Low Carbon Energy Generation

(Limited Text - Ministerial Extracts only)

Thursday 26th February 2015 Westminster Hall

[Mr Tim Yeo (South Suffolk) (Con)]

Welcome to the Chair, Mr Brady. It is a pleasure, indeed it is an honour, to serve under the chairmanship of such a distinguished colleague—and this may be my last opportunity to say that in public. I draw attention to my entry in the Register of Members’ Financial Interests and my interests in the energy sector in particular.

I am delighted to have secured this debate and I am grateful to the Backbench Business Committee for granting it. I am sorry that, despite valiant efforts, we do not have quite as many people here as we had when we made the application. I also warmly welcome my hon. Friend from Lancashire—I am about to say west.

[Mr Ben Wallace (Wyre and Preston North) (Con)]

Wyre and Preston North.

[Mr Yeo]

I apologise. I made the same mistake last time my hon. Friend was responding to such a debate, but I am delighted to see him and I know that he will give us a robust response to any points raised.

I stress that my commitment to low carbon energy goes back more than 20 years. When I served in John Major’s Government as a Minister in what was then the Department for the Environment, among other things I dealt with climate change, which in 1993 was much less understood or even talked about. If someone mentioned climate change at a social occasion, people would look at them as though they were slightly strange. However, it did not take me long to be convinced that climate change was occurring—the scientific evidence was powerful even then—and that the changes we were observing were caused at least in part, and in my view in substantial part, by the increased concentration of greenhouse gases in the atmosphere in the past 200 years, which was a result of man-made activity and the industrial revolution in particular.

As I recall, in the 1990s the scale of the problem was much less certain. Today, the need for substantial cuts in greenhouse gas emissions is widely, even if not universally, accepted. As we approach the Paris conference of parties at the end of the year, the world’s attention will be increasingly focused on how we can achieve a more rapid decarbonisation of our economies.

Last November we had the historic joint announcement in Beijing by President Obama and President Xi of China in which they committed to cut emissions. Such a commitment would have been completely unthinkable even three years ago: for the US President to say what he did and for the Chinese to say that their emissions would peak on a date not later than 2030 simply could not have happened. In my judgment and experience, for the Chinese to say publicly that something will happen not later than 2030 means that they are absolutely certain it will happen well before that. I warmly welcome the greater determination of the US Administration to engage with this issue, which is still extremely controversial in parts of the United States.

Here at home we had an historic announcement this month. The three leaders of the major parties united in a public joint commitment to continue to take action to tackle climate change. I do not recall any other major political issue being addressed in quite the same unanimous way just two months before an election. I welcome both those important political developments.

Equally important is the transformation in business’ attitude. Twenty years ago, much of industry was reluctant to acknowledge the need to engage in finding solutions to climate change. It felt that such demands for reduced dependence on fossil fuels were a threat to their business models. Today, by way of contrast, in many parts of the world business leaders are ahead of policy makers in recognising both the urgency and the scale of the need to move away from models that are dependent on fossil fuel consumption.

I warmly congratulate the Government on confirming the fourth carbon budget for the 2023-27 period. That challenging budget, which was set four years ago, was reviewed last year and, to the coalition’s enormous credit, it confirmed it. I am sure that in private, parts of Whitehall argued strongly for a dilution of those targets, but they were confirmed.

I also warmly congratulate the European Union. That is not something Conservative colleagues frequently do, but its recent, excellent decision, supported by the UK, to adopt a cut in greenhouse gas emissions of 40% for its 2020 target was at the upper end of aspirations. That is good for two reasons. First, it sets a challenging figure that will force businesses and consumers across the EU to think about how they can help achieve it.

Secondly, it is a rational target. By setting an overall target for a cut in emissions, the need for any subsidiary targets is largely removed. I have always been concerned about the artificial imposition of targets for the proportion of energy that comes from renewable sources. They are not the right way forward; it is up to member states to decide how much they want to use renewables and other technologies. The European Union achieved a good outcome.

Achieving the UK domestic target, which is enshrined in law, and the EU target will require in particular substantial decarbonisation of the electricity generation industry. We have the technology that makes that possible; the question is whether we are willing to adopt it. In effect, a transformation must take place in the energy industry in the next 15 to 20 years. Because it has one of the longest investment cycles of any industry, we cannot leave decisions for another five or 10 years.

The decisions we make in the next two or three years—before the end of this decade—will have a huge and material impact on what happens later on. In effect, those decisions will determine at what cost the decarbonisation of UK electricity generation will be achieved. If we get those decisions wrong and we lock ourselves into too much dependence on fossil fuels, we will be forced into making emergency, very expensive changes in the late-2020s and early-2030s.

This debate is about how to decarbonise electricity generation, and I want to start with the nuclear industry. I warmly welcome the fact that, broadly speaking, there is bipartisan political consensus that the UK needs a nuclear component in its energy industry. The latest figures from the Department of Energy and Climate Change show that even now, following the shutdown of a couple of EDF’s reactors, nuclear still provides roughly a fifth of our electricity, so it is a substantial component. Nuclear, as supporters such as me constantly remind people, provides reliable, base load, low carbon power.

I do not want to turn this into too partisan an occasion, but there was a slightly wasted decade under the previous Labour Government during which nothing much happened on nuclear. However, the bullet has now been bitten and the decision to go ahead first with Hinkley Point was supported in all parts of the House—even the Liberal Democrats supported that, which showed a welcome change of heart. Unfortunately, the implementation of the decision to go ahead with Hinkley Point is proving to be tortuous and slow. I therefore commend the Government’s willingness—in fact, they have been positively welcoming—to perhaps have a foreign investor as the minority partner in Hinkley. I trust that the final investment decision on Hinkley will not be delayed much further, and I hope the Minister will give us an update on progress because many of us have been getting concerned. The timetable for this project has already slipped considerably, and it would be a huge relief to many people if we thought that final investment decision would be signed off imminently.

Of course, the future of nuclear is not just about Hinkley. It is the first step, but other projects are within sight, and I believe that gives Britain the chance to lead a European nuclear renaissance. We have huge advantages in this country, such as the political consensus to which I have referred, and the fact that our regulator is probably best in class; it enjoys universal respect. One reason why the accident at Fukushima four years ago did not derail progress on nuclear power in this country was that people trust the Office for Nuclear Regulation. In the wake of Fukushima, Mike Weightman’s report reassured people that such an accident could not occur here and the circumstances of it could not be reproduced here. That has helped to create in the UK a public opinion that is more supportive of nuclear power than that in many other countries. Interestingly, people who live closest to nuclear power stations are often the strongest supporters; they recognise that nuclear is a clean, reliable and safe technology that provides a decent number of well-paid jobs.

The interest that other countries are showing in the UK market reflects those circumstances. We now have interest from the Chinese, South Koreans, Japanese, Americans and Russians; they would all like to be here in the UK nuclear market. Some of them see the UK as a good starting point for the rest of Europe. Many of them will feel that going through and getting approved by the UK’s generic design assessment process is an imprimatur—a mark of approval—that would be useful to their technologies in other markets. Britain should welcome and take advantage of that interest. There is something here we can exploit and perhaps even use to gain a bigger share of the supply chain, with resulting benefits for our economy.

Nuclear clearly ticks the security of supply and cutting carbon emissions boxes, but the industry still has some work to do on the third aim of energy policy: affordability. The questions about cost are a work in progress. I am confident that there are ways of cutting the cost of nuclear. The nuclear industry, rightly, has very demanding safety requirements imposed on it. If the same requirements were applied to some other energies, their impact would be enormous. If the coal industry, for example, had ever had to cope with the safety demands made on the nuclear industry, it would have struggled to survive in the way it has.

However, we must be mindful of the importance of value for money. In this country, we are often supportive of first-of-a-kind technology. It is interesting, because we have a great record and history of innovation and research. However, there is a question mark over whether first-of-a-kind technology will be the cheapest. If nuclear is to roll out extensively, as I hope it will, and continue to supply a significant proportion of UK electricity generation capacity, we have to consider whether technologies that have been tried and tested in other countries first—in a home market—may then be able to offer us something.

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[Mr Ben Wallace (Wyre and Preston North) (Con)]

I am delighted to serve under your Chairmanship, Mr Brady. I pay tribute to my hon. Friend the Member for South Suffolk (Mr Yeo). I am not sure if this will be the last time we debate and listen to his contributions, but I pay tribute to his work for his constituents and for his party in serving the Government over the years, and to his work for the Committee on Energy and Climate Change.

The Committee has done an amazing job, not only in building the consensus that the hon. Member for Rutherglen and Hamilton West (Tom Greatrex) mentioned, but in demonstrating to someone like me that people do not have to live in a tepee to be green and do not have to switch off the lights and go backwards. To roll out a proper, successful, renewables-based energy policy, people have not only to understand targets for carbon reduction and the pressure of global warming; they have to understand the real world as it is, including finance, investment, risk and technologies. My hon. Friend has done a tremendous job as Committee Chair in bringing along both sceptic and enthusiast with the policy of renewables, and with an energy policy that has satisfied many of the historical splits across the parties that we have seen over the past 20 or 30 years.

Ministers could do a lot more listening to Select Committees, especially my hon. Friend’s, which has genuinely helped policy makers and has brought together the main parties in reaching a proper, grown-up solution to providing energy security and meeting our carbon reduction targets. My hon. Friend’s Committee marks a refreshing change. Members present will have spent time in other sectors of Government such as the Ministry of Justice, where constant party politicking goes on, or disagreement is often more important than consensus. I pay tribute to my hon. Friend’s work. He will be missed, as will the sensible way the reports have been presented to the Government.

There are only 19 sitting days left in this Parliament. That is a rather scary number for all of us. I noted the kind comments made by the hon. Member for Rutherglen and Hamilton West. I am not sure who will be the Energy Minister in 70 days. He will certainly make a fine Energy Minister—if he is successful. I cannot wish him that success; I would not do that. I would certainly not want Russell Brand or Alex Salmond as Energy Minister. The main parties are all in a good place, engaging in grown-up politics in working towards a proper energy policy. It is important to note that among the most vocal opponents of the Infrastructure Bill was the Scottish National party, whose Members have failed to turn up for today’s debate. They are no doubt posturing on some other subject this week. They are not even here to claim credit for some of the successful CfD contracts that have been offered today. We should not forget that we will only solve Britain’s energy crisis as Britain. We will only keep the lights on as Britain, not as separate countries focusing on what divides us, rather than what unites us.

Today’s debate is timely, because the CfD auction results have just been published. We have offered contracts—they obviously have not been accepted yet—to 27 projects. The good news is that the CfD auction showed that, amongst other things, competition has worked. We have had a good result from our focus on trying to ensure that we provide value for money for the bill payer, and on increasing energy generation. The auction price for solar, for example, was 58% less than the administrative strike price. It was 18% less for offshore wind and 17% less for onshore wind. The value for money that that represents helped lever in £45 billion of investment into the energy market between 2010 and 2013. I am always trying to explain to people in different sectors that there is only so much money in this world chasing only so much investment. We have to make investment attractive to money or it will go elsewhere—not just domestically, but internationally.

Both this Government and the previous Government have done a good job in recognising that we have to create the conditions to get investment into high-risk areas and those with maturing technology. The CfD process has been a real success. Let us remember that the aim is to reduce carbon emissions. The UK will emit 4 million fewer tonnes of CO₂ emissions a year as a result of the auction. No one can say that that is a bad result. It puts us on the right path to meeting our aim of reducing carbon emissions. At the same time, we have shown that, if we seek a stable framework, people want to come forward and share the risk. The overall cost of production will reduce over that period, and I hope that by the end of the first 15 years—or whatever the time scale is—the actual production costs of many of these generators will be even lower. I hope the Government of the day will remain attuned to when a technology moves from “maturing” to “mature”, when they need to incentivise newer technologies further down the path, and when they perhaps need to let go of more mature technologies that have run their course over many years.

I again make the point that 11 of the 27 projects are in Scotland. That is a good news story for Scotland. I pay tribute to Scottish Labour Members who have lobbied hard on behalf of the Scottish renewables industry and their constituents. That would not have happened in such an easy way if we were two separate countries. All our bill payers will be sharing the burden of electricity generation. As the shadow Minister said, when there was not much wind blowing in parts of Scotland or when Scotland had to rely on our market in England, it was just a formality; there was no artificial barrier to that happening. People who are attracted by the Scottish nationalists or the agenda of separation should remember that independence would fundamentally undermine and damage Britain’s ability to provide electricity for all its citizens across all the isles. That needs to be fully taken on board.

Given the competitive drive to reduce the cost or strike price, which has been a good thing, we think the CfD auction will result in average annual savings of £41 per family bill. The hon. Member for Ynys Môn (Albert Owen) is right: I love Anglesey. When we go on holiday there, I can look out the window and see the red light shining on what used to be the Rio Tinto tower. I am happy, as are the Government, to work to ensure that any barriers to biomass are addressed in the next round of CfDs. That could include help to reduce risks for biomass investment. By working together, we can ensure that biomass has a better showing in the next round. Personally, I would like that project to be successful. I know how important energy is to the island of Anglesey and the pragmatic approach it takes. It would be good news for Holyhead if that project were successful. I am always happy to help ensure that biomass is embraced.

On the subject of the capacity market, securing our energy security is incredibly important. It is all very well encouraging generation, but if the lights go out and we have not worked together to ensure that there is always some capacity, that is almost for nothing. The auction for the capacity market recently completed. We secured 49.3 GW at a clearing price of £19.40 per kW for delivery in 2018-19, which is good news. Consumers and the public can be sure that, alongside our commitment to develop renewables, we have also achieved more security and secured more capacity.

I know that my hon. Friend the Member for South Suffolk is a keen supporter of demand-side response. I asked officials to see an example of DSR, because how we use electricity efficiently and how we reduce demand are as important as how we cater for demand at other times. I urge Members to look at the example of ExCel, the big London exhibition site, which uses Flexitricity and has a genuinely good case model in how it uses diesel generators that switch on and off as demand requires. Flexitricity can control some of the generation remotely, reducing waste on the grid, and I hope to see more of that. The Department and I have certainly heard loud and clear my hon. Friend and his recommendation of and enthusiasm for DSR, which I hope is given a more prominent role in the next few years.

Other Ministers might get home or to their offices to find that the locks have been changed, because this is the second debate I have been at where Members have clearly demanded a future levy control framework and said that it is required. We hear that urgency. It is no comfort, but with only 19 sitting days to go, I anticipate that the Secretary of State will not be revealing that framework any time soon. We will certainly recognise that urgency in the near future. Whoever is in government, we will all be working to ensure that that long-term indication is in place. I hear with open heart and open mind the recommendation for a rolling seven-year framework to ensure that we keep things up to date. In my opinion, that would help to reflect advances in technologies as they develop. If we understand the impact that technologies have as they roll through, we might understand how much influence they will have on levies and everything else.

There is obviously a long list of renewables that we could talk about. The Government have clearly been happy to encourage offshore wind farm developments. We hear the fears about the high strike price and expense of offshore wind, but the CfD auction has shown that the direction is downwards. As the technologies have developed and competition has been brought in, we have started to reduce the offshore price, which I hope in the medium to long term will converge to be not so different from the onshore price, or near enough.

The Government are obviously committed to onshore projects as a way of generating energy. We are at a stage where many of us who see applications in our constituencies should and can say—the Government have shown this with where they have chosen not to support onshore wind farms—that investors should think carefully about whether they bring forward planning applications for a well-sited, well-researched location, or indulge in the speculative, lazy applications that we see in our constituencies. Out of the blue, a speculative application happens, and that is often what upsets and surprises constituents, coming as it does without any indication of logic or anything else. In those cases, the message should be loud and clear: “Do your research and work. Make sure that you are not speculating and trying to garner profit for profit’s sake rather than trying to fit into the community.”

[Sandra Osborne in the Chair]

The biggest drop in price in the CfD auction was solar’s 58% drop. The Government support solar at all levels, including below 5 MW, and with the feed-in tariffs. It has been encouraging to see how the solar industry has been imaginative in finding new sites that get the sun—for example, by renting roofs. The Government are certainly committed in the long term to ensuring that solar is part of the mix. We want it to be successful, and I hope to see more bids in the next CfD round.

[Albert Owen]

Before the Minister moves on from renewable energy, I am not making a partisan point, but does he share my frustration at the lack of development of commercial-scale marine energy? There have been a lot of good demonstrations of it that have not moved forward. What more does he think can be done to make it happen? Everyone agrees on the potential of wave and tidal energy, but it has not increased in scale. Since I have been a Member of this House—I was interested in energy from day one—it has always been three or four years hence, but it has not happened. What can be done so that we can get good commercial projects up and running in order to get the predictable energy supply that we need?

[Mr Wallace]

I am grateful to the hon. Gentleman for that question, because I too remember the grander schemes, such as the Severn barrage and the Wyre barrage in my constituency. They were quite large-scale, ambitious schemes. I checked before I came to the debate, and one of the Department’s priorities is the Swansea lagoon barrage. If we can get that up and running successfully, it is the kind of thing that will quickly trigger a roll-out elsewhere. As he says, wave and tidal energy have been just over the horizon for as long as I have been involved in such issues, but we are getting to a stage where the scale is right and not over-ambitious. From what I can tell, local businesses and people are supportive of the scheme in Swansea, so we should all try to help it to become a reality and sing its praises far and wide, should it be a success.

[Albert Owen]

I fully support the plans for Swansea. In my area, where there is good tidal flow, we have had a demonstration from Marine Current Turbines and Siemens, and we have seen the technology working in Strangford lough. Siemens did not take it to the next stage. The Government have done what they can. There are good renewable obligations and support in Scotland and other places, but schemes have just not gone far enough. I understand what the Minister says about scale, but I am not talking about a large-scale project; it could have developed in sections and become bigger. There is something missing. Will he consider that so that we can move forward with tidal energy?

[Mr Wallace]

I am happy to ask the Department about its observations on why Siemens did not choose to go forward, because we can learn from that. It may have been a commercial decision or there may have been an internal conflict of interest because the company wanted to focus on another technology, but it would be good to find out and move forward.

My constituency borders the two current shale gas sites. I want to put the Government’s position on the record: we are absolutely clear that we are not determined to rush for gas or to throw everything out just to get fracking going. The Government are in favour of fracking, but we want to be its arbitrator. We want to listen to the science behind it. We do not want to be in the pocket of the oil and gas companies or the green movement. The Government’s role is to take a pragmatic approach and ensure that shale gas proceeds, learning from all the experience around the world and from all the environmental studies and impacts that have happened, and use our position to ensure that we set a gold standard. We must move forward where we can, mitigating the effects on local communities through sovereign wealth funds and local community funding, but also through the planning conditions that can be set by mineral rights authorities.

Shale gas will and must be in the mix at some stage. I would rather buy my gas from Britain than from Mr Putin, so if people have objections on human rights grounds, there is one reason. I would rather not compress gas in big ships and take it around the sea if it is possible to get it from Britain. The Government’s position is not simply to progress recklessly on shale gas at any cost. Opponents of shale gas often paint it as if the rush for gas is true, but that is not the case. As we saw recently in the debates on the Infrastructure Bill—the Government accepted Opposition amendments—we will work to ensure that the industry is safe, that constituents are not affected unnecessarily, and that we all benefit from the process.

The last thing mentioned by the hon. Member for Rutherglen and Hamilton West was carbon capture and storage. We cannot avoid the fact that it will be part of an ability in which we must invest, and which we must develop to complement our energy generation over the next 20, 30 or 40 years. We cannot just pretend and have it as a tokenistic thing. It is going to be a fact and we must invest in it. The Government are doing what they can to help investment in the process. As with the barrage and tidal schemes, I look forward to the day when we start the process and get the pipelines and everything else in place. Whoever is in government, it is worth monitoring and investing in carbon capture and storage.

I hope that colleagues have felt that today’s debate has cemented the view that the current energy policy is travelling in the right direction for this country. It is based on reducing carbon emissions, encouraging different technologies and getting value for money for the bill payer. We cannot pretend that those issues are separate; they have to be hand in hand. We have to carry the public with us if we are going to develop energy policy successfully. We should be not pleased, but happy that the CfD auction proved that things are going in the right direction.

The economic benefits are clear. Since 2010, we estimate that more than £30 billion has been invested in electricity generation, principally in renewable technologies. In previous years, it might not have been the case, but that money has gone principally on renewable technologies, and £30 billion does not grow on trees. If we cannot get investment from the markets and the private sector, in the end we will have to get it from the taxpayer. It is a good thing that we have helped to change not only Government policy but investment policy and thinking in this country. As someone who, to some extent, came late to the energy debate, I am grateful for the work of the Select Committee and for its reports. I find them incredibly educational and I know that the Department finds them very useful in helping to create and shape new policy for the years to come.

Before finishing, I repeat my tribute to my hon. Friend the Member for South Suffolk. I thank him for his work with the Select Committee and for his work for the whole House as well.