I consistently support both forms of generation. I am pro-nuclear, pro-wind and renewables, and pro-energy efficiency. I see no contradiction in supporting all three if we are to achieve the goals of a long-term low-carbon economy, which is the way forward. We must be honest with the public when we talk about support mechanisms and subsidies. Each sector receives subsidies. The anti brigade say “Isn’t it terrible that the others get subsidies?” However, many of the technologies need to be upgraded, and some are new technologies, so they need Government support.
As a member of the Select Committee on Energy and Climate Change and the Committee that considered the Energy Act 2013 I supported electricity market reform. Any party in government over the relevant period would have needed to make progress on that. I agree with my right hon. Friend the Member for Delyn (Mr Hanson) that we need continuity and consensus when we talk about energy and long-term planning. We had that when the Government first came to power; and we had a sensible Energy Minister—I welcome the Minister to his place—but he was replaced by someone who was less pro-wind. He said in the Chamber that he supported it, but outside said he did not, following the line of many of the popular newspapers of the day. That is no way to make Government policy, and I think that the uncertainty has affected the future of development.
I want progress with—I hope—a change of Government this year, but also with consensus on energy policy, so that investors see certainty. During the Committee inquiry on energy market reform we spoke privately to businesses. They said that uncertainty and short-termism put them off investing in the United Kingdom. Those multinational companies will take their money anywhere development will happen. Visitors to Texas, where they have shale gas, will also see wind development there. Most countries are investing both in renewables and in either oil and gas, as in America, or nuclear where there is progress towards low carbon. I welcome the fact that my near neighbours the Irish Government now say that they cannot rule anything out, and are talking about new nuclear for the future.
I have been working closely with Labour colleagues in north Wales on the development of a low-carbon economy, not just for energy security, which is important, but for manufacturing and regional economic benefits. I have seen those benefits. The United Kingdom is an island economy, and I represent an island constituency. I want the maritime benefits not only of manufacturing, but of research and development and links with nearby universities. The university of Bangor, in the neighbouring constituency, has its ocean sciences faculty on Anglesey, and its research and development goes hand in hand with the development of offshore technologies. We need to make those links to get good quality jobs in the various regions of the United Kingdom. I support what is happening in Scotland in developing wind, and what is happening in east Anglia and elsewhere.
The United Kingdom is a small island that competes internationally, and we need to harness our resources, including wind, tide and waves, to maximise future benefits. That is why we need long-term vision, and policies to aid and abet it, to bring about top quality jobs—and the jobs in such industries are of top quality. There is a shipping company in my constituency called Turbine Transfers. It is international, operating across the world, and now makes purpose-built vessels for the offshore industry. It needs the certainty I have spoken of, so that it can build vessels to be crewed and maintained around our shores; that is the importance of offshore energy. With the electrification of our domestic system of surface transport—cars and railways—we will need low-carbon energy, and we need to focus on the long term. We have benefited in north Wales from taking such difficult decisions. I supported Gwynt y Môr when the Conservatives, in opposition, opposed it; but that development, to which the previous Government gave consent, is now a flagship policy of the Conservative Government. Such uncertainty and policy change is the reason for our lack of long-term investment. We need to move forward and get the quality jobs I have spoken about.
Hitachi is developing a nuclear power station in my constituency, which I fully support. I do not think that there is an either/or decision to be made over nuclear or renewables; I think we should have both. I have seen what skills have been developed over generations, and I want them to be transferable between different types of energy production. That is why I have been promoting Anglesey as an energy island—so that we can have a focus of attention and a centre of excellence, with links to universities, schools and technical colleges, to get the right skills base for the future, and high quality jobs. The hon. Member for Waveney (Peter Aldous) mentioned the accents to be heard when he travels around the world; and Welsh accents can be heard in energy development in Canada and elsewhere. I want to hear those accents back home, in a forward-looking industry where young people have opportunities to develop. Offshore wind, like oil and gas, has provided great opportunities for people in the United Kingdom, and we should keep those sectors in our country. That is why I support nuclear as well as wind and renewable energy.
I am worried about contracts for difference and the small pot for maritime development and renewables such as wave and wind. In 2001 when I entered the House, I was always being told that wave and tidal energy were about five to eight years away, and I am still told that now. We did not have the policy certainty that we could take advantage of, and we need that. I have been to see research and development in the Orkney islands, but things are not moving forward.
Finally—and this is the main reason for my taking part in the debate—I have seen abandoned projects in my area. The Rhiannon project was going to supply between 2 and 3 GW of energy in round 3, and the application for the consents was made. Hundreds of millions of pounds were spent, but the project was abandoned because, in my opinion, of uncertainty about the future. Of course, there was talk of technical difficulties, and as the hon. Member for Banff and Buchan (Dr Whiteford) said, there will be difficulties in future in deeper waters; but we need to plan for those. In future, there will be bigger projects, further offshore, harnessing energy more efficiently for the future. We need to take decisions now.
It is not a question of either nuclear or renewables. We need both if we are to move forward as a world leader. Nor is it a question of either tourism or energy development; we need both. My constituency is one of the most beautiful areas in the world, and tourism there has grown. We have a nuclear power station, we had early onshore wind, and now we have offshore wind development plans. The issue is Britain looking after its own interests with energy security, and attracting the high skill levels that the people of my area deserve.
Julie Elliott (Sunderland Central) (Lab)
As ever, it is a pleasure to serve under your chairmanship, Mr Gray. I wish you and all colleagues a happy new year. I congratulate the hon. Member for Angus (Mr Weir) and the Backbench Business Committee on bringing forward this important debate.
This will come as no surprise to those taking part in the debate—we talk about such things a lot, and I too was on the Committee that considered the Energy Act 2013 and have gone over the arguments at length many times—but I am pleased to have the opportunity, at this early stage in the new year, to reaffirm Labour’s commitment to cutting our carbon emissions by encouraging investment in clean energy through the system of contracts for difference. I want to make a few comments on some of the speeches. As my right hon. Friend the Member for Delyn (Mr Hanson) said, there is a broad consensus—barring the views of the hon. Member for Christchurch (Mr Chope), who has a slightly different view from ours. I, like some other right hon. and hon. Members, am committed both to renewables and to nuclear, which will both have an important part to play in the energy mix. We need both of them to reach our carbon emissions targets and negate the problems arising from climate change.
Many of the issues that have been raised are of concern to us—particularly the question of investment and security, and knowing the way forward. That has been raised with me in my capacity as an MP representing an area on the north-east coast, where many of the issues that have been discussed today are relevant, and where there is potential to benefit from development of the industry. Investors tell me that they want certainty. They want to know where we are going, and that there is a long-term plan. The decision cannot be one for four or five years. There is broad consensus, and much of what I want to say concerns that, but there are some issues.
Scotland, as we know, plays an important role in the UK’s clean energy generation. It is blessed with significant clean energy resources, including onshore and offshore wind, and wave and tidal energy have significant potential. Scotland’s leadership in clean energy is borne out in the funding that it receives from central Government. This year, having travelled many times north of the border in the referendum campaign—it is not that far from where I live—I have seen, as I have driven up towards Glasgow, hundreds and hundreds of onshore wind turbines, which I think are quite beautiful and add to the scenery on the drive. They are clearly a significant part of the economy north of the border.
Scotland currently benefits from a system in which resources from across the UK are pooled. Scotland hosts 8.3% of the UK population and around 9% of the energy bill consumer base from which we fund clean energy projects via the levy control framework. In 2012-13, Scotland received nearly a third of all renewable obligation certificates supporting renewable energy. Furthermore, Scotland will receive a significant proportion of the support given through feed-in tariffs, which in 2014-15 is projected to reach £817 million.
As has been said, the UK is a world leader in offshore wind, with as much installed capacity as the rest of the world combined. I see that as a positive for us, not a negative as the hon. Member for Christchurch sees it. It is therefore critical that we get the right structures and funding in place so that the cost of offshore wind continues to fall. To ensure that that happens and that the contract for difference allocation works for offshore wind, we need to boost the investment that drives cost reductions. We have seen the massive cost reductions that investment can bring in both solar and onshore wind.
Although Labour—and most parties, as the hon. Member for Angus said in his contribution—supported the Energy Bill as it progressed through Parliament, there were significant areas in which we were convinced that it needed to go further. I do not intend to précis our “Powering Britain” Green Paper, as I am quite confident that most people here have read it cover to cover. However, what was missing from the Energy Bill, in addition to reform of the wholesale or retail markets through which energy is traded, were policies to encourage further investment in clean energy. Labour is committed to setting a 2030 power sector decarbonisation target, which is supported by organisations as varied as the Committee on Climate Change, energy developers such as Siemens and Dong Energy and companies such as Asda, Sky and PepsiCo as a crucial tool to provide certainty and clarity to drive investment.
Labour will establish an energy security board. My right hon. Friend the Member for Delyn and my hon. Friend the Member for Ynys Môn (Albert Owen) mentioned long-term security. An energy security board will plan for and deliver on our energy needs for the future. We will give the green investment bank powers to borrow and leverage new investment. We are focused on looking beyond parliamentary terms and changes in Government to give stability for investors in the energy market.
David Mowat
I was listening carefully to the hon. Lady developing her point on Scotland. I thought that she was going to complete the point by mentioning the potential impact of independence, had it happened, on an environment in which one third of all subsidies are currently cross-border. I was wondering—
Mr James Gray (in the Chair)
Order. That would, of course, be quite wide of the mark. The hon. Lady might restrict her comments to the effect of CfDs on the offshore wind market.
Julie Elliott
I take that guidance from the Chair, but I will say that we won the referendum.
Given this Government’s refusal to set a 2030 power sector decarbonisation target or allow the green investment bank to borrow, it is unsurprising that investment in renewable energy has fallen. Furthermore, according to the Environmental Audit Committee, investment in clean energy is running at half the level necessary if we are to meet our carbon emission reductions. It is also worth pointing out that the majority of renewable energy projects that have come online since May 2010 started under the last Labour Government.
The offshore wind industry certainly welcomed the increase in the budget for less established technologies from £155 million to £235 million, although it was somewhat tempered by the downward revision in the reference price. Can the Minister confirm that the downward revision will have a significant impact on how much capacity is feasible for the same amount of budget? Currently, approximately 5 GW of offshore wind is in operation or construction, and about another 3.2 GW has been given final investment decision contracts. Do the Government have a fixed ambition for offshore wind, either by 2020 or another date, and can it be assumed that that ambition has been reflected in the allocation funding pot? Does the Minister share the view of industry experts who have projected that the £235 million equates to approximately 800 MW, and is he satisfied with the Government’s ambition for offshore wind in this allocation round? Those questions reflect some of the concerns expressed by hon. Members in this debate.
This Government’s mixed messages and active hostility to onshore wind and solar PV, the cheapest large-scale clean energy technologies, have acted as significant blows to investment in all clean energy technologies. In the last few months, the UK slipped to seventh place on Ernst and Young’s attractiveness index for investment in renewable energy, and Ernst and Young labelled the Government’s
“policy tinkering and conflicting signals”
as
“too much for investors…to handle”.
Does the Minister accept that the Government’s mixed messages have damaged investment?
Although offshore wind remains an area in which the UK proudly leads the world, employing thousands of people and generating the clean energy that we need to meet our carbon emissions commitments, it is clear that costs will have to continue to fall, and allocation rounds should be designed to reflect that priority.
Mr Ben Wallace (Wyre and Preston North) (Con)
Mr Gray, I wish you and all other Members a happy new year. It is a pleasure to serve under your chairmanship. I congratulate the hon. Member for Angus (Mr Weir) on securing this debate through the Backbench Business Committee. I used to represent a similar part of Scotland in the Scottish Parliament, so I am well aware of the pressures and the demand for offshore wind in his part of the world. The north-east coast of Scotland is a beautiful part of the country.
What I am hearing in this debate is similar to what I heard in my previous work in aerospace. That industry had long lead times and required certainty, and that is also true of the renewable energy industry. There is a constant play-off between new investment in new technologies and mature and maturing technology elsewhere. The hon. Member for Edinburgh North and Leith (Mark Lazarowicz) made the point clearly that often there is a tension between maturer technologies and those seeking a fair audience, such as wave, solar or tidal energy. In my previous life before entering the House, in early 2003, I was part of a process of trying to get funding for tidal energy off Britain’s shores, and I remember being crowded out of the debate.
Decisions between investment in technologies and certainty are always subjective and never satisfy all, but we should not forget that more immature technologies are also helped elsewhere in Government through research and development tax credits, the patent box for matured technologies and other incentives in other parts of this Government’s business policy.
I hear loud and clear the point about having certainty when it comes to strategy, including certainty about what the British Government and Britain want for our energy mix and renewables obligations. Such certainty, and indeed a timetable, are important to investors. I point out to the hon. Member for Angus, however, that the Scottish National party does not add to that certainty by creating a debate about breaking up the United Kingdom.
Mr James Gray (in the Chair)
Order. Clearly that is slightly wide of the mark.
Mr Wallace
Well, Mr Gray, certainty is important to the issue of contracts for difference, and to whether investors are willing to invest in the British energy generation market. That certainty is obviously undermined by the potential to break the market in two and deny Scots access to some of the contracts for difference funding based on the fact that the subsidisers—the bill payers of the United Kingdom—are spread throughout the whole population. It is important to make the point that we are all looking for certainty, and I venture to say that separation is not the way to encourage that.
Mr James Gray (in the Chair)
Order. I really would rather not go down this track.
Mr James Gray (in the Chair)
Order. I would very much rather the Minister did not. I think he should focus his remarks on the effect of the CfD allocation process on offshore wind developments.
Mr Wallace
As hon. Members will know, the Government will support low-carbon technologies in future through new contracts for difference, which we have debated today. The total amount of support that will be paid for by consumers is capped by the levy control framework. Support for projects, whether onshore or offshore, biomass or solar, will have to fit within the overall cap. We cannot worry about the standard of living of our constituents and the pressure on their bills on the one hand, and give a blank cheque to renewable projects, through their bills, on the other. We have to make sure that we balance that, which is why the cap for the current funding round is at £235 million for offshore wind generation. We need to ensure that we balance the need to get the investment in and the need to protect the people who are paying the subsidy—the bill payer.
Low-carbon electricity projects will compete at auction for the contracts, which will deliver new capacity much more cheaply than the previous arrangements. Recent studies have shown that compared with the renewables obligation scheme, the current scheme produced a difference of £19 per MW when it came to the pricing of this energy. That is important to recognise. It is estimated that the reforms to the electricity markets will mean that average annual household electricity bill will be around £41 lower over the period from 2014 to 2030 than if we decarbonised without making these changes.
As the CfD allocation round is ongoing, I cannot comment directly on what projects might have applied or who might be awarded a contract at the conclusion of the process. It is important that the Government are not directly involved in making those decisions. However, it might be useful to explain to Members the process of awarding these contracts.
Projects submitted applications to the National Grid, which is the electricity market reform delivery body, in October. National Grid assessed each application against the eligibility criteria. Any applicants judged as not meeting the criteria and therefore not qualified to participate were given the opportunity to appeal. Following the first appeal, National Grid has determined that at least one applicant has not qualified to participate in the auction. Those applicants have the opportunity to appeal to Ofgem, which they have done.
Ofgem is currently considering any appeals received and will take as much time as necessary to assess the appeal. However, the Secretary of State reserves the right to step in 30 days after Ofgem begins assessing the appeal and to direct National Grid to move to the auction process if the appeal has not been resolved. Once all appeals have been considered, National Grid will assess the value of all applications against the available applicable budget, taking into account technology pots, minima and maxima. If all the applicants can be satisfied within the budget, under the constraints of any minima and maxima, all the applicants will be allocated a CfD. If there is insufficient budget to satisfy all bids, or maximum constraints are exceeded, an auction will apply to the relevant bids and National Grid will invite those eligible applicants to submit sealed bids.
The timing of further stages in the allocation round depends on how long it takes Ofgem to process any appeals. If Ofgem takes 30 days, the auction notice is likely to be issued on 17 February and the sealed bid submission window will run between 18 and 24 February. National Grid would then notify the Low Carbon Contracts Company and applicants of the outcome of the allocation process on 18 March. The Low Carbon Contracts Company would then have 10 working days to prepare contracts and send them out for signature. Applicants would have a further 10 days to sign contracts, with the window for contract signature closing on 17 April for this round. If Ofgem processes the appeals sooner, all that will, of course, be brought forward. National Grid will continue to provide updates on timings as key milestones are met.
My right hon. Friends the Secretary of State for Energy and Climate Change and the Minister of State and I are aware that some offshore wind projects may end up disappointed at the end of the CfD allocation process and may need to wait for future rounds. It is not possible yet to say for certain which technologies will bid lowest and therefore win the auctions. However, if for example, offshore wind won the whole of the £235 million in the less established pot, that could lead to around 700 MW to 800 MW, depending on the clearing price, which answers the question from the hon. Member for Sunderland Central (Julie Elliott) about the assessment of how much it could do. I should point out that we are making a substantial amount of budget available in this autumn’s allocation of contracts, and we increased the budget for both pots over the summer.
The offshore wind pipeline is currently strong, and the Government have taken the decision to hold budget back for future CfD allocation rounds. A number of offshore wind projects are not eligible to bid in this round but could be eligible to bid in future rounds. We do not want to allocate the whole budget in one allocation round; we need funding available for projects that cannot participate this autumn, to avoid a boom-and-bust investment cycle.
It is important to recognise that we need to ensure that the industry is taking the subsidy and then continually trying to drive down the cost of its technologies and the overall cost of the projects. If it were just to take the subsidies and carry on at the same level, we would not be getting the bill payer good value for money. Whether the window is five years, as it is currently, or whether there is, as hon. Members wish, a longer time scale, I hear loud and clear the valid point that we should at least see how it progresses.
I also note that the Government have taken decisions to support much more offshore wind than any other country in the world. The UK has around 5 GW installed or under construction and another 3 GW of projects have early CfDs. We are well on the way to 10 GW by 2020. The challenge is now for the developers to demonstrate that they can bring the cost of offshore wind down and build a UK-based supply chain.
In answer to hon. Members’ points about the supply chain, I refer to my experience of aerospace. It is simply not good enough for a generator to bring over a turbine, stick a few things on it and say that it is made in the UK. When we talk about a desire for a proper supply chain, we are talking about a desire for a proper development of technologies, a skill base and the actual manufacturing. It is important that we do not all fall into the trap of claiming, if someone opens a park and assembles the final pieces, that that is some great final achievement. The challenge is to make sure that in 2020, the industry is in a good place to take advantage of opportunities.
I take on board, from all Members here—there are too many to list in a short time—that the loud and clear message is about certainty, time frame, technologies and strategy. I will make sure that my right hon. Friend the Secretary of State and the Treasury hear that loud and clear in the long term. However, we have a considerable amount of money still to allocate under the framework—up to £1 billion—and as soon as we can, we hope to inform the industry and the public.
In conclusion, I thank colleagues for bringing this issue to the House’s attention, and for the desire to recognise that offshore wind plays a real role in meeting our obligations on renewables. We are on track to meet those targets in 2020.
Mr James Gray (in the Chair)
Although it would be in order to continue with the next debate, the Minister is not yet here, so I suggest that we suspend the sitting until 11 o’clock, when we will commence, whether or not she is present.