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The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, your Lordships’ House has had several opportunities to debate energy issues this year, and I know that the debate on this Bill will be as full and rigorous as it has always been in the past.
The Government’s energy priorities are clear: keeping bills as low as possible for families and businesses, and powering the economy while decarbonising in the most cost-effective way. These are challenging and critical objectives, but the Government have a long-term plan, underpinned by carbon budgets, to meet our responsibilities.
Keeping the lights on is non-negotiable. Our modern technological society cannot function without power. A diverse energy mix, including homegrown sources, provides the most resilient system. Tackling climate change is also non-negotiable. Your Lordships know that climate change is a threat not just to the environment but to our national security, global security and long-term economic prosperity. A global deal is the only way both to deliver the scale of action required and to drive down the costs of climate action, so the global conference in Paris this December is a serious opportunity to avoid its catastrophic effects and open up new avenues for low-carbon industries.
Going for clean energy makes economic sense, and it makes business sense: clean energy is a boom market, bringing jobs, investment and growth. But it makes sense only if we keep costs pinned down. The vital financial support that has been provided to the renewables sector has helped new and innovative technologies, while increasing the amount of low-carbon electricity that powers homes and businesses across the United Kingdom. Financial support has already driven down the costs of renewables significantly and these are continuing to fall, making it easier for the industry to thrive without subsidies.
To work for everyone, decarbonisation has to be affordable and sensitive to the impact it has on people’s pockets and wider economic circumstances. The Government have today announced a package of reforms to take control of the costs of renewable electricity subsidies under the levy control framework. This is part of the Government’s commitment to control energy bills for hard-working British families and businesses as we continue to move to a low-carbon economy and make progress towards our carbon reduction and renewable energy targets. This will provide the basis for a more sustainable approach to future low-carbon electricity investment. Consistent with this, in the autumn the Government will set out their plans in respect of the next contract for difference allocation round.
In line with keeping bills as low as possible and ensuring that markets work for consumers, we are proposing to introduce competition to the way our networks deliver electricity, which will open up the energy market to innovation and could potentially save British bill payers £390 million over 10 years. The role that United Kingdom businesses can play in meeting the United Kingdom’s climate change targets is undoubted. By incentivising reductions in energy consumption and emissions, the Government are giving business the tools to achieve that goal. Likewise, by cutting red tape and bureaucracy and creating a simple energy tax system that rewards energy and carbon saving, we are empowering businesses to increase productivity, support growth and ensure their place in a competitive global market. We want to collaborate with industry and the wider green economy sector to ensure that we develop a framework for simplicity and stability.
With regard to North Sea oil and gas, the Bill will complete the work started in the previous Parliament to implement fully the recommendations of Sir Ian Wood’s review into United Kingdom offshore oil and gas recovery and its regulation. The Bill is evidence of our continued commitment to support development of North Sea oil and gas. The United Kingdom’s oil and gas industry is of national importance and makes a substantial contribution to the United Kingdom’s economy, energy security and employment.
The Bill will build on the establishment of the Oil and Gas Authority—OGA—on 1 April 2011 as an executive agency of the Department of Energy and Climate Change, and the powers taken in the Infrastructure Act 2015 to establish the principle of maximising economic recovery in the United Kingdom continental shelf. The Bill has been welcomed by Oil & Gas UK, the trade association for the industry. The chief executive, Deirdre Michie, recently said:
“The OGA is a critical catalyst for the work being done to sustain offshore oil and gas activity and the Bill aims to provide the new regulator with the tools and capabilities it will need to do the job effectively and efficiently so we support its swift passage through Parliament. The provisions contained in the Bill complete the implementation of Sir Ian Wood’s recommendations for MER UK – Maximising Economic Recovery from the UK Continental Shelf”.
The Bill will formally establish the OGA as an independent regulator, which would take the form of a government-owned company, and transfer regulatory powers and functions to the OGA, providing it with new powers to be an effective steward and regulator of petroleum recovery.
Implementing the Wood review recommendations will be done in a way that is compatible with our climate change targets. The 2011 Carbon Plan noted that Britain will still need significant oil and gas supplies while we decarbonise our economy and transition to a low-carbon economy. Maximising recovery by increasing efficiency of production, as well as increasing levels of production of the United Kingdom’s oil and gas, will help to maintain security of supply as well as boost growth and jobs. In 2014, oil produced on the United Kingdom continental shelf was equivalent to around 56% of United Kingdom oil-product demand, while gas produced in the United Kingdom was equivalent to just over half of United Kingdom gas demand. Any oil and gas demand that we do not produce ourselves has to be met by imports, at significant extra cost to the economy. The falling oil price makes effective stewardship of North Sea oil and gas all the more important, as the oil and gas industry in the United Kingdom supports an estimated 375,000 jobs. With industry collaboration and facilitation by the OGA, we will help to drive down costs and improve efficiencies across the sector.
Your Lordships may recall that the March Budget also introduced a number of measures that will help encourage more than £4 billion of additional investment in the United Kingdom’s oil and gas industry over the next five years. Petroleum revenue tax is to be cut from 50% to 35% to support continued production in older fields, while the existing supplementary charge for oil companies is to be cut from 30% to 20%, backdated to January. The Government will also invest in new seismic surveys of underexplored areas of the United Kingdom’s continental shelf.
The Bill will make retrospective provision protecting the taxpayer from liability for historic fees which have been charged, and prospectively enable more comprehensive charging of the offshore oil and gas industry for permits and licences for environmental and decommissioning activity. I thank the Select Committee on the Constitution for its recent report on the retrospective power in the Bill. The Government believe that it is right to protect the taxpayer from the costs of regulating the industry, under the “polluter pays” principle, and will respond to the Select Committee’s report before Committee stage.
Moving to onshore wind, decarbonisation must work in particular for the local communities where infrastructure is built. So the Bill makes provision, alongside new planning guidance, to give local people the final say on new onshore wind development applications in their area. The Government made a manifesto commitment to change the law so that local people have the final say on onshore wind applications and the Bill is part of the Government’s delivery of that commitment, alongside forthcoming secondary legislation and the new considerations for applications for planning permission announced by the Department for Communities and Local Government.
The Bill also helps to deliver the Government’s manifesto commitment to end new public subsidy for onshore wind by bringing forward the closure of the renewables obligation to new onshore wind in Great Britain one year earlier than previously planned. This was a clear and unambiguous manifesto commitment. We have made a great start with renewable power and we will want to be in the best possible position to decarbonise the economy in a cost-effective way, so we will be pushing for an ambitious deal in Paris. We have made excellent progress so far. In 2014, 19% of electricity generation was from renewable sources. We are on track to meet our ambition of 30% of electricity from renewable sources by 2020, and the Bill will not change that.
In 2014, operational onshore wind farms in Great Britain received in the region of £800 million under the renewables obligation. We would expect this to increase to £1.1 billion per year if, as expected, a total of around 11.6 gigawatts of onshore wind comes forward under the renewables obligation. We are therefore taking action to provide us with better control of spending on subsidies and we will ensure that bill payers continue to get value for money as we move to a low-carbon economy.
In conclusion, this Bill seeks to reform onshore wind subsidies and put more power in the hands of local people to make decisions on the development of new wind farms in their area. This Bill will help to support jobs and growth by reinvigorating our domestic oil and gas industry. I believe that the measures in the Bill will keep Britain on the road to economic recovery and secure our energy supplies. I thank noble Lords for their engagement in this progress today. I look forward to a good debate today and throughout the progress of this Bill. I beg to move.
Lord Grantchester (Lab)
My Lords, energy policy and its development are necessarily long term, with objectives that endure through many Parliaments across all shades of Government. The UK faces a huge challenge to its energy supplies as sources of power come to the end of their useful life, to which Governments must respond with new sources and new infrastructure. The Energy Bill before your Lordships’ House today reflects both these elements and I thank the Minister for his comprehensive introduction and explanation.
I somehow sense that the Minister is already on the back foot, as he spent the first four minutes of his remarks putting up defensive statements around renewable energy policy. However, there is much in this Bill that is to be commended and has our support, helping as it does the UK oil and gas industry prolong the benefits of North Sea oil reserves. Industry has widely welcomed the OGA proposals. However, we believe that more could be done. With respect to the other main provision of the Bill, regarding a new energy source of onshore wind generation, there is much in the Bill that we believe spreads alarm and fear across the renewable energy market.
The main provisions of the Bill implement the recommendations of the Wood review by putting the Oil and Gas Authority on a statutory basis to maximise the economic recovery of petroleum from the UK’s continental shelf. We agree with this and welcome the MER—maximising economic recovery—strategy.
Part 1 of the Bill relates to the OGA and its core functions. Clause 4 will provide for matters to which the OGA must have regard when exercising its functions. The Bill lists five: namely, minimising future public expenditure, securing the UK’s supply of energy, collaborating with government and industry, encouraging innovation in technology and working practices, and maintaining a stable and predictable system of regulation. We contend that another very important aspect should be added, namely that the OGA must have regard to environmental impacts of activity in tandem with the Climate Change Act 2008. We will want to examine this in Committee.
Other measures in the Bill regarding the OGA provide additional powers in relation to its necessary activities between government, the Secretary of State and the wider industry of licence holders and operators. The Minister has outlined these provisions expertly. However, it is important to recognise that the North Sea supports hundreds of thousands of jobs—more than 400,000. We must look to the future of the North Sea, beyond extracting the last useful drops of oil, and to what employment it could provide. The Bill contains no measures to ensure that infrastructure is not lost when companies decide to abandon their operations. Either to salvage important assets or to stifle potential exploitation by others in the future, companies may well take infrastructure assets with them, making it all the more difficult to establish future projects.
The UK continental shelf supply chain is an integral part of a valuable industrial sector, which generated a turnover of more than £35 billion in 2012—including exports worth £15 billion per year—and which has historically been the largest contributor to the Treasury. The OGA, together with the Oil and Gas Environment and Decommissioning Unit, should ensure continued economic activity in the North Sea. This could include ensuring that infrastructure assets that could be reused later are preserved. Much of this infrastructure could be used in the storage of carbon dioxide. The Bill gives the OGA powers to license sites for CO2 storage but does not do nearly enough to ensure that the necessary infrastructure to transport and store CO2 remains in place. This is happening as part of the Peterhead CCS project.
The Constitution Committee of your Lordships’ House has drawn attention to the retroactive aspects of the Bill at Clause 58, which would validate fees already charged by the Oil and Gas Environment and Decommissioning Unit. Although retrospective provisions are generally to be avoided at all times, the Constitution Committee recognises that these provisions do not retrospectively criminalise any conduct or seem to unpick any judicial decisions. The provisions cover the levy of a narrow set of fees and the Minister has given further reasons today in his remarks for the need to retain the fees already levied. I thank him for that.
Although the majority of the Bill is devoted to providing certainty of benefits for investors in offshore oil and gas, the two clauses that deal with onshore wind as a future energy source do the exact opposite for investors in renewable energy. These changes to the financial support for onshore wind threaten the future of 19,000 jobs supported by that sector. These changes certainly curtail future development of the lowest-cost source of low-carbon power, and by setting dangerous precedents for other renewable sources of energy, investor confidence in a stable UK business environment is being shattered.
The first of the two clauses on wind power devolves the decision-making on planning applications for schemes larger than 50 megawatts to local authorities. This is all very commendable and, so far, we can all agree—except when it is put against guidance issued by DCLG on 18 June that local authorities may only issue planning permission for sites “already identified as suitable” as part of a local or neighbourhood plan. Several authorities, such as Mid Devon District Council and North West Leicestershire District Council, have indicated that this means, far from local authorities being consulted, they will have to reject outright any applications for onshore wind farms, as they have no sites allocated in their local or neighbourhood plans.
The second clause puts an end to public subsidies for new onshore wind farms under the renewables obligation one year early. This sudden change to the renewables obligation is particularly damaging. Closing it one year ahead of schedule means projects that have already received investment and incurred expenditure may not now go ahead. The last Government brought forward plans to close the renewables obligation in 2017, and no indication was given that it would be closed any earlier. Indeed, the noble Baroness, Lady Verma, told the House in a Written Answer in January this year:
“No further comprehensive banding review is planned for the RO scheme”.
The Independent Renewable Energy Generators group estimates that members in the advanced stages of projects have aggregate onshore wind investments of £1.2 billion, with sunk costs either already spent or contractually committed totalling £350 million. A sense of dismay is felt throughout the renewable investor market that this Government cannot be relied on.
The Minister stated that there will be a grace period with three key criteria to enable projects to qualify, namely that a development must have received planning consent, accepted a grid connection offer and have a land lease agreement in place. However, the Government have not specified dates nor taken the lead to contact the estimated 250 projects affected. That this number is put forward would suggest that the Minister’s department has done a jobs and supply-chain sector impact assessment. Can the Minister say whether the department did undertake an impact assessment before the announcement of 27 June? It would an astonishing omission if an impact assessment had not been undertaken, which would be the inference without an answer from the noble Lord. If he can confirm that an impact assessment has been made, will the Minister publish it?
The lack of clarity in the timescale and other important elements of the grace period mean that project financing and development may be delayed, potentially causing eligible projects to fail. The knock-on effect on the confidence of renewable investors into other areas is extremely damaging. As the company E.ON said:
“This jeopardises the reputation of the UK as a stable and attractive market to invest in”.
Long term, that can only be to the detriment of the UK citizen. However, to undermine the future role that onshore wind can play is not inevitable. Although we share the Government’s desire to reduce the costs, we believe that it can be achieved without deterring investment. Companies could still make positive investment decisions based on the grace period proposals with some modest government actions. Will the Government come forward with reassurances and proposals?
These changes make it all the more difficult and expensive for the UK to meet international obligations on renewable targets. In June, the European Commission released a report showing that we are falling behind the trajectory necessary to achieve the UK national target. This comprises three elements: heat, transport and electricity. On transport, the aim is for 10% of transport fuel by 2020 to come from renewable sources. The UK is at present only at 3.5%. On heat, the target is 15% from renewable sources, when the present level is only 4.9%. Yes, on electricity the UK is on track. Yet the Bill may well jeopardise that achievement. What assessment have the Government made of the likelihood of achieving a virtually carbon-free electricity sector by 2030 following the impact of the Bill?
What estimates have the Government made of the effects of these changes on the overall cost of creating a carbon-free electricity sector by 2030? Will the Government commit to maintaining support for onshore wind through the contracts for difference scheme and feed-in tariffs up to the end of 2020, although at a reduced capped price of £80 per megawatt hour? At this price, the Committee on Climate Change has stated that onshore wind could be deemed to be subsidy free when compared with the full cost of unabated gas. By reducing the rollout of onshore wind, meeting 2030 and 2050 decarbonisation objectives will require alternative technologies, which may well ultimately increase costs for consumers given that onshore wind is one of the most cost-effective energy technologies. In contracts for difference, onshore wind has a strike price of £95 compared with £155 for offshore wind.
The Bill severely limits the cheapest way of meeting UK targets. The Bill will increase consumers’ bills and make it more expensive for the UK to decarbonise. The Bill represents a potential wrong turn. The Government must work hard to bring forward the necessary investment still so needed to transform the UK’s energy sector. The Government must not let this become a missed opportunity.
Baroness Maddock (LD)
My Lords, before I begin, I declare one or two interests. I am a vice-president of the Local Government Association, president of the Sustainable Energy Association and vice-president of National Energy Action, which is a fuel poverty charity. If we are serious about tackling climate change we need not only to reduce the amount of carbon we produce but to make sure we find sustainable solutions for our energy needs. In scrutinising the Energy Bill, the Liberal Democrat Benches will be looking to see how it stands up to those criteria.
As has already been made clear, the Bill falls into two parts. We want to maximise the potential of our North Sea oil and gas reserves but we are also planning to change the way we subsidise and plan onshore wind power. The first is by far the greatest part of the Bill. It implements, as we have heard, the recommendations of the Wood review into maximising the economic recovery of oil and gas from the North Sea, which was set up during the previous coalition Government under the leadership of the right honourable Ed Davey, who was Secretary of State at the Department of Energy and Climate Change.
As we have heard, it establishes the Oil and Gas Authority, which will be an independent regulator, but it also transfers functions from the Secretary of State for Energy and Climate Change. It would seem in many ways to be the least controversial part of the Bill. It looks forward and sets out a long-term framework, and I understand that it draws quite closely on what Norway has done to maximise its gas reserves in the North Sea. Last year, I was part of a parliamentary delegation to Norway, and we had a series of meetings and presentations in Stavanger about how Norway has made the most of its oil and gas resources in the past and its plans for the future.
As we have already heard from the Minister, the North Sea is very important to us. It provides 56% of our oil product and just over half of our gas demand. There is every reason to believe that there is the potential to supply a significant proportion of our needs to 2020. Indeed, we know that these resources are needed as we transition to a low-carbon future. We also know that large numbers of jobs are involved—the noble Lord, Lord Grantchester, said more than 400,000, although my figure is a bit less than that. Particularly where I come from in the north-east of England, this is a very important contribution to our economy.
Those involved with North Sea oil and gas extraction support the recommendations of the Wood review, but consultations on the levy that will fund the oil and gas body are still ongoing. I understand that the levy structure and amounts will be introduced through secondary legislation, under powers contained in the Infrastructure Act 2015, and that the Government are still analysing the feedback from the consultation. Will the Minister be able to give us this information before the Committee stage of the Bill in September?
There are numerous points in the Bill where the Secretary of State is given powers to make regulations. When will we get details of these? We are in recess between now and Committee, and the ability for scrutiny of secondary legislation is somewhat limited. However, I have no doubt that this House will, as usual, give thorough scrutiny to this part of the Bill in due course.
The second area covered by the Bill is onshore wind, and this is somewhat more controversial. Clause 59 changes the planning regime for onshore wind turbines and Clause 60 changes the closure date of the renewables obligation for this sector. The Department of Energy and Climate Change briefing for the Bill claims that onshore wind has deployed successfully to date, and that we have enough onshore wind in the pipeline to meet our 2020 aim of generating 30% of electricity from renewable resources. Have the Government at any time indicated that this was the point at which they would consider changing their commitment to subsidy for onshore wind? Is the Minister aware that RenewableUK, which represents the wind and marine energy sectors, does not agree with DECC’s analysis of the situation, saying:
“The share of renewable electricity will need to increase if we are to meet out 2020 renewables target. Ruling out … further contribution from onshore will increase our dependence on more expensive technologies and, hence, the cost of meeting the 2020 renewables target and longer-term low carbon reduction objectives”.
The Minister must be aware—the noble Lord, Lord Grantchester, talked about this—that this change of direction sends a terrible message to those prepared to develop all forms of renewables and, equally and very importantly, puts off those who are prepared to provide finance for projects. Again, I quote from RenewableUK, which says:
“Early RO closure threatens investor confidence in the stability of UK energy policy and increases the risk premium attached to energy infrastructure investments—projects which make up the largest part of the national infrastructure pipeline identified by the Treasury. Confidence has been further undermined by the retroactive cut to LECS”—
and, indeed, by the announcements that I woke up to on Radio 4 this morning.
Many of the UK’s independent renewable-power developers and generators have collectively invested millions of pounds in onshore wind generation. They point to the commitment given by the noble Baroness, Lady Verma, at the beginning of this year and pointed out by the noble Lord, Lord Grantchester. It is clear that removing the support mechanism for onshore wind has the potential to destroy investor confidence in the wider energy market, putting investment in all energy infrastructure at risk. Wind, as has already been noted, is the lowest-cost source of low-carbon power we have. Without onshore wind, British bill-payers will have to pay hundreds of millions of pounds more every year as more expensive alternative technologies are substituted for it. Uncertainty around the arrangements for grace periods needs to be removed at the earliest opportunity if we are not to lose valuable projects that are already in the pipeline. What information can the Minister give us on these matters today?
Turning to the changes in the planning regime for onshore wind, it is not clear to me exactly how this will work. We on these Benches have always believed in devolution but believing in devolution when you come late to it means that sometimes you do not always carry it out in a way that works and is democratic. I am still not clear how the changes will work. We heard from the noble Lord, Lord Grantchester, about his concerns about this. I hope that our deliberations in Committee will give more clarity, especially as it seems that so much of the detail will be in secondary legislation.
Finally, I should like to dwell for a moment on two areas that have not been considered: energy efficiency and fuel poverty. Can the Minister explain a little more clearly how the measures in this Bill support the Department of Energy and Climate Change’s work,
“to power the economy with clean, secure, affordable energy supplies while keeping bills as low as possible for hard-working people and businesses”?
We know that meeting the UK’s energy needs through increased domestic energy efficiency can reduce the UK’s dependence on imported fossil fuels, so it does increase our energy security. It is also a part of tackling fuel poverty at the same time as supporting many other national priorities, including carbon reduction, reduced pressure on general practices and emergency services, economic development and regeneration, to name but a few. Currently, not £1 of the UK’s public infrastructure budget has been spent on initiatives to make homes warmer and healthier and to, in turn, encourage economic growth. This is in spite of Her Majesty’s Treasury receiving a significant windfall from domestic energy consumers, some of whom are in fuel poverty.
In the first few months of this new Government, we have found it very disappointing to see us moving a little backwards in our efforts to combat climate change. It is particularly so in the light of the joint pledge made in the last Parliament. Only last February, Mr Cameron, Mr Clegg and Mr Miliband agreed a pledge to tackle climate change which they said would protect the United Kingdom’s national security and economic prosperity. The pledge committed them to seeking a fair, strong, legally binding, global climate deal which limits temperature rises to below 2 degrees centigrade and to work across party lines to agree UK carbon budgets and accelerate the transition to a competitive, energy-efficient, low-carbon economy. My colleagues on these Benches, particularly my noble friend Lord Purvis, will enlarge on some of these matters later in the debate. Meanwhile, I have indicated the thrust of how we on these Liberal Democrat Benches view the Energy Bill. I look forward to the Minister’s response to some of my questions and to our deliberations when we return from the Recess in September.
Lord Howell of Guildford (Con)
My Lords, I declare an interest as honorary president of the Energy Industries Council, chair of the Windsor Energy Group, adviser to Mitsubishi Electric Europe and, recently, president of the British Institute of Energy Economics. I have four points to put to your Lordships. First, I hope that this Bill, which the Minister has presented so ably, is the harbinger of more changes to come. Our energy policy is one of the less happy legacies of the previous coalition Government and major alterations are badly needed in the light of changed circumstances.
To this day, the trilemma facing our energy policymakers—to combine affordability, reliability and decarbonisation—remains totally unresolved. As we know, energy costs and bills are through the roof, causing much suffering. It is ridiculous in an advanced society that energy and fuel banks have to be opened to help vulnerable people to avoid freezing, or that Tata Steel has to lay off hundreds of workers because of “cripplingly high electricity costs”. This is self-harm on a grand scale.
Meanwhile, the electricity supply system has become precarious, with safety margins still much too narrow—although I believe that National Grid will manage to cope, just—and new gas turbine capacity is not being built nearly fast enough. This is despite heroic attempts, which we in this House are all familiar with, by the Government to induce more investors to come forward and put money into new gas generating plant: for example, by guaranteeing plant revenues and other devices that we have discussed at great length.
As for decarbonisation, emissions from our home production may be down but carbon leakage and imports mean that the actual emissions embedded in our consumption patterns are way up. Even if they were not, one has to ask what all this is doing for climate change, which is our main concern. I know the theory is that it will work by example and, like others, I hope that other countries around the globe will agree at the forthcoming Paris conference to new and binding CO2 limits, which the Minister mentioned. However, with over 2,000 new coal-burning generators being planned or built around the world, and when one hears the determination of Indian leaders, come what may, to go for massively increased coal to get cheap power for development, one has to wonder to what extent our efforts so far are making an impact on the real issue of combating climate change.
I hope that the Bill is the beginning of something better, with resources going less to endless subsidies to high-cost renewables and more to the research and technology that will get costs down and make green power cheaper and cleaner. I look forward to green power that can make do without subsidies at all. I can easily understand the dismay, which we have heard about, of those who have invested and planned on the assumption that subsidies and support would stay the same for ever and a day. However, once they get too high—too good to be true, as it were, and for some investors that has certainly been the case—common sense ought to warn that Ministers and officials can change, Governments come and go, the mood may change and public money may run out. The wisest guidance there is not “Invest more” but “Put not too much trust in princes”. If the true climate impact of our efforts globally is small, though important; if energy reliability has become less, not more; and if the environmental effect is negative, as it is for many people, the voter and the taxpayer are bound to ask what on earth they are paying the premium for and why. Subsidies and support prices are bound to be capped; the only surprise is why it was not done, and did not start, earlier.
Secondly, I come to the major part of the clauses in the Bill, concerned with the Oil and Gas Authority. I hope that it will be strong enough to cope with the long string of problems that the North Sea now faces. The chief of these will be the weak oil price for a long while to come. We are moving into an area of major oil and gas surplus, not only because of the vast American shale oil and gas expansion but because Iran will shortly be adding a few million barrels a day to the market and Saudi Arabia is pumping more than ever. On the demand side the outlook is flat, with even Chinese oil thirst slowing down. With strong supply and weak demand, it does not take a rocket scientist to see where that points. There may be spikes to come in the oil price from so-called high-impact events in the Middle East but the trend is down, down, down. That is going to place considerable strains on North Sea oil and gas producers and all the ancillary industries surrounding and supporting them. I hope very much that the new authority is going to be able, and will have the powers, to cope with the enormous challenges ahead.
My third point is that in everything to do with renewables, as in this Bill, we are of course governed by EU energy policy. This, as we know, vacillates but is currently dominated by the need to reduce dependence on Russian gas. Like our own policy, EU energy policy has been badly wrong-footed by events and needs constant overhauling. Stupendous errors have been made, and I hope and trust that one of the key points in the negotiations on EU reform being held by my right honourable friend the Prime Minister will be the need for radical changes in the way that energy policy is handled between the EU Commission and member states.
Fourthly, in closing off in Clause 60 the renewables obligation for future new onshore wind—that is, the obligation on energy companies to buy highly expensive wind power electricity—one is bound to ask: who next? How and where will the levy control framework next be applied? The Minister gave some strong hints on that but we read in the papers today that maybe small solar farms will be the next in line.
By far the biggest obligation, or future burden, on consumers and households is the Hinkley Point C nuclear project. I am very pro nuclear and pro its low-carbon contribution but this must be one of the worst deals ever for British households and British industry. Furthermore, the component suppliers to EDF are in trouble, costs keep rising, no reactor of this kind has ever been completed successfully, those that are being built are years behind and workers at the site have been laid off, so personally I would shed no tears at all if the elephantine Hinkley Point C project were abandoned in favour of smaller and possibly cheaper nuclear plants a bit later on. A far better hope lies with the Japanese nuclear plants at Wylfa and Moorside. The Japanese can build quicker with more tested and reliable reactor designs, and, because of cheap gas for years to come, we will not need them so soon anyway. I would very much like to hear the Minister’s assessment of what is happening on this front.
When it comes to decarbonising world energy, what happens in India and China is far more important than anything we do on renewables here. I hope that in all our energy priorities and in our handling of relations with the great Indian nation we will keep this in perspective. It is in the technology and innovation to reduce renewable costs, to make storage commercial and to push up energy efficiency at all stages of the power supply chain, and in the cleaner burning of coal across Asia, in particular, that our salvation lies, not in offering soaring and uncapped subsidies. We need to decarbonise but at an affordable and manageable pace, and that is where our resource priorities should now be directed. I hope that this Bill is a modest start in that direction.
Baroness Liddell of Coatdyke (Lab)
My Lords, I refer to my entry in the Register of Lords’ Interests in that I am a non-executive director of the Offshore Renewable Energy Catapult, a government-funded initiative to develop technology in the offshore renewable energy field. It is funded by BIS through Innovate UK. In a little while I shall refer again to the Offshore Renewable Energy Catapult but for a very specific reason.
There is much in the Bill that I support. I learned a very long time ago that, whenever Sir Ian Wood says something about the oil and gas industry, one should listen very closely. He has considerable expertise and focuses very rapidly on the key issues. Indeed, the review that he conducted for the coalition Government merits detailed consideration during the passage of this Bill because it refers to a lot of the detail that we need to take into account to ensure that we sustain an industry in which, quite frankly, we are world leaders.
My noble friend Lord Grantchester talked about the infrastructure, which we need to maintain. One area that I am concerned about—and here I agree with my noble friend—is the supply chain, but particularly the supply chain as it applies to people. Our skills in oil and gas technology lead the world. I speak with a degree of passion on this issue because people have tended to forget that some years ago the oil price dropped to $10 a barrel, at a time when every major company was doing its sums on $28 a barrel. We looked hard in the eye at the prospect of decommissioning. We saw carriers in Scottish sea lochs, nose to tail for mile after mile. The thing that scared the living daylights out of me was the dramatic reduction in applications to study offshore oil and gas technology at Robert Gordon Institute in Aberdeen, now Robert Gordon University—another world-leading institute. This is not a partisan point but the then Labour Government put considerable effort and impact into the oil majors. For the first time ever, we got the oil majors around the table to consider what this challenge would mean for the industry. We managed to protect that supply chain and regenerate interest in offshore technologies. In fact, some years later, I was to see the benefits of it when I was walking through the central business district in Perth, Western Australia, and was greeted with that elegant Scottish phrase, “Gaun yersel, Mrs Liddell!”. Many of the oil and gas specialists became international specialists and would fly into and out of, for example, the Timor Sea area because they have expertise in deep water.
I am labouring that point to the Minister because there is something I want him to look at. I have a great interest in offshore renewable energy, as I have mentioned. Many of the skills from our technologies in oil and gas in the North Sea are transferable. As the noble Lord, Lord Howell, pointed out, we have a dramatically declining oil price. We should consider the Iranian situation, and I am beginning to hear talk about the oil price coming down to $40 a barrel. This is emergency territory. We must not lose our expertise. I am not going to bounce the Minister into an answer today, and perhaps he would be kind enough to write to me, or perhaps we could meet. However, I ask him to look at a proposal called OASIS, which has come from the Offshore Renewable Energy Catapult. It aim is to take people from the oil and gas offshore industry and second them into the catapult of other organisations to allow the transfer of research and development capability in the North Sea, particularly as regards deep water. I am asking him to look at that early because the Oil and Gas Authority could consider it, and that needs to be done more quickly than it will take us to complete the proceedings on this Bill. At an early stage, there is a need to triage the significant R&D projects that could be imperilled as a consequence of the low oil price and to map where that kind of innovation and R&D capability could move across to offshore renewable technologies.
The second opportunity would be in development projects such as floating offshore wind capability—something I have plucked from mid-air. It might even put a smile on the face of the noble Viscount, Lord Ridley, who is known to be extremely sceptical about these issues. However, we have rigs, capabilities and semi-submersibles out in the North Sea. Can we look at the possibility of using them for offshore renewable technologies? My third point is that we have an opportunity to become global leaders in these technologies. Co-ordination and co-operation with the Oil and Gas Authority can bring this to fruition.
I make one slight diversion into the issue of onshore and solar energy. I am not going to go into whether onshore wind or small-scale solar are wonderful. What I will say is that anything that mucks about with the regime for these industries affects investor confidence, and that is what we really need to work on at the moment.
I am never sure whether we can refer to strangers in this Chamber, but I saw the Energy Minister standing at the Bar of the House. She was looking remarkably well. In her position, I would be losing sleep. There are real concerns about security of supply. A major outage in the United Kingdom could put us in an extremely perilous position, and that is a strategic issue. The last thing we need at the moment is uncertainty around energy investment.
I was tempted by the argument of the noble Lord, Lord Howell, when he referred to Hinkley Point. Like him, I am a great advocate of nuclear energy. But, frankly, the proposal for a new generation of nuclear is at the dog’s breakfast stage. Something needs to be done and it needs to be done quickly because we need the energy and we need the capabilities. There is no way of shirking that. If we do not do something about our own nuclear industry, we will be importing French nuclear electricity. We really need to get our act together on this. If it takes cross-party discussions then for goodness’ sake let us do it. It is too important to leave to a whim and the bargaining power of EDF—a monopoly is not a good situation to be in.
My main plea is that I hope we will have an opportunity to address the strategic issues in the course of this legislation. I am slightly worried by the conclusions of the Constitution Committee, but that is undoubtedly something we will look at in more detail as the Bill goes through its processes in September. I pay tribute to Sir Ian Wood’s work. What he has put together is essential for our energy security. I make a sincere plea to the Minister and his department. I work on the figure of 375,000 jobs in the offshore oil and gas industry. We lead the world. Let us build on that leadership in the world and recognise that oil and gas capability can be transferred to offshore renewable capability. Let us seize the moment.
Lord Oxburgh (CB)
My Lords, I see this Bill as something of a curate’s egg: it is good in parts but less good in others. My main concern is less about the details of the Bill and more about the lack of an overall strategic framework for energy into which we can fit it.
The first part of the Bill deals with North Sea oil and gas—and here I should declare an interest as honorary president of the Carbon Capture & Storage Association. The decision to follow the main recommendations of the Wood review is exceedingly welcome. Although the overall demand for oil and gas is likely to decline with increasing use of renewables, that same increase will increase the need for dispatchable energy. Currently, that need is mostly met by gas and it makes sense to reduce our dependence on imports and to make maximum use of our North Sea resource.
The proposed OGA arrangements are broadly welcomed by the industry, as several noble Lords said. However, for them to work effectively, as indeed the noble Baroness, Lady Maddock, said, it is essential that the detail is right. As this Bill progresses, we should look at that in much more detail and consider what will be put into secondary legislation. One question that the Minister might be able to clear up today is: how many civil servants and at what level is it intended will be transferred from DECC to the Oil and Gas Authority? Furthermore, what oil and gas expertise will remain within DECC to ensure that the department can provide intelligent and informed oversight of the authority?
I turn now to the part of the Bill that relates to wind energy. The Government must recognise that the two provisions in the Bill, one relating to the closure of the ROC scheme one year earlier than originally advertised and the other relating to planning consents for wind farms, will together be seen as a government cold shoulder for onshore wind. It is hard to see how this is consistent with the declared intention of decarbonising our economy in the least expensive way. I do not know whether the Minister is familiar with the review of onshore wind completed by the Baringa Partners consultancy in April of this year, but even if he is not, his officials will be. Using DECC documentation and assumptions, the review shows that after landfill gas, onshore wind provides potentially lower strike prices than any other renewable technology. This finding led to the conclusion that, “Based on DECC’s assumptions, onshore wind is the cheapest source of renewable generation available to the UK today for deployment at significant scale”. It would be helpful to know whether the department accepts those Baringa conclusions. There may well be good reasons why UK onshore wind capacity should not exceed the 12 gigawatts that the department seems to have in mind, but if so, it would be useful to know what they are.
The onshore wind industry in the UK—as distinct from the offshore industry, about which we have talked a little, and is more capital intensive—is one that owes much of its growth to small companies. Indeed, for several years I was the chairman of such a company. The fact that many of these companies are small makes them particularly vulnerable to abrupt changes in government policy. Delayed or cancelled programmes can result in fatal cash-flow problems, or at best simply increase the cost of capital. For these reasons, can the Minister assure the House that he will consider sympathetically representations made on behalf of smaller firms in respect of significant sunk costs that do not fall within the currently proposed period of grace within which planned projects may proceed? I think that this would be seen as a sympathetic gesture by the industry as a whole.
An even better way to decarbonise than wind is not to use the energy in the first place, but rather to save it, particularly in domestic housing. In that case, does the Minister not feel that the decarbonising efforts of his department are being undermined by the Government’s decision to countermand the previously advertised new regulations for low-carbon building that were due to come into force this year? As he will know, there are now companies in the UK that offer to build new, low-cost, near zero-carbon housing at the same price or better than conventional housing. I find this decision particularly odd in the light of a remark made yesterday by the Secretary of State to a Select Committee in the other place: “I am particularly ambitious in the area of energy efficiency”. The decision adds to the impression that there is no cross-government cohesion on energy policy.
The noble Lord, Lord Howell, referred to the massive impact of the commissioning of coal-fired power stations in India and China, and he is absolutely right. Unless the environmental effects of those are brought under control, what we do in Europe really will not have a great effect. What we are doing in this country, which is of considerable importance, is pushing ahead with carbon capture and storage. The main aim of our policy has to be to drive down the costs of CCS to a level at which the technology can be applied—in many cases retrospectively—to coal-fired power stations, particularly in developing countries, but also in other parts of the world. Cost will be the crucial factor.
Turning now to the broader policy context within which this Bill is presented, it is general knowledge that the Government have energy problems. It will be very difficult to keep costs within the arbitrary cap of the levy control framework. It was, and remains, difficult to predict how the EMR would work in detail, how fossil fuel prices will change and how new technologies and other variables will affect us. However, there is a wide perception, particularly in the investment community, that the Government’s support for decarbonisation in general and renewables in particular is incoherent, unconvinced and half-hearted. I am not saying that this is truly the case, but it is widely believed to be so.
Abrupt changes in previously announced policies to save relatively small sums make the Government appear penny wise and pound foolish, and it saps confidence. As long as that remains the case, decarbonisation industries will struggle to find investors. I conclude by pointing out that in a survey of its members published in June this year by the Energy Institute, the professional body for the energy industry, energy policy was identified as the greatest concern. If the Minister can help dispel these doubts and uncertainties, he will do a great service both to the country and to an important part of British industry.
Viscount Ridley (Con)
My Lords, I declare my energy interests, as listed in the register, mainly in unsubsidised coal, although I also have much smaller indirect interests in wood, wind and grain ethanol.
I shall confine my remarks mainly to the renewables and wind parts of this Bill. I welcome, like others, the Oil and Gas Authority, and strongly welcome the Bill. At last we can see an end to the ruination of many parts of the British landscape, funded by regressive hidden taxation and carried out by crony capitalism. In particular, Northumberland has borne more than its fair share of the onshore wind industry, as we discussed in a debate in this place a few months ago. It is welcome, therefore, to know that this might come to an end.
We have heard a lot from the Benches opposite about the plight of wealthy investors in wind power in the coming months. It is time to hear of the needs of ordinary working people on whom the cost of the renewable energy subsidy burden has disproportionately fallen in recent years. I am proud of the fact that it is a Conservative Government who are standing up for ordinary people to try to halt the runaway cost and overspend that has happened in this industry. I congratulate the Secretary of State, through my noble friend the Minister, on tackling the grandfathering of biomass, as announced this morning, a technology that produces more carbon dioxide than coal. I urge the Secretary of State to push ahead urgently with the early closure of the renewable obligation to under five megawatt solar farms. A five megawatt solar farm needs 25 acres of land, and a policy that distorts the market to switch land from producing food to producing extremely expensive and unreliable energy is a bad policy.
By the way, it is a myth that is being repeated here today that onshore wind is the cheapest renewable. It is not. Hydro is cheaper; biomass is usually cheaper; and, as we have heard, landfill gas is cheaper. So we should not fall into the error of thinking that it is by far the cheapest.
Please note that the measures announced today, and those in this Bill, will not achieve the Government’s stated priority of:
“Reducing energy bills for hard working British families and businesses”,
as the cost of renewable subsidies will still double by 2020. Bills will still go up, not down, and this will be the case even if wholesale gas prices fall. The Secretary of State’s announcement today includes a table that confirms that we are on course to spend £1.5 billion more a year by 2020 than the levy control framework limit—that is, £9.1 billion instead of £7.6 billion. That means a £20 billion overspend cumulatively.
The Renewable Energy Foundation, and John Constable, its director, in particular, have predicted exactly this situation for a number of years, and today’s announcement precisely confirms their predictions. The REF figures, based on the Government’s own planning database, suggest that we have 49 gigawatts of consented capacity for renewables, which would generate roughly 148 terawatt hours of electrical energy, which is 34% over the 110 terawatt hours needed to meet the 2020 target. This is probably an underestimate as it omits small-scale solar photovoltaic, existing unsubsidised hydro and sub-10 kilowatt generation. Then, there is a further 14.7 gigawatts of renewable capacity pending in the planning system. If that was all built, we would have a 67% overshoot of the 2020 target for renewables. So we have to slow down this spend, and we have to grasp the nettle that it has to be slowed down offshore as well as onshore. Almost half the renewable electricity that we will get in 2020 will come from offshore wind. Notwithstanding the hopes of the noble Baroness, Lady Liddell, will the Government confirm that there will not be a huge expansion of contracts for difference for offshore wind in the wake of these announcements?
We have to address the environmental problems created by the mad wind rush we have seen in recent years and the damage caused to landscapes, peat, birds, human health and tourism. I draw my noble friend the Minister’s attention to a 10-minute rule Bill introduced yesterday by David Davis MP, in which he pointed out that many wind companies are not liable for any damage that is proved against them in terms of nuisance because they are now shell companies. That is a relatively new phenomenon. So who carries the cost of decommissioning these wind farms when they need to be decommissioned in the 2020s and 2030s?
I have a series of other questions for the Minister. He said that this measure is intended to give local people the final say. He will know that in the planning system there is, obviously, a right to appeal. Does giving local people the final say over onshore wind farms mean removing that right of appeal or in some way circumscribing it? I would like a little clarity on that, if possible.
There is some strange wording in Clause 60, on which I would like clarification, because it removes the right to renewables obligation certificates in 2016, but not the right to accredit or register for renewables obligation certificates after that. What is going on here? Would this allow speculative developers to still register after 2016 in the hope of a change in policy, a change in government or a fall in the price of wholesale electricity? It would be helpful to have a little clarity.
Finally, my noble friend the Minister said that decarbonisation makes economic sense. However, the figures that he gave me on 24 June, in answer to an Oral Question, confirm that the cost of decarbonisation using offshore wind or solar are £120 a tonne and £110 a tonne respectively under the renewables obligation, and this does not include many of the system costs. Yet these numbers are far higher than the cost of damage that climate change is likely to cause, brought forward to the present, even in the estimates by the noble Lord, Lord Stern, which do not exceed £50 per tonne. So there is a danger here that, in spending huge sums on decarbonisation, we are putting a tourniquet round our neck to stop a nosebleed.
Lord Whitty (Lab)
My Lords, I declare my interest as chair of a fuel poverty charity and as a vice-president of the Local Government Association. It is quite convenient to follow the noble Viscount, Lord Ridley—at least he gives us a carte blanche to be a bit controversial. What we have just heard makes me move to one of the phrases from later in my speech: that one of the dangers here is that the Treasury has taken over DECC. But it is actually more profound than that. One of the dangers is that the climate sceptics have taken over the Treasury.
There are different perspectives, and not everything in the renewable field is lovely, aesthetically or economically. Nevertheless, I think that the recent decisions by the Government in relation to onshore wind and, indeed, solar power make a proper economic and effective contribution to renewables, to our decarbonisation programme and our security of supply of energy more difficult to attain rather than less.
It is true that this Bill is a pretty thin Bill as energy Bills go. There are only really two bits of it: one related to the OGA and one to effectively limiting the support and the ability to engage in onshore wind projects. I do not have much to say about the OGA; it is following through on decisions taken in the earlier Bill at the end of the last Parliament. I would, however, underline two questions that have already been asked. The first was from my noble friend Lady Liddell, regarding the OGA’s role in effecting the transfer of skills, infrastructure and connections from the offshore oil and gas system to offshore renewable projects. The second was asked by my noble friend Lord Grantchester: will the responsibilities of the OGA extend to the operation of carbon capture and storage, where the emptying North Sea gas and oil fields could provide ready-made storage not only for British operation of fossil fuel facilities accompanied by CCS but also for a large part of Europe as well?
The OGA at the moment is very focused on oil and gas as it is and will be for the next few years, but we need a complete transformation of the offshore system to be connected and to have a holistic arrangement with the still growing—we hope; I part company with the noble Viscount, Lord Ridley, here—contribution of offshore wind and perhaps other technologies down the line.
Most of what I will say relates to the issue of the government changes in the cross-subsidy arrangements and the planning arrangements for wind, although it is part of a wider context because the Government have also announced changes relating to the climate change levy and issues related to solar. All of these are affecting both individual investments which are in the pipeline and the general confidence in a stable, forward-looking programme for investors in energy of all sorts, but particularly in the renewable field.
Bringing the end of ROCs forward by one year, as far as onshore wind is concerned, does not sound like a lot. However, if you are already engaged in a project that was relying on ROCs being available until 2017, it pulls the carpet from under such projects. It is, of course, understood that as the costs of technologies such as onshore wind and solar come down, the need for the subsidy diminishes. However, that should not be a precipitate change which will affect decisions already taken by investors, companies and planners on the basis that rebates announced only a few months ago by the Government would remain in place. Many noble Lords will no doubt have received representations on this front. It is clear that independent generators in particular are being contacted by investors asking what the hell is going on, because they thought that they had the economics worked out, that they had done the accountancy and that they understood the degree of government support which would come in the next few years, but suddenly that has changed.
Lest the Minister, the noble Viscount, Lord Ridley, and others think that this is just a few trade associations, green lobbyists and the opposition parties making a fuss about the changes, let me quote from a couple of individual companies involved in this field. A company which is involved in solar energy but also has interests in onshore wind has written to me and spelt out that,
“recent changes to RO on onshore wind, lack of clarity over CFDs and changes to the Climate Change Levy … have created uncertainty for the entire renewable industry. This has put jobs and renewable energy targets in serious jeopardy. Government policy has meant that access to finance for renewable projects is on hold, with now only a select few of projects in the pipeline likely to go forward. The Government’s confidence that there are enough renewables projects in the pipeline to meet renewable targets is far from guaranteed”.
That is from a relatively small company involved in this area. I also quote one of the big six which has invested heavily in this area. It states that its understanding was that:
“During the introduction of Electricity Market Reform”—
only about a year ago—
“the Government signalled to investors that there would be an orderly transition to the new framework. To aid this transition it was stated … that the Renewables Obligation … would remain … until 31st March 2017. This was accepted by investors … Since then we have seen the closure of the RO for solar PV schemes on 1st April … followed by the decision to close the RO for onshore wind twelve months earlier than previously indicated”.
This has caused consternation among boards and outside investors and,
“jeopardises the reputation of the UK as a stable and attractive”,
regime for investment. We have to remember that such investors have choices. Whether the investments are being made at the board level of large multinational energy companies or whether investors are going to the market for the funds, they need to see stability. The Government, by a number of individual decisions in aggregate, have caused that confidence to disappear.
There are better ways of doing this. Different timescales would have reflected the need to reduce support as the costs of producing the technology reduced—I recognise that and so do most of the companies—but once you have lost the confidence of the investor community and the boards of major multinational companies in there being a stable, proactive regime for investment in renewables, then you have lost it for a very long time. That jeopardises some of the targets which the Government have set. It may be true, as the noble Viscount, Lord Ridley, said, that it does not jeopardise that much the 2020 target, but it will certainly jeopardise projects which would otherwise have gone ahead and been rolled out from 2020 to 2025 and therefore the targets which are in the DECC plans—or what were the DECC plans, because we do not know quite whether those have changed—in terms of a renewables contribution and the level of decarbonisation as we go forward into the 2020s.
That is a mistake of cardinal importance on the part of the Government. It is not a good start for the new Conservative Government’s intervention. I would hope that they could recover from that. As the noble Lord, Lord Oxburgh, has just said, we need to see the total context in which this is working—we have yet to see it. In the mean time, it is important that this House recognises that what has been announced in the last few days and weeks makes much more difficult, and even more difficult to deliver, all aspects of what was previously a more or less consensual view on the way in which energy policy should go following electricity market reform. I do not think that that was the intention. The intention, according to the Secretary of State—and the Minister has repeated it this morning—was to make bills lower for the consumer. In no sense can bills be made lower for the consumer if we are cutting off one relatively low-cost renewable technology but paying very large sums of money—increasingly for the consumer and, to some extent, the taxpayer—for ones that are more expensive. This is not sensible economics. It is not a rational policy. I hope the Government can do better within a very short period of time.
Lord Teverson (LD)
My Lords, I admit to having been quite reassured when the Conservative manifesto was published back in April. It had two key comments on this area. One was that the Government were aiming very hard for a good solution and a good agreement in Paris at the end of this year, and I am sure that that is the Government’s true intent. The other one, which I almost expected not to see, was that the Government were committed to the Climate Change Act and, I assume from that, all the follow-ons involving carbon budgets and so on. So I thought that those were two good parts of a cornerstone of energy and climate policy for the Government. The Benches opposite have mentioned the emphasis on hard-working families—used all the time as a phrase—and I was also quite encouraged because page 57 of the manifesto said:
“We will cut emissions as cost-effectively as possible”.
I am indebted, as always, to the noble Viscount, Lord Ridley, for his work in this area. On 24 June this year he asked a Question of the Minister. He asked what estimate the Government had made of the cost in pounds per tonne of CO2,
“of greenhouse gas emissions abatement in the most recent year”—
what were the costs of those technologies? The Minister replied—absolutely correctly, I am sure—that the abatement cost per tonne of carbon dioxide in 2014 was,
“£65 per tonne of carbon dioxide for onshore wind, £121 for offshore wind and £110 for solar PV”.—[Official Report, 24/6/15; col. 1583.]
It was a very useful Question. I find it somewhat difficult to reconcile that Answer with the Bill before us today. I agree that the Conservative manifesto was very anti-onshore wind. In Cornwall, an equally beautiful part of the countryside as Northumberland, we have a large number of wind turbines. At the last count I could see about 30 from my own house. Strangely enough, there has been a direct and positive correlation between tourism success and the number of turbines that have gone up in Cornwall. I am not saying they are absolutely related but I do not think it is really the problem that sometimes we make out. It is great to see a living countryside rather than a preserved and backward-looking countryside. That is something that Liberal Democrats would stand for: growth and a good economy in rural areas.
I find it very strange that the Government have taken against onshore wind in this way but are promoting other technologies, although I have no argument with them about offshore technologies, which, as we have seen from those figures, are roughly twice as expensive. Again, I agree with the noble Viscount, Lord Ridley, that there are other renewable technologies that are even cheaper. Hydro is one but of course the problem with hydro is that we have more or less used our total capacity in the UK to produce it. I would be standing shoulder to shoulder with the noble Viscount on hydro schemes if we had the ability to produce them. So I find this part of the Bill very regrettable and difficult for our very successful renewable industry to deal with.
However, my biggest concern about the Bill comes back to a number of excellent comments made by the noble Lord, Lord Oxburgh; that is, once again we have an Energy Bill that concentrates purely on supply issues rather than demand—the coalition Government were not a lot better but they were slightly better on this. Of course, it is the demand area that really is the challenge to us as an economy moving into the future. In his excellent speech, the noble Lord, Lord Howell, said that we still have not solved the energy trilemma: the difficulty between affordability, security and low carbon. But, as he went on to mention, we have the solution to that, which is the whole area of energy efficiency and making sure that we decouple economic growth from our energy usage. In the UK we have actually been pretty good at that over recent years. That ratio has come down and we have managed to do that decoupling, but there is nothing in the Bill—or any sign in government policy—of energy efficiency really being core to what they are doing.
My final point comes back to another point made by the noble Lord, Lord Oxburgh. I was very dismayed indeed by the announcement that the policy of zero-carbon homes from 2016 was going to be discarded as if it was something that had been an idea for a short while but is too difficult and will be got rid of in order to produce thousands more houses from 2016 onwards. That is not the case. That policy started in 2007 under the then Labour Government and went through the coalition Government; in fact, some of the standards were raised at the beginning of the coalition period. The industry had prepared itself for that. It was understood that that was going to go ahead but after eight years of negotiation, planning and enthusiasm to go ahead with that, six months before we reach 2016 that policy is screwed up and thrown in the bin.
One of the biggest issues of affordability in this country is fuel poverty. We still have some 2 million households suffering from fuel poverty and some 18,000 excess winter deaths, a significant number of which are due to fuel poverty and inadequate heating. Stopping that move to greater thermal efficiency of homes is not just the abstract issue of solving that energy trilemma; it concerns actual households and individuals who will suffer into the future because of higher energy bills over the life of those buildings of 50 to 75 years; and the rate of excess winter deaths in the United Kingdom, which is substantially above those of other European nations, will continue. What will we have to do in another 10 or 20 years? We will have to reinvent the Green Deal to retrofit all those post-2016 buildings to bring them up to a standard that a civilised society expects. Would that have cost extra to the building industry? The estimates are £3,000 per house—not insignificant, of course, but something that would be paid back within a very short number of years. As always, I am afraid I point at the automotive industry, which has had considerable constraints, mainly through European directives, on the carbon emissions of vehicles produced. That industry actually objected—unlike the building industry, which has been very pro-moving forward—but has the cost of cars in real terms gone up because of that policy? Absolutely not: in real terms, those costs have come down.
My challenge to the Government in this Bill is to tackle the inconsistency of the treatment of onshore wind against solar, and to refocus on the demand and efficiency side of electricity and make sure that we solve the trilemma. What concerns me most, very much reflecting what the noble Lord, Lord Whitty, said, is that we seem to have a Government who are “1984” Orwellian in their style, in that what we read is not borne out by the actions that we see.
Lord O’Neill of Clackmannan (Lab)
My Lords, first, I draw attention to interests which I have declared. I am an officer of a fuel poverty charity and I have advisory roles in one or two other areas of energy.
I suppose that a debate of this nature should be determined by the Long Title of the Bill, in so far as that determines the content, but a lot of today’s debate has been about what is not in the Bill rather than what is. While it is a great temptation to go on at length about what is not in the Bill, there is quite a lot of substance here, to which we should give proper consideration.
The drop in oil and gas prices and the impact on exploration and production, particularly in the UKCS, and its knock-on effects on tax revenues and a broad range of industrial activities in the North Sea certainly serve to underline the sensitivity with which we must deal with North Sea matters. As my noble friend Lady Liddell said, we are world leaders and one of the reasons that we are is that it is so damn difficult to do anything in the North Sea, given the climatic and other conditions there. In some respects, it is a bit like what Frank Sinatra said of New York: if you can do it in the North Sea, you can do it anywhere.
The point also has to be made that, when Ian Wood was called upon to review the circumstances, we probably could not have asked a better person to do it. Anything that he says certainly requires our attention and respect. I think it is fair to say that he has produced a series of recommendations which, across this House, we would all want to see accepted.
We have to recognise that, under successive Governments since the mid-1990s, there has been a series of initiatives of a collaborative character involving all sides of the North Sea interests and, because of that, a number of difficult crises have been ridden out. However, it is also fair to say that the challenge of having a consistently—and likely to be lengthy—low price of oil and gas is one of the biggest crises. It is expensive and difficult in these circumstances to maximise the recovery from the North Sea, so the setting up of the OGA is to be welcomed. The powers that it has been given are sensible ones. On the proposals for funding, although there is an understandable concern about the possibility of retrospective legislation in relation to the levies, they are not beyond the wit and intelligence of the department to have a go at.
While the general powers of the OGA and its capacity to become involved at various levels are to be welcomed, I would make one cautious point. I think that the noble Lord, Lord Oxburgh, was moving towards this in the question that he asked about the number of officials from DECC who will go to the OGA. Now that we have Ofgem and the OGA, there is a danger of having a department which is far smaller than the arm’s-length agencies over which it has a notional degree of control. I make this point because, when push comes to shove in debates in Cabinet and elsewhere, the size, strength and critical mass of the department can be an important factor in pushing the case which that department wishes to advance in these arenas. We therefore have to get some reassurance that this does not mean that the department itself will be denuded even further. We know that it is one of the smallest departments, with a relatively small budget, but along with BIS it is responsible for some of this country’s most significant earning capabilities.
The OGA will have the function of MER, and you might say that that has the ring of coming out of one of Stalin’s five-year plans. Maybe that is going a bit far, but when you consider that we have a Conservative Government establishing a quango, funded by levies, to regulate a vital part of the UK economy with the potentially extensive powers of intervention of this authority, it is, as someone said to me the other day, a wee bit like the BNOC—the British National Oil Corporation, for those of us who are old enough to remember that. It is a bit like the BNOC, but unfortunately—I speak here as a socialist—while it may have control, it does not have ownership. Maybe that is for another day, or we should leave it to those in the Labour Party seeking higher office than me to try to work out. That is probably the least of their worries at present. However, as a sensible form of intervention it enjoys a great deal of support across the House.
However, there is one area which I hope the OGA will have powers for, and perhaps the Minister could clear this up. It has been a hobby-horse of mine for years that we have insufficient gas storage capability in the United Kingdom. It may be that, in the years that lie ahead, we will enjoy an increased supply of gas worldwide and that it will be at low prices, but the volatility of gas prices has had a detrimental effect on the cost of energy for UK consumers, both industrial and domestic. I have always felt that there was a case, and I think I am not alone in this, for having a greater storage capacity in the UK—not as much as Germany or France, which have different conditions. But, as we know, year by year the amount of gas that we get from the North Sea is declining and it might therefore be prudent to look afresh at this. Will that come within the responsibilities of the OGA? I would like to know.
Mention has been made of renewables. I am a wee bit of a sceptic on renewables; I am not antagonistic to them but I have often felt that the pudding has been overegged in some areas. When we talk about the scarring of the countryside by having windmills, I am reminded of the attitude in the 1930s and 1940s to the hydro schemes, which are now held up as the greatest thing since sliced bread: “Here is this cheap form of power generation—the only thing we do not have is enough water”. I was reminded that, in the 1930s, one of the advocates of what is now one of the jewels in the Scottish energy crown, the Pitlochry hydro scheme, was expelled from the Perthshire hunt for daring to advocate something so radical, which was going to destroy the countryside. We should therefore perhaps take the rhetoric of the noble Viscount, Lord Ridley, with a fair amount of salt.
The other side of the issue is that a number of small wind-farming facilities are supporting smallholdings and small farms, and keeping them going. In turn, they enable the husbandry of the area round about to be sustained and, very often, enable people to have access to the hills. I had that issue in my constituency in Scotland when I was an MP, and it is not given sufficient attention.
Having said that, it is unfortunate that the Government are withdrawing the subsidies to wind farms in the precipitate way that they are because there will be casualties from this. It would be interesting to know whether the ministry has made any estimate of the likely cost of those proposals which are currently partially in train but which will not enjoy the necessary degree of subsidy to be self-sustaining. As my noble friend Lord Whitty said, it was precipitate. There are obviously going to be casualties here, and I hope that when we get to Committee we can look at the fine print of this.
I also make the point that it is very good to have localism and give powers to local authorities but, at the same time as doing that, one would expect that the local authorities had the capability and resources to undertake proper planning reviews of the sites which could be the source of some controversy in their communities. It is fair to say that a number of the rural local authorities are woefully underresourced and will probably not be able to do this job. Has the Minister given proper attention to that?
There are obviously a number of issues that we could go into here. I think that it is fair to say that we are sailing very close—sorry, that is a dangerous metaphor—but it is problematic in relation to our capacity to generate electricity. We know that National Grid has one or two innovative schemes which will come in over this winter. Nevertheless, we need to have the energy debate put into context and to have some indication of what is actually happening at Hinkley. We know that the latest delay is the Austrian hurdle, but it seems that every possible delay is embraced by the French owners on the basis that it gives them more time to try to get their capital arrangements made. They do not now seem to have the money to undertake the programme that they signed up for, despite the fact that we are giving them a very attractive price for nuclear power.
At the end of the day, this Bill is primarily about the OGA and the question of the withdrawal of wind farm subsidies. I welcome the OGA and I have some misgivings about the wind farm subsidy withdrawal and the manner in which it has been handled, but when we get to Committee we will be able to look at that in far greater detail.
Baroness Byford (Con)
My Lords, I welcome the Bill, which will support the United Kingdom’s oil and gas industry by establishing the OGA. It will be of enormous help for us to be able to use our North Sea resources better, and this authority has powers to do just that. The Bill falls into two parts: the majority has to do with setting up a new authority, and the last two clauses, Clauses 59 and 60, concern the removal of renewable subsidies for onshore wind developments.
I think we all agree that we often have tough decisions to make, and this is one of them. From my very amateur point of view, surely a purpose of public money is to help and pump-prime new technologies and new industries. Once they become established and the cost of running them reduces, surely it is right that we look again at which technologies our money goes towards promoting. While I have listened carefully to what noble Lords have said, I will return to those matters later. The most important thing is that we have a mix of technologies and energy resources. I look forward to Committee, when I am sure we will discuss this in further detail. I have no direct tie with any oil or energy-producing companies, but I do have shares in oil companies, which are declared in the register.
If I may, I will turn to the second part of the Bill first. Clauses 59 and 60 make provision for the early closure of the subsidy arrangements, under the renewables obligation, for new onshore wind developments in Great Britain. They also make changes to the planning system, which we have debated, transferring those decisions for future onshore wind developments to local authorities in England and Wales. While I follow what the noble Lord, Lord O’Neill, said, I think it is right that local people should make local decisions on that matter. It may well be that some areas decide very clearly, “We as an area will benefit by it, therefore we would like to have it”. Unfortunately, in past discussions people have said, “We are against all of it”, but in certain circumstances some may well find it an attractive option.
I have received letters that express concerns about this part of the Bill, which no doubt we will debate fully in Committee. Those concerns include issues that other noble Lords have referred to, such as sunk costs, future investment, confidence and future investment in technology. However, I am much more open-minded about looking at a diverse energy mix for our future production, and that would include nuclear energy, which my noble friend Lord Ridley mentioned.
The proposed grace periods seem reasonable, but I seek clarification from the Minister in respect of the grid connections offer. There can be lengthy delays in gaining planning consent, but both local authorities and central government operate under considerable scrutiny and are open to public challenge. I am not so sure of the position with grid connections; I understand that the picture may not be so clear, and would be grateful for further explanation of the extended period to 2018 to cover grid or aviation delay.
I return to the earlier part of the Bill, which relates to the Oil and Gas Authority and its core functions. Clause 4 clearly sets out matters to which it must have regard, but in the broader context I hope the Minister will expand on its exact role in ensuring secure energy supply. Will it have functions in international negotiations on gas or oil imports, for example? Will it set standards for the physical protection of pipelines, drilling platforms, wellheads and so on, or will it be merely a statutory consultee? As noble Lords have heard, the industry employs some 375,000 people; it is a big industry and we rely on its sustainable future in securing cleaner, increasingly home-grown energy. I agree with the noble Baroness, Lady Liddell, on the importance of skills and expertise that we must not lose.
The Bill’s provisions on national security and public interest, taken in the context of modern communication, raise a number of queries. What mechanism and which medium will be used by the Secretary of State in laying copies of directions given by the department, and what sort of material would be deemed not in the public interest? Where directions are not published, how will the Secretary of State ensure that they remain out of the public domain? I know that these are very specific questions that we will discuss in Committee, but I thought I would flag them up in advance.
I agree that innovation should be encouraged. No doubt in Committee we will consider the definition of “to encourage innovation”. It can range in meaning from standing on the sidelines shouting to providing financial assistance, use of facilities, secondment of personnel and so on. When it comes to dealing with collaboration, will the OGA have a duty to ensure even-handedness in its dealings with all companies and persons that have an actual or potential ability to contribute to oil and gas activities? Will it, perhaps, have a role in ensuring that government departments do not fail to recognise the contribution of small and medium-sized enterprises, which are hugely important to future development?
Finally, I come to the system of regulation. I would welcome an indication of the intended meaning of the phrase “stable and predictable”. Which bodies or persons will be the judge of whether a system is predictable and the circumstances in which that will be relevant?
This is not a big Bill but it is a very important one, which I support. It fulfils the Conservative manifesto’s support for the UK’s oil and gas industry in the longer term and will secure cleaner, increasingly home-grown energy. In a world that is very topsy-turvy, how important that is. Sir Ian Wood’s independent review aimed to maximise the recovery of the UK’s indigenous oil and gas supplies and to help maintain security of supply. The Government have taken on board his recommendations with this Bill, which could result in the delivery of 3 billion to 4 billion barrels of oil equivalent—more than would otherwise be recovered over the next 20 years, worth some £200 billion pounds. The Bill deserves our support.
Viscount Hanworth (Lab)
My Lords, the Energy Bill that we have before us today contains two unrelated sets of measures. One set concerns projects for establishing onshore facilities for generating electricity by wind power. The second concerns the establishment of a new agency for regulating the extraction of oil and gas from the North Sea. I will deal with these matters separately and in that order.
The legislation affecting wind power proposes an early end to the subsidies that have been received under the renewables obligation. The subsidies will end on 1 April 2016, which is one year sooner than had been agreed by the partners in the coalition Government. The legislation will also appoint local authorities as the primary decision-makers in respect of planning applications for new onshore wind farms. The measures in the Bill were pledged in the Conservative Party election manifesto. Their purpose was to appease a vocal faction within the Conservative Party that regards wind turbines as a blot on the landscape and to seek an advantage for candidates who were vying for election in marginal rural seats. It is notable that 37 out of 198 marginal constituencies were in rural areas.
Of the available sources of renewable energy, the cheapest by far is onshore wind. It has dismayed environmentalists to see the Government pursuing a policy that is in utter contradiction to their declared intention to provide renewable energy at the lowest possible cost. There are currently some 5,000 onshore wind turbines, which satisfy close to 6% of the electricity needs of the UK. It is reckoned that about 250 planned onshore wind farms are likely to be cancelled as a result of the early end to subsidies, which would mean that 2,500 planned turbines will not be built. This will have a devastating effect on the wind power industry, which is said to be in a fragile state. Moreover, given that around 70% of wind turbines are to be found in Scotland, the adverse economic effect of the cancellations will be concentrated in that region, which has infuriated Scottish MPs. The question arises of why the changes to the planning regime will affect onshore wind but not shale gas. Why should local authorities be given a power of veto over wind farms but not over fracking installations? There is no honest answer to that question.
The second part of the Bill concerns the extraction of oil and gas from the North Sea. The aim is to maximise the recovery of the remaining resources by establishing a regulatory regime that is more effective than the present regime, which faces challenging circumstances. The Bill deals with some complex matters, and to reach sound opinions on the quality of the proposed legislation, one needs to acquire detailed knowledge of the regime that grants licences to the companies operating in the North Sea. To evaluate the proposals, one needs to know, in detail, how the industry is organised and how the operators within it are liable to interact. One also needs a fair understanding of the technology for the recovery of oil and gas, of the state of repair of the installations in the North Sea and of the geophysical details of the continental shelf that surrounds the UK. It is fortunate that the parliamentary Recess is available to us for researching these matters.
We are also fortunate in having the excellent Brown report at our disposal, which has made recommendations that have been adopted by the Government. The report records some startling realities, such as the vast contribution of offshore oil and gas to the UK economy over the past five decades. As we have been reminded, production from the UK continental shelf met 67% of the UK’s demand for oil and 53% of its demand for gas in 2012. It also contributed £6.5 billion in corporate taxes in the year 2012-13. Some 42 billion barrels of oil equivalent have already been extracted from the area, and it is estimated that somewhere between 12 million and 24 million barrels remain to be produced.
Those who are concerned to limit the effects on the global climate of the burning of fossil fuels might be happy to see a rapid decline in the output of the North Sea. However, a further decline in its productivity will have serious implications for Britain’s balance of payments and economic welfare. In fact, the recent fall in output has been dramatic: production fell by 38% between 2010 and 2013. Levels of investment have fallen and the rate of discovery of further reserves has halved in that period.
The Brown report attributes a large proportion of the decline in output to a fall in productive efficiency, although it gives no indication of how that efficiency is measured or calibrated. The truth is that the many operators who are scattered throughout the North Sea are tripping over themselves. In the early years, a few major operators exploited large and plentiful fields under a relaxed regime of light-touch regulation. Over time, the number of fields has increased to more than 300. New discoveries are much smaller than hitherto and many of the fields are marginal and highly interdependent. There is also increased competition for a depleted stock of ageing infrastructure. There may be better prospects for the operators elsewhere in the world, and unless a more orderly structure is imposed and they can be offered more attractive fiscal incentives, they are liable to go elsewhere.
The Brown report recommended that a revived regulatory body should be established at arm’s length from DECC, which has previously performed the regulatory functions. The number of staff within the department who have been deployed recently in this capacity is half what it was previously, and the cuts that have been imposed on the department will undermine their role. It is now proposed that the new Oil and Gas Authority should be funded wholly by the industry, which should save something from the Government’s budget. However, one has to ask whether such an arrangement will run the risk of regulatory capture. This is a process, familiar in the United States, by which regulatory agencies eventually come to be dominated by the very industries they were charged with regulating. We can look forward to a discussion of these matters in the Committee stage of the Bill, for which I understand four days have been scheduled. At first this seemed an excessive allocation, but I am beginning to think that the detailed scrutiny of the Bill will fully occupy the available time.
Lord Cameron of Dillington (CB)
My Lords, I want to talk only about Part 4 of the Bill. First, I must declare an interest as a farmer in Somerset who has invested in solar PV. However, I reassure the House that, having done my bit, I have no plans for projects, either in solar or wind, so personally have nothing to lose or gain from the Bill or from any other imminent changes to support for renewables.
I am enthusiastic about renewable energy and believe that if we as a nation can kick-start the various renewable technologies, including battery power, by supporting them through their early stages, we will undoubtedly produce at least one or two viable industries that will in future be able to stand on their own feet and bring us big rewards. I might add that it is not only the new renewables that need government support these days. Fresh-start gas and coal-fired power stations still need government financing, and of course nuclear fission is probably proving to be the most expensive of all forms of electricity generation—although in the long run it might be offshore wind that takes that particular biscuit, or even in the short run if salt and sea storms take their likely toll.
However, I also support the government principle, inherent in Part 4, that we should gradually withdraw or at least reduce the subsidy for new technologies in recognition of the fact that mass production, better science and better engineering gradually combine to reduce the costs of production. Although there is still a long way to go in cost saving per output with solar PV, which in my view could produce the cheapest form of electricity we will have in 10 years, the cost curve of onshore wind turbine generation is now flattening and is unlikely to see any major reduction in costs per kilowatt in the future.
With all that in mind, your Lordships might expect me to be a firm supporter of Part 4—or at least of those clauses covering the planned changes from renewable obligations to contracts for difference. However, as with other noble Lords, I can sum up what I want to say by citing the then Energy Minister in the other place when he said, only last January, that the renewables obligation would remain open until March 2017. As it happens, in the same month, the then Energy Minister in this House said:
“No further comprehensive banding review is planned for the RO scheme”.
I realise at this stage of the debate I am repeating what other noble Lords have said, but we absolutely must maintain consistency in our approach to renewables. If we are to meet our targets, our generators, whose investments in projects can take up to 10 years from start to finish, must know where they stand. More importantly their investors, and particularly those small generators who are dependent on bank loans, must all know where they stand.
By these sudden and unexpected changes in policy—and there was another one this morning—the Government have made banks and investors nervous. It applies across the whole renewables sector because, as we heard this morning, going back on promises made on wind can also apply to solar and maybe other technologies. It goes without saying that the uncertainty filters back to the engineers and manufacturers responsible for producing the equipment for these technologies, and they have to invest for up to a 20-year horizon. We must have consistency.
Now as I understand it, as far as wind is concerned the Government have recognised the problem and are trying hard to accommodate projects that have had quite considerable investment but have been put on ice by the sudden change in policy. They are trying to help with the so-called grace periods or exceptions to the change in the rules. However, the problem lies in the details in the Bill: there are no details in the Bill. While that remains the case, the banks and other investors have paused investment and lending and will not resume until they see what the Government are offering—really offering for certain, because there is uncertainty everywhere here now. What politicians say in Parliament clearly has little validity any more in this field. I think banks are probably aware of the concept of one Parliament not being able to control its successor.
If the Government are going to wait until the passage of the Bill before publishing the exact details of the grace periods, these projects are likely to miss not only the March 2016 deadline but possibly the March 2017 deadline, if they indeed qualify. There is a lot of money involved here—money which has been invested as a result of government promises. Therefore, before the Bill comes to Committee in this House, we must have the necessary detail of these grace periods well and truly embedded in Part 4. Indeed, if this morning’s announcement on solar PV is anything to go by, Part 4 may need to be rewritten in entirety.
Lord Judd (Lab)
My Lords, the Minister in introducing the Bill spoke forcefully about the obligations to keep the lights on and he, among others, mentioned national security. If I am allowed to digress for a moment, I get a bit worried at times about the national security implications for our energy system when so much of the ownership and expertise is passing into the hands of other nations, not least China. To return to the Bill, while obviously the new authority has got real responsibilities in this sphere, there are other obligations. There is the obligation to fulfil the objectives of the 2008 Climate Change Act. There is the necessity to protect the quality of landscapes, seascapes and other places of particular historic, cultural and character significance. Indeed, there is a need to fulfil the legal obligations—frequently underlined by Ministers of all parties and successive Governments—to protect the national parks, areas of outstanding national beauty and similar places. I, of course, take an interest in this as a patron of the Friends of the Lake District and as a vice-president of the Campaign for National Parks.
To return to the main theme of the Bill, how exactly have the Government assessed the cost of their energy policy? How have they become convinced that this will deliver at minimal cost to consumers while ensuring security of supply and meeting our climate change responsibilities and targets? What methodologies have they used to make their assessment? Have they genuinely factored in the full costs of the technologies involved, including the cost of delivering energy to the point of use and removing obsolete equipment and waste—again, if I may digress for a moment—when at times this can be an acute problem in other spheres such as nuclear waste?
What about energy efficiency? The Bill once again seems to concentrate on supply and building more infrastructure rather than reducing demand. I always think the lack of real, deep commitment on this front is well illustrated by both Houses at Westminster. We should be a model to the nation of energy responsibility and use, and this starts at the personal level. Too often when I walk through this building at a late hour in the evening, it is absolutely clear that this is not yet instinctively deep in our psychology. The amount of waste at the micro level in these buildings is still far too large. This is the responsibility of all Members across the Floor and both Houses. How can we talk to the nation unless we live by what we preach?
What of thermal heating? We have an extraordinarily laid-back, complacent approach that lacks the drive to ensure that building regulations are making the maximum possible use of this benefit. What about energy efficiency measures? Do the Government really value them? Why is neither the zero-carbon allowable solutions carbon offsetting scheme, nor the proposed 2016 increase in on-site energy efficiency standards for new homes, going ahead? How do we reconcile these points with the Government’s firm manifesto undertaking to,
“meet our climate change commitments, cutting carbon emissions as cheaply as possible, to save you money”?
As noble Lords, notably the noble Baroness, Lady Maddock, have said, we have had representations from RenewableUK and from the independent renewable energy group. I was struck by those representations. Those bodies clearly believe that the Bill will penalise them in some respects and severely undermine their efforts to contribute to the Government’s declared climate change objectives. They claim that the onshore wind industry provides 190,000 jobs and is the lowest cost source of low-carbon power we have. They argue that early withdrawal of Government financial support will cut short projects on which the industry is already advanced, conceptually as well as industrially. This action they have already taken for the future is on the basis, they remind us, of assurances previously given. They ask, therefore, how the Bill can possibly encourage or enhance investment or confidence in their future work. They also see it, evidently, as a dangerous precedent for other renewable and wider energy investments. Clearly, the Minister will have to deal in his comments with those anxieties in an industry on which we are so dependent.
There are different views on the architectural and aesthetic merits of windmills. I am one of those who find them totally unacceptable in areas of outstanding natural beauty, national parks and other areas of special landscape, character or significance. Successive Governments of all persuasions, with legislation backed up by ministerial undertakings, have protected these gems from such intrusions. It would be a tragedy if the situation changed. Very quickly, we could throw away one of the most precious recreational and recreative assets in our stressed and pressurised society, and one of immense value to the travel industry.
Some argue, in support of my contention, that windmills do not anyway produce much electricity. I simply dismiss that argument—I do not agree with it at all. Collectively, they are already contributing very significantly to our essential supplies. Almost by definition, alternative energy is likely to come from an aggregate of a large number of units, each producing far less than our traditional power stations. The issue is not whether to have wind power or not; it is the comprehensive social planning that ensures that units and their supporting infrastructure are in the most suitable places, do not ruin the landscape or seascape, and do not pile all the pressure on less articulate, vociferous or influential communities. That is what we have to get right.
The convincing arguments put forward in a host of organisations representative of a wide cross-section of the public are impressive. I have mentioned some of those in which I am involved. Rather than regurgitating their arguments, I shall very briefly put to the House their own words on some of these things. They say that the Energy Bill focuses only on energy supply and misses the opportunity to include proposals to reduce energy demand. While onshore wind can make an important and greener contribution to our energy mix, we must ensure that new energy infrastructure does not damage our countryside. The provisions of the Bill that transfer the consenting of all new onshore wind farms to local planning authorities is a welcome response to local concerns about the impact of badly sited developments on landscape. Clarity is still needed about whether the planning inspectorate will be able to overturn decisions on onshore wind. The Government should support aspirations by introducing a community right of appeal against damaging proposals where a neighbourhood plan is being prepared—and not just for onshore wind or other energy infrastructure, but all types of development.
Friends of the Earth also has points to make, which are not quite the same as other agencies’, so it is worth looking at some of the things it is saying. It says that as,
“one of the cheapest forms of renewable energy, the closure of the RO for wind has the potential to increase bills for consumers, particularly if there is no new allocation round available under the CfD … Curtailing the development of onshore wind could increase the risk that the government will miss its legally binding Renewable Energy Directive targets for 2020 … The closure of the RO for wind a year early is yet more uncertainty for the industry … The closure of the RO will particularly impact on the devolved nations—as the majority of new development is due to take place in Scotland, Wales and Northern Ireland”.
Friends of the Earth suggests that,
“this is a policy for the Home Counties being imposed on other regions”,
and argues that,
“Closing the RO for wind will impact communities who may want wind power”.
These organisations do a great deal of serious work with a lot of commitment and represent the concerns of many people in this country, so I hope the Minister will treat those concerns seriously. We want a secure UK worth living in that is fit to meet the accelerating challenges of the age of climate change. This is no time for further ideological objectives; it is time for common-sense practical arrangements. I am afraid that in my old age, I have come to a firm conclusion: I believe in a mixed economy and, in believing in a mixed economy, I think there are some areas of our activity that are so important to society as a whole—not least for strategic reasons—that they will be better in the public sector than in the private sector.
Lord Foulkes of Cumnock (Lab)
My Lords, it is a great privilege to follow my good friend and mentor, my noble friend Lord Judd. I share his concerns about the excessive use of energy late at night in this place and elsewhere. When he comes to visit me, he will see that I go round the house switching things off all the time, which I confess is much more to do with Scottish thrift than energy saving—although the energy saving is a consequence.
I get really annoyed with government, Ofgem and others saying that if I want the lowest tariff, it is easy for me to switch supplier. Why should we have to switch supplier to get the lowest tariff? I say as a trustee of Age Scotland—I see in her place my good friend the noble Baroness, Lady Greengross, with whom I worked at Age Concern—why should elderly people, or anyone, have to through the bother of switching suppliers to get a lower tariff? Why cannot we ensure that the lowest tariff is supplied anywhere? It seems very strange.
It is also very pleasing that quite a lot of Scots are participating in this debate—three from the Labour Party and, shortly, we will have a contribution from the Scottish Liberal Democrats—because it is a matter of particular concern to Scotland. I shall come back to one particular aspect of that later. Before that, I join in the widespread expressions of concern that the Government have ended new public subsidies for onshore wind farms, with no more renewable obligations certificates for wind from 1 April next year. Ending it one year earlier than planned is shifting the goalposts and has caused investors and potential investors great dismay. In 2014, wind provided only 5% of the total of our electricity needs, yet the Cabinet Office Minister Matthew Hancock said in March 2015 that subsidies would not stop until 10% was reached. That promise has been broken. Now we have the announcement about solar today—and, presumably, we will have amendments to the Bill to deal with that, too. I hope that the Minister will let us know how we are going to deal with that when he replies.
This Bill is harmful. Already £350 million has been spent on projects that may now not be financially viable. That is a terrible waste of resources. On top of that, the July Budget scrapped the climate change levy exemption, which results in a double blow to renewable energy production in the United Kingdom, and a loss of investor confidence, which puts investment decisions in renewable energy in doubt. Renewable energy may also now become more expensive as we move away from wind to other more costly forms, such as tidal energy, in order to try to meet the Government’s 2020 target. DECC claims it has enough subsidised projects in the pipeline to meet the renewable energy commitment. Perhaps the Minister could spell these out. Can he name these projects that are in the pipeline? It is no good just saying that they are there without indicating what they are.
Finally on this point on a Scottish aspect, since 75% of independent renewable energy onshore wind production is in Scotland I found it disgraceful that Holyrood was not even consulted, let alone involved in this decision. I hope the Minister will apologise for that lack and make it clear that in any future energy decisions that affect Scotland the Scottish Government will be consulted and, indeed, involved. We have this wave of nationalism at the moment, which I am totally opposed to, and it is fuelled by the lack of consultation and involvement by this Conservative Government and their predecessors.
I now come to the entirely different matter of environmental degradation in Scotland. I sent a message to the Minister saying that I was going raise this. In 2013 Scottish Coal and Aardvark TMC—two east Ayrshire mining companies in my former constituency—went into administration. There is now massive environmental devastation in east Ayrshire as a result, with an estimated 2,000 hectares of disturbed land and 22 voids filling up with water and with unstable cliff faces. Restoration liabilities are estimated to be over £160 million. One operator with some foresight and sense, Hargreaves, has submitted a proposal to the Government for carbon price support tax exemption which is similar to the scheme for coal slurry. That would support opencast coal restoration projects. It also has the support of the wider coal producers’ organisation, Coalpro. The reason why this should appeal to the Government, and the Treasury in particular, is that it is largely self-funding since stimulating activity would generate significant tax revenues. Since the March Budget the Chancellor has signalled his intention to work with the Scottish Coal Taskforce. As I say, I have given the Minister prior notice so I hope that he can say today whether the Treasury will support the Hargreaves proposal to deal with this dereliction facing the mining communities in east Ayrshire.
I will now say a word about nuclear power. I started off many years ago as a nuclear sceptic but I became convinced of the value of nuclear power, not just because of the greater safety and the fact that there is not as much waste now as there was in the old reactors, but because it can contribute towards our climate change targets. However, I have a specific question, of which I have again given the Minister prior notice. With Hinkley Point poised to proceed to construction, we are now increasingly aware of the massive costs involved in nuclear power construction and the fact that the companies doing this will need a huge amount of insurance. I have some concerns about this, and others have expressed concerns directly to me. Can the Minister tell us whether there is sufficient capacity in the United Kingdom and the European Union insurance market to meet the requirements of operators and contractors for planned UK nuclear plants? Can he also say whether the UK and EU insurance markets are competitive, ensuring not just the best price for customers who operate and plan to operate nuclear power stations in the United Kingdom but the interests of consumers as well? I hope that he will indicate whether the capacity and the competition are there.
Finally, I will say a few words about the Climate Parliament of which I am a trustee. There are two other trustees in this House. One is the noble Lord, Lord Bell, the Conservative publicist and philanthropist; the other is the noble Lord, Lord Alderdice, former Speaker of the Northern Ireland Parliament, now a Liberal Democrat Member. It is about the only thing we have in common, incidentally, but it is a good cause for us to be working together on. The Climate Parliament works with parliamentarians around the world to encourage development of renewable energy and we are planning to develop a group within this Parliament in both Houses. This Bill and the July Budget sadly lead to a greater reliance on carbon-intensive fossil fuels rather than renewable energy and that is why the role of the Climate Parliament is very important.
One of the things that the Climate Parliament has been looking at recently—I attended a meeting in Lucerne that it arranged in which we discussed this—is a global green grid. That is difficult enough to say but easier if you are Scottish because you can get your Rs—sorry, the letter R is better pronounced. It is a bold and imaginative proposal and it is supported by the Climate Parliament. Renewable energy has problems of transmission costs and the variability of the nature of sun and wind. The global green grid is one solution to this. It would use smart grids to connect different sources of renewable energy into a reliable supply linking together renewable energy production both within countries and internationally. That would ensure permanent reliable access to energy where wind is blowing in one place and the sun is shining elsewhere, linking them up together. Europe is already developing its own green grid but now China, the world’s leading renewable energy producer, has made a proposal for a global green grid to help the world to produce 80% of its energy from renewables by 2050.
As technology is improved, renewable energy becomes cheaper and more reliable while fossil fuels become limited and more expensive in the long term. I hope that we will support this kind of thing because British energy policy should avoid short-sightedness and look to encourage investment in renewables technology to help us meet the 2020 target, to fight climate change, and to secure a clean, cheap and sustainable energy supply for the future.
Lord Purvis of Tweed (LD)
My Lords, it is always a genuine pleasure to follow the noble Lord, Lord Foulkes, in this Chamber. I have learned to enjoy these opportunities to follow his contributions. He may be thrifty but he is also a crafty politician, able to secure east Ayrshire mining within the subject area of this debate, although I question his pouring a dram of hospitality in darkened rooms as he rambles from one to another, but that is a whole separate image of his thriftiness.
Part of this Bill is forward looking, provides for long-term planning, offers business certainty and encourages a stable investment environment. The other part of the Bill does the reverse. Most colleagues who have spoken in this debate so far have drawn the same broad conclusions that there are some elements that are to be wholly welcomed and other areas where we have cause for very considerable concern. I want to start by thanking the Minister for his courteousness in meeting colleagues to brief us on the Bill but I can only assume that the Government work so fast and efficiently that the announcement that I heard on the “Today” programme this morning was done overnight and he was not in a position to at least alert me to it. However, I respect his sincerity on climate change and it was interesting that he started his contribution on climate change and the ambition that the United Kingdom should have. I will return to that later.
With regard to the first part of the Bill on the Oil and Gas Authority, it is clear that the industry—predominantly based in north-east Scotland but having provided support across the United Kingdom for the past 40 years, explored for oil and gas for the past 50 years, and produced gas since the late 1960s— will be entering a considerable next phase. With decommissioning and the harder exploitation of the resource within the UK continental shelf, we require a different regulatory framework. That was set by the outstanding Wood review, whose conclusions the previous coalition Government accepted in their entirety. This Government are carrying on honouring the commitments provided by the previous one with genuine cross-party support, and that is to be warmly welcomed. When I spoke in the debate on the then Infrastructure Bill, the consensus was there in that legislation and it carries on. I therefore think that the Government will see that there is lots of constructive support for those clauses within the Bill.
I shall highlight some areas before moving on to the renewables sector. Clause 4 indicates the areas that the OGA must have regard to. However, since the predominance of Scotland within the oil and gas industry has been commented on so far in this debate, I wonder whether Clause 4, which says that the OGA must have regard to operating closely with the Government, should now say “all the Governments across the UK”. Of course I recognise that it is a UK authority and it will be under the auspices of this Parliament and this Government, but I think that its working effectively with the Scottish Government as well as with the UK Government would bode well for its efficient delivery of its own duties.
In addition, given that the principle behind the clause is to establish the independent operation of the Oil and Gas Authority, I highlight my observation that there is considerable scope in Clauses 5 and 6 for very wide ministerial direction. While the Bill says that ministerial direction will be given on public interest grounds only in exceptional circumstances, it would be helpful if the Minister could give us, if not today then with further briefing material, some further illustrations of what the public interest grounds may be, and some examples of what those exceptional circumstances might be that would bring the Government to direct the OGA.
Noble Lords have also mentioned the fee levels. Again, I think there should be some clarification of the ministerial powers within this area. Currently in the Bill, Ministers hold the powers to change fivefold the levels of fines that can be imposed by the OGA, except it is not clear whether this can be on an individual fine or whether they can simply increase the power of the OGA to do this. Again, clarification on that would be helpful.
I understand that further amendments are being considered for this element of the OGA. It would be helpful to know when the Minister expects the Government to bring those forward so that we will be able to see them. In the wider sense, the Bill further develops the consensus and the process that was started on the basis of the consensus in the previous Government, and with wide input from the sector. That is why I think these aspects of the Bill are to be welcomed.
I turn to the elements on renewable energy. I say “elements”, as today we are debating only partial government policy; we have not had sight of the criteria that were announced by press release through the BBC this morning. I was hoping that in the Minister’s opening remarks at the Dispatch Box he would outline clearly what would be the timetable for the legislative measures on solar that we heard about through the press release, and whether they would be part of this Bill or whether the Government intend separate legislative measures for that. It would be helpful if he did so in responding to this debate. The noble Lord, Lord Cameron of Dillington, and others made a persuasive case that much clearer information is not only necessary for industry but is of necessity for this Parliament.
Many noble Lords have raised issues relating to planning. I think that I heard the Minister say that communities would have a final say on planning—I think he said it twice. He has been asked to clarify that point. I echo those requests; it would be helpful to know how many schemes he anticipates this would cover. Also, given that he said that communities would have the final say, I was interested to read the Peers’ briefing that was given to Peers on 16 July, which says about planning:
“We want to see local communities having a greater say on the development of onshore wind in their area”.
It markedly does not say “final say”. I was interested to see that in another place Kit Malthouse MP asked the Secretary of State, with regard to whether communities would indeed have the final say:
“Can she reassure those worried communities that that means that they cannot now be overruled by the Planning Inspectorate?”—[Official Report, Commons, 22/6/15; col. 627.].
Ms Rudd responded:“Yes, I can”
That led to him tweeting:
“I asked a question today about planning permission for wind farms and got the perfect answer”,
but a spokesman for the Department for Communities and Local Government said that developers would still be able to appeal to the Planning Inspectorate. Could the Minister confirm whether Ms Rudd or Mr Malthouse was correct? Could he confirm exactly what that situation is?
The Bill seems to suggest that the competence of the grace periods will be determined by regulations. I am unclear what additional provisions the Government might make relating to the closure via regulation, subject to the affirmative procedure, which I understand is in the Bill, especially as DECC officials have been clear in a number of public forums in saying that the grace periods are to be introduced in primary legislation. That confusion is further compounded by the announcement this morning with regard to solar. Not only would it be helpful for the Minister to clarify this; it is absolutely necessary for him to do so.
The Government have said that they were going to consult colleagues in the Scottish Government—we have heard from the noble Lord, Lord Foulkes, and others about the predominance of this relating to Scotland —but they published a policy paper that said:
“We will not be holding a formal consultation on our proposals because they will be subject to full Parliamentary scrutiny”.
How can that be when we do not have the measures in front of us at the beginning of the Bill? How can we properly scrutinise the proposals when we have only partial proposals there? We will not be able to scrutinise views submitted by people to the Government’s process on the grace periods, to allow us to inform our views and scrutiny of the Government. Surely that cannot be the correct way of going about our business, especially in the context that it is the grace periods that are absolutely fundamental to the business opportunities.
I do not think that the Government have a mandate to bring forward the shortening of the support for industry. The Government’s tools for doing so are becoming quite clear: they are using uncertainty and disruption for the investor community to end a practice, and they are seeking not to be clear on bringing that forward in Parliament. These are not trifling sums: £1.3 billion of capital expenditure, with £350 million of sunk costs, is at stake. I had to chuckle slightly this morning when I saw that the press release was concerned about “supporting hard-working businesses with their energy costs”. These are hard-working businesses that have put £350 million of investment into schemes that may not come to fruition.
On top of that, there is now much greater uncertainty for the investor community. Let us remind ourselves what the investor community is: it primarily consists of United Kingdom pension schemes that are looking for long-term ethically secure investment opportunities to support British industry and British energy. That should be exactly the kind of investment environment that we wish to see, not harm.
Yesterday in another place, Amber Rudd, the Secretary of State, responded to this question:
“Scottish Renewables say that this decision, the early closure of the renewables obligation, risks £3 billion of investment and compromises two gigawatts of projects. Is that correct?”,
by saying: “It may be correct”.
She was then asked:
“So you would not anticipate onshore wind being part of the next CfD?”.
She replied: “I would not, no”.
I do not think that Parliament yet has sufficient information to fully scrutinise these aspects of the Bill. As the noble Lord, Lord Oxburgh, and my noble friends Lady Maddock and Lord Teverson have said compellingly, not only are we undermining the cheapest source of renewable energy, the cheapest source of growth in renewable energy and the cheapest way of gaining electricity growth as part of the whole energy mix but we are also undermining the crucial consensus which has been developed over the last few years and which has not set one energy technology against another. An overall consensus has been built. Nor do I believe that the Bill is part of the wider consideration of climate change that the Minister referred to in his opening remarks. This would be a climate change Bill and an Energy Bill true to its name if it included measures for reducing consumption, improving energy efficiency and maintaining zero-carbon homes, as my noble friend indicated. The consensus has been broken and uncertainty has been put into our manufacturing industry, and that cannot be good for the British economy.
Baroness Worthington (Lab)
My Lords, it is a genuine pleasure to respond to a debate that has had a veritable all-star list of energy experts contributing to it. I begin by thanking the Minister for his introductory comments. My sense is that we now have a very capable and committed Minister but, sadly, he comes before us with a rather shoddy and politically tawdry Bill. That is to be greatly regretted because important things need to be done in energy policy. There are big issues to be tackled and 2015 is a big year for climate change. I fear that we will waste precious parliamentary time on a Bill that is not complete, is lacking in important detail and is very confusing and conflicting in the messages that it is sending.
As many noble Lords have mentioned, the Bill is in two parts, the first relating to the setting up of the Oil and Gas Authority and the second consisting of a meagre two clauses that seem to be designed to destabilise the wind industry.
Many noble Lords have spoken very eloquently about the first part of the Bill. It is indeed necessary to implement the findings of the Wood review. However, the timing of the review was rather unfortunate, being published in February 2014—mere months before we saw a radical resetting of the global oil price. The noble Lord, Lord Howell, and my noble friend Lady Liddell pointed out to us that things are changing rapidly in the global oil and gas industry, and my fear is that this aspect of the Bill reads slightly as though it is out of touch and out of time with what is happening in the industry today.
I say that because we have seen a dramatic falling off of revenues from oil and gas from the North Sea continental shelf. It is now a very different place. I am sure that we will go through this in detail in Committee but we must ask whether the Government have truly reflected on whether the powers they are giving the OGA will be fit for purpose.
The statistics are quite astounding. Revenues from offshore oil and gas have already tumbled by 40% but they are likely to tumble again from £2.1 billion last year to only £0.7 billion in 2015-16. This is a serious issue. The future scenarios upon which we are relying that might see rising receipts are predicated on an oil price of between $70 and $100 a barrel. We must ask ourselves whether that is likely. It is possible—everything is possible—and even plausible that, with renewed investment in the North Sea and a renewed commitment, we will see production levels creep back up again. However, no matter how much wishful thinking we might apply to this problem, we will not see a return to the activity levels that we had in the heady days of the 1970s, 1980s and 1990s. Production peaked in 2000 and has been falling steeply since the start of this century. My noble friends Lady Liddell and Lord O’Neill hinted that there is a future for the North Sea but it is likely to be very different from the one we see today.
It is likely that some of the skills will be transferable into the offshore renewables industry and equally likely—again, the noble Lord, Lord Oxburgh, spoke eloquently on this, as did my noble friend Lord Whitty—that the North Sea will reinvent itself as a source of storage for CO2 as we move to decarbonise our fossil fuel industries. This creates a challenge for the OGA because part of its job, in addition to trying to create some transparency and openly negotiate reinvestment in the North Sea, will be considering decommissioning—the rolling out and management of decommissioning. However, the risk is that, because it is largely determined by private sector players, the decommissioning may occur out of sync with our needs for carbon capture and storage.
If we do not get on with the carbon capture and storage element of our energy strategy, we could see a mismatch where infrastructure that would otherwise be re-used for carbon capture and storage is simply decommissioned because the carbon capture and storage project is not yet up and running. Will the Government consider creating a hierarchy in the OGA’s thinking—where the talk is about efficiencies and investment but then thought is given to re-use for CCS, and only then is thought given to decommissioning—so that we do not run the risk of a timing mismatch?
Another subject which I am sure we will talk about in Committee and which was mentioned by my noble friend Lord Grantchester is the core functions of the OGA and whether they are fit for purpose and comprehensive enough, given today’s concerns. I certainly echo my noble friend’s comments that the core functions should include references to environmental considerations and climate change. One aspect of the new regulatory authority will be that it can levy fees and raise finance for necessary expenditure, including on environmental issues. A very interesting proposal has been posited by the academic Myles Allen from Oxford University. He has been asking whether the time has now come to ask the extractive industries, which are currently extracting fossil fuels to be burned for our energy sources, to pay a levy towards the climate change damage that arises from the use of their products. We may wish to explore that in Committee.
The Bill has two functions—looking at oil and gas and the more minor measures on onshore wind—but I am left wondering whether it could have been different. Could we not have had a much more positive Energy Bill from the Government? There is an agenda here that I support. The Government said in their manifesto that they will seek to decarbonise at least cost. That is a very sensible aim. I am a technology neutralist—neutral in terms of which technologies we should be deploying. I do not believe that there should be holy cows within the energy sector, where certain technologies are protected. I honestly believe that market forces should help us to determine which of the technologies should succeed. That should be overlaid with strategic oversight from government to determine which technologies will play to the UK’s strengths and to ask where we can invest in and develop technologies that will give us a lead in the global race towards decarbonisation.
That leads me to think that we are missing a trick on carbon capture and storage. The Bill, had it perhaps not been rushed through at quite the speed that it has been and had a little more consideration been applied to it, could have been an excellent vehicle for kick-starting our focus on carbon capture and storage, not least because of the measures regarding the Oil and Gas Authority but also because we have now recognised that we need to do something to help industry to decarbonise. We talk a lot about electricity decarbonising but there are still large sources of greenhouse gas emissions in this country that will need to be decarbonised or these industries will simply be forced to leave the European Union and move elsewhere, because the caps on those emissions are tightening.
There has been some very good work on the subject of how to decarbonise our industrial sector. A recent report commissioned by DECC or the DTI—I forget which—asked the Teesside Collective to think about policy mechanisms for funding industrial decarbonisation. There are some very interesting ideas there. When will the Government start to take this seriously? When will we see some policy consultation on how we are affordably to provide industry with decarbonisation options that mean that it can reinvest in the UK and get primary production of materials going again, safe in the knowledge that we are insulated against carbon prices in future? That is the sort of Energy Bill that I would have liked the Government to have come forward with, had they given themselves a little more time to reflect and to produce a more strategic set of measures.
On process, there is no impact assessment for the Bill, which I find curious. When will we see an impact assessment? It has been mentioned by noble Lords today that the methodologies that the Government are using are opaque. The Government say with great confidence that they are on track to meet their renewables targets. Can we see those figures written in black and white please? As my noble friend Lord Grantchester mentioned, it is simply not true that we are on track to meet our EU renewables targets. We may be doing reasonably well in electricity, but we are falling drastically behind on heat and transport, and the target represents all energy, not just electricity.
When it comes to assessing how well we have done, if I were the European Union DG responsible for assessing our performance, I would look very gravely on a Government who come out of the traps with this short-sighted set of measures to rein back on renewables at a time when we have no comprehensive plan and no confidence that we will hit our targets. That seems to me to be wilfully trying to miss targets, and I would take a dim view of it. That will cost the UK taxpayer money, let us be clear, because we cannot simply flout the rules having signed up to them. There will be financial consequences to our missing those targets. Let us see the analysis and see how the Government can be so confident that they can tie their hands behind their back by destabilising some of the most successful aspects of our energy industry.
I have moved seamlessly on to the second part of the Bill, which is clearly the most controversial. It contains merely two clauses at the moment, although, as the noble Lord, Lord Purvis, stated very clearly, we need to see the detail. We need to scrutinise it. There has been no consultation and there is no impact assessment. The Government owe it to Parliament to bring forward that detail as soon as they can so that we can scrutinise it. We have only these two clauses and we must try to derive from them the Government’s intentions and plans. It seems to me that the reality is that this is obviously just narrow party politics. When she announced the early closure of the RO, the Secretary of State namechecked several Conservative Back-Bench MPs. This is clearly more about party politics than anything else. What angers me the most is that it puts in jeopardy the UK’s economic growth for the sake of narrow interests raised by a very small number of MPs. The whole of the UK economy is benefiting from our investment in our energy infrastructure. To put that at risk and seriously damage investor confidence in the way that the Government are is wholly irresponsible.
Several noble Lords mentioned investor confidence, including my noble friend Lord Whitty, the noble Baroness, Lady Maddock, and the noble Lord, Lord Cameron. It is a serious problem. The think tank E3G states:
“Every time these announcements come out, the U.K. looks like a less attractive place in which to invest. I think a number of investors will be pricing in much higher risk now”.
That was true when the Bill was published; it is even more true after today’s announcements. It is really regrettable that we should kick off this new Government with something so short-sighted and tawdry—that is the only word that I can come up with. They are simply enabling a very small but vocal group to issue self-congratulatory press releases while putting serious investment and serious jobs at risk and making us appear to be a country that does not know which way it is going when talking about the need to address climate change and to decarbonise.
The noble Viscount, Lord Ridley, made good points and some of them are obviously being listened to. He and I agree on a few things, and one of them is that there should be a focus on a least-cost approach to this. I am not saying that we should continue to provide subsidies when they are no longer necessary; that is not my aim at all. My aim is that we conduct ourselves in a way that gives investors confidence and allows for an orderly transition—a phrase that has been repeated here today. That is the phrase that the Government have used. An orderly transition is what is needed. This is a long distance from that; the Bill does not represent that.
Viscount Ridley
I am very grateful to the noble Baroness for allowing me to intervene briefly, since she mentioned me. The central point to all this is that we are on course to overspend—from £7.6 billion up to £9.1 billion—on subsidies for those industries. What would the Opposition’s position, or anyone else’s, be about reining in that expenditure, because the cost is falling most heavily on the people who can least afford to pay it?
Baroness Worthington
I thank the noble Viscount for that intervention.
On the levy control framework, there is an interesting policy that the Treasury invented. I honestly think that it was invented simply for us to have this conversation later down the line. That number represents a partial figure for what is being added to bills as a result of government policy. It is incomplete; it does not include everything. It also makes no reference to the counterfactual. We live in a world with infrastructure built in the 1960s that has now served its time, is closing and will need to be replaced. That involves higher capital costs. You cannot replace assets that have already had their capital costs paid and expect energy prices to stay the same: they will not. The counterfactual is that we will have to spend more money on electricity as we build a new infrastructure.
That is not taken into account in the Treasury’s levy control framework, so it is a particularly redundant policy, and I would not use it as my measure of whether we should be cutting an industry off at the knees just as it is showing signs of success, in the false belief that we are on track with our targets. We are not. We desperately need inward investment and jobs in the UK. The Government do not have a great record in stimulating growth in the economy—far from it. They are desperately cutting costs to mask the fact that economic growth is virtually stagnant—or would be if it were not for immigration. Here we see them recklessly upsetting investor confidence in one of our success stories.
It could have been so different. It could have been done in a much better way. We could have made it clear that we are encouraging a wider range of technologies. We could have talked positively about some of them. We could have heard more about the fact that an increasingly wide range of renewables is now being deployed, but we have not. Unfortunately, we have had a very negative spin on what has been a success story for the UK.
I have not done justice to the debate, because it has been so rich and varied, but I thank noble Lords for all their contributions. As noble Lords can see, this is a subject I feel great passion about. I hope that, as we go into Committee, we will find some way to improve the Bill. I am sure that there are some measures in it that are necessary, but it is not the Energy Bill that we would have brought forward. I hope that through the scrutiny process of Committee we can make changes to make it something worthy of our efforts.
Lord Bourne of Aberystwyth
My Lords, first, I thank your Lordships very much indeed for what has been a debate of extremely high quality with some important contributions, to which I shall try to do justice, on subjects ranging from the Oil and Gas Authority and wind to the old chestnut of the East Ayrshire coalfield. I am very grateful for the advance notice of that question, otherwise I might not have been able to deal with it; I will certainly try to as I address the points raised within the suggested time.
Let me begin by dealing with two general points. The first was raised by the noble Lord, Lord Purvis, at our meeting yesterday, when I also met the noble Baroness, Lady Worthington. I was of course aware of the likelihood, although not of the certainty, of announcements today at that stage, but I could not share anything because of market sensitivity. The only conversations that Ministers are allowed to have are with devolved Administrations—which brings me on to the second issue. We have very good avenues of communication, and such things continue to be shared, as they were yesterday, with Scotland, Wales and Northern Ireland. That does not mean that we agree, but we of course continue to do what previous Governments have done.
I will try to deal with the issues in the way that they were set out—the Oil and Gas Authority, wind and then miscellaneous. I am not in any way denigrating the importance of the miscellaneous questions, but they are not directly represented in the Bill. I will try to do justice to the contributions that have been made. I start with a general point about what will be forthcoming as we go through the Bill. We are certainly hoping for an impact assessment by Committee stage. We very much trust that that will happen, as we trust that there will be a settled position on the grace period, an issue raised by many noble Lords and by the noble Baroness, Lady Maddock, in a briefing meeting. As soon as I am in a position to give information on that, I will ensure that it is circulated to all noble Lords because I am cognisant of the fact that they will need to be aware of it in the Recess.
Turning to the Oil and Gas Authority, the noble Lord, Lord Grantchester, raised the question of how the environmental importance issue will be dealt with. DECC will continue to be responsible for that in relation to the Oil and Gas Authority, but it will of course work alongside it. The decommissioning strategy will be delivered; indeed, it is the prime issue that will be dealt with by amendments that we will introduce. That is not yet in the Bill and we hope to come back in Committee with more detail on that.
Many noble Lords raised the issue of carbon storage—I have it under the heading of oil and gas, but also under miscellaneous—including the noble Baroness, Lady Worthington. I thank her for her kind comments and I understand her passion and share many, if not all, of her climate change goals, so I am sure we will have a good working relationship. The noble Lords, Lord Grantchester, Lord Oxburgh, Lord Whitty, and Lord O'Neill, the noble Baroness Lady Worthington, and others raised the issue of carbon storage, which it is important we look at. It would be a responsibility of the Oil and Gas Authority, although not its core responsibility. I hope we will be able to look at that as the Bill proceeds through Committee and beyond.
On Norway and Scandinavia, again, I agree that a lot of this draft legislation is based on the experience of Scandinavia, which is a good example for us. I am sure that we will continue to learn lessons from there and exchange good practice.
Moving on to a general point about the Oil and Gas Authority and the tribute to Sir Ian Wood paid by noble Baronesses, Lady Worthington and Lady Liddell, the noble Lords, Lord O’Neill and Lord Purvis, and others, I quite agree. We have not really done anything other than present the report as it is. We believe that it is a good report and we are giving it legislative strength. The timing—2014—might not have been of our choosing, I agree, but we are where we are and we have to make sure that the authority is smart, nimble and able to take on new challenges as they develop.
I am happy to look at and engage with the example of transferable skills and research given by the noble Baroness, Lady Liddell. It was a helpful suggestion, so we will be in touch and make sure that noble Lords are aware of what we are doing in that regard.
The noble Lord, Lord Oxburgh, asked about the number of staff who would be transferred. The current figure is 103, which is an increase from the figure I was given earlier this morning, so we are obviously recruiting at a rate of knots. The majority will come from the Department of Energy and Climate Change, but expertise is retained in the department and of course we are continuing to recruit. There was a suggestion that the industry was trying to do this on a small budget, but that is not the case. We will obviously continue to recruit.
My noble friend Lady Byford raised some specific issues about the stable and predictable regulation regime set out in Clause 4 and asked for more information about that. I am happy to write her and copy noble Lords in on the detail that we have.
The noble Viscount, Lord Hanworth, talked about the regulatory role of the Oil and Gas Authority. Yes, it is of course the regulator and is subject to controls, but the oversight will be with the Secretary of State, who will be the sole shareholder of the company. No doubt we can look at that as the Bill goes through Committee. Those are the prime points on the Oil and Gas Authority. It seemed to receive a general welcome, and no doubt we can look at the detail as we proceed.
Obviously, we will not all agree about wind. There are differences even within party groups. I notice that some are more enthusiastic than others about onshore wind. Clearly, the fundamental point is that industry should not have been taken by surprise by the attitude of the Conservative Party to wind. One thing we cannot be accused of is ambiguity: the manifesto made our stance very clear.
A general point was made about the affordability of bills. My noble friends Lord Howell and Lord Ridley rightly said that affordability is an issue. Looking at the figures, the action we have taken has trimmed bills by £7 annually, which is not something that we should dismiss. But there is a concern and we should not categorise it as tawdry. We may disagree with it, but there are people who feel that there are sufficient land-based wind farms and they affect the quality of their lives, so let us put that in perspective. We have just had an election in which that was an issue.
To return to planning, developers can obviously still appeal against a decision from the local authority as they can in relation to shale. The point was made that somehow, the planning regime is fundamentally different in relation to shale. It is not. As we know from the decision recently taken in Lancashire, a decision is taken at local level and then there is the potential for appeal. In a similar way—although not identical because they are different planning regimes—there is a local element and then an appeal in both cases.
Reference was made to the certainty that is needed for British industry and investors regarding the supply chain. I agree. We need a sustainable approach to decarbonisation to 2020 and beyond. There was a Written Ministerial Statement this morning outlining these changes, which I hope that the noble Lord, Lord Purvis, has. There was a press release, too, as is customary practice, but this was not announced only by press release. It makes it clear that there is a levy-controlled framework beyond 2020. I reassure noble Lords that in the autumn, we will say what we will be doing about contracts for difference.
My noble friend Lord Ridley questioned the need for Clause 60(3). It is simply there to ensure that generators who do a credit before the closure date will not be affected. A general concern was expressed about the grace period. There is an ongoing dialogue on that issue, which is why it was not dealt with in the Bill and we will return to it in Committee. That dialogue will finish at the end of July. We will then study the representations made to us and come back with something. I will make sure that noble Lords have sight of any decision as soon as it is made. That is why the measure has not been included in the Bill. I know that noble Lords will want us to look at these considerations with some care.
The number of projects affected is in the region of 250. It is not a precise figure—we cannot be absolutely certain which projects will proceed, so to that extent it is a best guesstimate. Again, that will be covered in the impact assessment. The noble Lord, Lord Cameron, also talked about the grace period and the need for dialogue, which I quite agree with. The noble Lord, Lord Judd, stressed the importance of areas of outstanding natural beauty, and I agree. Some people may well say that some wind farms are already in such areas, but I thank the noble Lord for his thoughtful speech. He asked how the costs were determined. I think they are published, as we will be able to see as we go through the Bill, but they are determined by the Office for Budget Responsibility.
Lord Purvis of Tweed
I hope that the Minister will forgive me for bringing him back to the issue of planning. Just after he received clarification from the Box, I took the opportunity of looking again at page 57 of the Conservative Party manifesto, which says that it would,
“change the law so that local people have the final say on windfarm applications”.
The Minister confirmed at the Dispatch Box a few moments ago that that was not the case. The current practice of developers being able to appeal to the planning inspectorate will carry on, so that is not being implemented. Is that true?
Lord Bourne of Aberystwyth
Noble Lords will understand that I am approaching this constructively. I am not going for the party knockabout, so let us leave that for another occasion. I am trying to be constructive and explain how we can take this forward.
The noble Lord quite rightly raised a point on public interest and national security grounds; perhaps I may get back to him on that with examples. The two go together. The national security point will be fairly evident, the public interest one perhaps less so. Thinking on my feet, it could involve something like piracy, but that word has connotations of the old type of pirate. However, it could mean someone taking over one of these installations, which, while it might not represent a threat to national security, may demand urgent action in the public interest by the Secretary of State. It could be something like that, and I will certainly write to the noble Lord with more precise information.
As I understand it, coming back to the announcements on solar made this morning, we do not need primary legislation for any action that is taken consequent on that consultation, and therefore I do not think that we will need to amend this legislation. If I am wrong about that, I will write to noble Lords, but I think it can be achieved through secondary legislation.
I shall move on to the miscellaneous points, although that is not to say in any way that the issues are not important. A regular theme of the debate was energy efficiency. It was raised by the noble Baroness, Lady Maddock, and the noble Lords, Lord Oxburgh, Lord Teverson, Lord Judd and Lord Foulkes, among others. It is a vital issue and a lot is already happening that does not demand legislation from us now. I refer to the smart meter programme, the delivery of which in 2020 will make a massive difference. Since April 2010, we have delivered the installation of more than 1.5 million measures such as boilers, insulation and so on which have made a material difference. That links to another area of responsibility, namely fuel poverty. We are currently looking at how to ensure that our fuel poverty measures are more closely allied to improvements in energy efficiency than perhaps they have been in the past. That is something we are looking at and it is certainly important.
On nuclear, a matter raised by my noble friend Lord Howell and touched on by the noble Lord, Lord O’Neill, and others, we are expecting the contract to be concluded at the end of the year. I think my right honourable friend the Secretary of State mentioned this yesterday to the Select Committee in the House of Commons. We are certainly looking at small nuclear, as I think I have indicated previously; it is important. Progress is being made on Wylfa and I discussed it again yesterday with the devolved Administration in Wales. Those matters are progressing. I think I have dealt with carbon storage.
Lord Foulkes of Cumnock
Could the Minister deal with the question of whether insurance will be available?
Lord Bourne of Aberystwyth
I am coming to that; I had not forgotten. I think the noble Lord has also tabled a Question for Written Answer on this and I hope he has had a response because I have it here, although I will not read it out. I think he will be reassured that we believe there is sufficient cover at the moment. The Government will continue to monitor the insurance market for capacity in this area and to encourage insurers to enter the nuclear insurance market. I offer the noble Lord my apologies if the response has not yet arrived, but it is certainly on its way to him.
On contracts for difference, raised by the noble Viscount, Lord Ridley, the noble Lords, Lord Whitty, Lord Oxburgh, and others, I have indicated that we will be announcing our approach. Of course it is important that we look at the totality of the position on renewables; I totally agree with that.
The noble Lord, Lord Teverson, raised issues around the automotive industry. He is absolutely right to say that there is a massive opportunity for the United Kingdom in this area. We are working across government on this with the Department for Transport and there is a certain urgency. It is an important issue and it would be great to see British industry have an edge in the area.
The security of the national grid was raised by noble Lords. That was one of the first visits I made, and obviously there are connections with other countries such as Norway and France. I think security of supply is in place.
The Competition and Markets Authority was touched on by the noble Lord, Lord Foulkes, in relation to switching. He will be aware that we are currently studying, and will soon be responding to, the preliminary findings of the Competition and Markets Authority, which had a default mechanism in those preliminary findings for those people who do not switch and are on an expensive tariff. They are put into a default mechanism tariff, which will be better for them. I hope he is reassured by that. The noble Lord also raised the issue of smart grids, which are very important. We are looking at them as part of the smart energy programme.
Finally, I turn to the East Ayrshire coalfield. We are aware of the issues, as the noble Lord indicated, and at the moment the Treasury is looking at the Hargreaves and Banks proposals he mentioned. We will come back to him on that; it certainly has not been forgotten.
Baroness Worthington
In anticipation that the Minister is about to finish, I want to touch briefly on two points. I hope I will be forgiven if the noble Lord has already mentioned them. On the European targets, I should like some clarity on the statement from the Government that we are on track. We are not on track. We would like to see some information about how we will compensate for failing to meet the targets for the other two aspects of the energy policy. Related to that, I should like some reassurances because, as I understand it, to have an auction for the CFD, as was planned, the Government would have to be making decisions in August, not in the autumn. Can we assume from this that the planned CFD auction for this year will not take place, and what will that mean in terms of our being able to make progress with our targets?
Lord Bourne of Aberystwyth
I thank the noble Baroness for those two points. On the European targets, we are certainly on track, as I think she will accept. Indeed, I think she said that in relation to the electricity target, which is the one that wind directly affects. The other targets are certainly challenging and we are seeking to address them. I have mentioned what we are doing on cars, but I accept that they are challenging. However, I am sure she will agree that the track record of the United Kingdom in meeting our targets is, in European terms, very good, and I am sure it will remain so. On the auction, as I say, we will be making a statement in the autumn about the future of contracts for difference, and I have indicated that there is a future for the levy control framework, but I cannot really add to that at this stage.
Once more, I thank all noble Lords for a wide-ranging debate, which has gone far beyond the narrow remit of the Bill, but that is no bad thing. I hope that, as we go through the Bill, we can engage in the constructive way we have today.