Energy Bill [HL]
(9 years, 3 months ago)
Lords ChamberRead Hansard Text Read Debate Ministerial Extracts
Lord Teverson (LD)
My Lords, I have also put my name to this proposal, therefore I will speak on it on behalf of the noble Lord, Lord Whitty, as well as myself.
We come to one of the most important parts of the Bill, which concerns wind power. Although I fully accept there were strong arguments against onshore wind in the Conservative manifesto, that is very regrettable and it is important to have consistency in government policy. One element of that manifesto was that climate change measures and renewables should be at least cost. As I pointed out to the House before, onshore wind costs some £65 per tonne of CO2 saved whereas with offshore—still one of the Government’s favourites; I have no criticism of that—the cost per tonne of CO2 displaced is almost double that at £121. In terms of financial support, onshore wind cost on a ROC basis is about £40 per megawatt hour and offshore is more than double that at some £85. That puts into context this part of the Bill and the two clauses that we start to consider here.
The irony is that in many ways I would welcome this clause because it repatriates planning decisions around certain energy generators—onshore wind above 50 megawatts—back to what many of us see as the democratic base of decision-making, which is local planning. In some ways, that is quite a positive thing. However, the inconsistency and the agenda behind it concern me. It seems that the Government are in favour of this reallocation or repatriation because they want to put greater obstacles in the way of this far more cost-effective and efficient form of energy: onshore wind. Yet in other areas of energy policy, not least fracking—I am not against fracking in principle—the Government try to move things in exactly the opposite direction. Due to the frustrations felt with Lancashire County Council, we have the irony of the Government trying to move decision-making up to the Secretary of State whereas onshore wind, which seems bad in terms of Tory ideology, is moving the other way and back to local authorities. That inconsistency concerns me.
My noble and learned friend Lord Wallace of Tankerness will doubtless come to this on the next clause, but it also means that the outside world, whether that is financial institutions within the UK or worldwide, starts to look at British Government decision-making as being very inconsistent and changeable, in a way that is not necessarily financially correct but comes from a bounce and ricochet of policies. It seems that we have a confusion and inconsistencies in UK energy policy that will deter investment. I know that that will be a continuing theme this afternoon.
I have questions to ask the Minister. First, paragraph 130 on page 18 of the Explanatory Notes says:
“The Government currently expects that applications which have already been made under section 36 of the Electricity Act 1989 but not yet decided when the Bill provision commences, will continue to be considered under that Act”.
However, I understand that we have no detail of how that will be done. Again, we have uncertainty in this area. I would be grateful to hear from the Minister on where we are in that.
Again on detail, the other thing I find difficult about this clause is that even if we accept that this level of planning should come down to local authorities, despite that inconsistency, I understand that it is also the Government’s intention that approvals for onshore wind should be given by primary planning authorities only if they are also in line with agreements on neighbourhood plan areas. Now, no one is a greater fan than I am of the neighbourhood planning brought into being by the coalition Government. That is a great move forward and has been successful in housing and other areas so far.
Perhaps I may have some clarity from the Minister. I know that large areas of England do not yet have neighbourhood plans; in fact, many planning authorities do not have local plans. I should like to understand the detail of how onshore wind farm developers, who can surmount all these other hurdles, deal with this area. Neighbourhood plans must not be in conflict with local plans, so what happens in areas that do not yet have neighbourhood plans? I know it is obviously a DCLG issue, but I would be very pleased if the Minister could write to me and tell me how many neighbourhood plans have been passed and what proportion of the English landscape that covers. Indeed, I would like to know the same for local plans, a number of which are waiting to be agreed by the Secretary of State.
Baroness Young of Old Scone (Lab)
My Lords, I support the noble Lord, Lord Teverson, on whether keeping this clause in the Bill is sensible. I share his views entirely about the vagaries of the local planning system. It is true to say—it would be good if the Minister could confirm it at some stage—that not only are there not many neighbourhood plans in existence, but some local authorities have not yet published local plans, far less had them accepted. This provision might be okay in places where they have thought about it, but so many have not and show no signs of doing so.
The National Planning Policy Framework only encourages local planning authorities to consider identifying suitable areas for renewable energy sources and as a result the links in the chain that could fail are rather long. A local authority might not have got to the stage where it had a local plan and therefore there cannot be neighbourhood plans, because they have got to be in a consistent process with the local plan, and there is only a vague nudge in the direction of considering whether suitable areas have been identified for renewable energy. It does not feel like a well-honed local set of circumstances for fostering that vital and, as the noble Lord, Lord Teverson, pointed out, cost-effective way of meeting some very stringent climate change targets and budgets. I have concerns about the removal of the Secretary of State’s consent in this respect.
It is rather strange that we are moving in one direction for fracking consents and in another for onshore wind consents. I simply make that remark without having any belief that there should be one without the other. I must confess that I need to meet my noble friend Lady Worthington to talk about some impacts of fracking other than simply energy generation, carbon reduction and cost.
There is one other issue in respect of the localisation of decision-making in terms of onshore wind, which is how we get some strategic perspective. It is going to be abominably difficult to meet our carbon targets, and we will need every tool in the toolkit to do so. In this clause, there is no mechanism for that happening on a scale larger than a neighbourhood or local plan, yet many of these decisions involving technologies other than onshore wind need to be part of the mix on a local and national basis for these decisions to be looked at on a more strategic basis at a higher level than the local planning authority.
I hope that the Minister will come back to us with answers to some of the questions we are raising about the advisability of removing the Secretary of State’s permission.
Lord Howell of Guildford (Con)
My Lords, I, too, am waiting for my noble friend Lord Ridley to give his limpid views on the future of onshore wind and, indeed, on the role of onshore and offshore wind power in the tasks of reducing emissions worldwide and producing a balanced energy policy for the British people. No doubt he will enter into later debates on the next clause which will cover very much the same ground.
I admire the noble Lord, Lord Teverson, for his frank admission of the dilemma he faces. On the one hand, localism is the flavour of the month, the year and the time, and there is a great desire to move from central administration in every area of policy, certainly including energy, into a greater role for local people, local planning and local authorities, yet he is also worried about inconsistency and fears that in some way the onshore wind cause is being abandoned. I do not see that. If you look at the proposals and the argument in the impact assessments behind the Bill, it is perfectly clear that, first, onshore wind has had a fantastic run over recent years. Some would say it was possibly too big a run given the very considerable economic advantages it brought to many wealthy individuals, gigantic corporations and energy companies and to those who are benefiting in all sorts of other ways from the proceeds and the subsidies, which are, of course, paid for by the consumer. In many cases, we know it is the poor consumer, and it is certainly the competitive consumer in industry. It is clear that subsidies have created this great growth. There must be a limit, as has been set quite clearly by government, and it is going to be exceeded unless the brakes are put on. There is a limit in two senses: first, the sheer weight of subsidy required to maintain the industry until it can get its costs down. I will come to that in a moment because there are real problems in getting costs down.
Secondly, there is managing a balanced grid system which can absorb the intermittency of wind. Every country that has gone into this business in a big way—Denmark is a good example—has found enormous difficulties. That is one reason why Denmark wants to have an interconnector with Britain for electricity. Intermittently there will be no charge at all for the electricity it supplies to us because it is a danger to it and an advantage to us. Spain has found enormous difficulties in going too fast and beyond the limits of engineering and electronic management in organising its grid when the wind blows too hard or too regularly.
Thirdly, there is the intermittency problem, which we all face. One day we will get over it because the storage will come at lower costs and intermittency problems will be much reduced. In the mean time, though, intermittency requires back-up, and back-up requires gas. There are other devices but gas-generated electricity is the area where most people in Europe, certainly in this country, think the gap can be filled. Far from being inconsistent, then, it seems to me utterly consistent that at this point the contribution of onshore wind should be restrained in the ways that are proposed.
As for the emissions angle, we know that we are driven by the European requirements for renewable energy, the formidable target of 15% of our energy from renewable sources by, I think, 2020, and Europe’s target of 40% by 2030. It is quite clear from the present pattern that we are not going to meet that target, and that even if we were to double the onshore wind power we still would not get near it, even if we took into account merely the emissions that emerge from the production of energy. In fact, the emissions that emerge from our capital consumption of energy per head, and from all the vast imports that we suck into this country from countries with much lower standards with very high emission content, have not fallen very much at all; indeed, many would argue that they have increased greatly since 1990.
So the real problem is that the present policy is not actually working. Those of us who are concerned about climate change look at what is happening throughout Europe, notice the contrary tendencies in delivering emission reduction—much more coal burning and a failure of the heavy concentration of wind around the islands, like the one that we are living on—and ask whether we should not begin to think about an entirely new and different policy. I see no inconsistency at all. No doubt we will debate this a little further on in the afternoon in more depth and detail.
I worked very closely with my friends in the Liberal Democrats in the last Government and enjoyed doing so, but I find their stance on this almost impossible to understand. They seem to be favouring a system that does not do much for emissions, distributes money in massive ways from the poor to the rich and apparently produces all kinds of tax advantages that are going to be exploited. This is one irony of the situation: even with this restraint, it looks to me as though we are going to have continuous investment in onshore wind, even without the subsidies, because of the big tax advantages that are built into the system. Should we not be looking at those before we take a position on the question of local powers and so on?
It is a puzzle to me that we do not look in a more balanced way at what is being done. It seems utterly consistent. I do not think that I want to be a supporter of anything that promotes further a system that is unfair to the poorest people and consumers, and which delivers considerable tax advantages to clever people and yet does not do very much at all for emission reduction. It seems to me to be a sad mixture, and it is about time that it was changed.
Baroness Worthington (Lab)
My Lords, I am grateful to the noble Lord, Lord Teverson, for introducing this clause stand part debate, and to noble Lords who have contributed to it. I shall make a few comments. As we enter the third day of Committee, I am grateful to the Minister for having agreed to extend the Committee for an extra day. I think that this has arisen because we felt—I have probably made myself fairly clear on this—that the handling of the Bill has been slightly suboptimal, and we are expecting more amendments to come to us before Report. We are very grateful that we now have an opportunity to discuss those in Committee before then.
Today we move on to Part 4, which it is fair to say is the more controversial aspect. People on both sides of the Committee may have different views about the benefits or disbenefits of particular technologies, but we must strive to ensure that we have a good policy and governance regime that will help investors not to waste their money. One of our concerns is that any manifesto, no matter how good the drafters, is prepared relatively hastily and usually without a great deal of thought for the detail. Yet here we are, just months after that manifesto was put into print, hastily enacting some of the statements in it and I think that we are still lacking some of the detail.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, perhaps I may deal first with the so-called extra day in Committee and, for the first time, I thank the noble Baroness for getting back to me. I hope she accepts that twice over the weekend I tried to contact her and left a message. It would have been good to hear from her that the situation is fine—only now am I am hearing for the first time that it is.
Baroness Worthington
I communicated through our Whips this morning that it was acceptable. They are in communication with the noble Lord’s Whips. Therefore, I have gone through the normal channels.
Lord Bourne of Aberystwyth
We had corresponded directly earlier but I accept that the situation is fine. Technically it is not another day in Committee, which I believe is causing the clerks consternation; it is a day for recommital in the Moses Room, and I think that that is understood. I hope that noble Lords will accept that we have endeavoured to accommodate people’s wishes in relation to the subsidies that we will be looking at.
It is very good to see the noble Baroness still in her place. I suspect that she and I will be agreeing much more than she will be agreeing with her leader, and we will perhaps come to that later. We will come on to decarbonisation in relation to nuclear policy. It is important that we have a responsible Opposition because they are an alternative Government, so we will come on to that and it is absolutely right that we do.
Lord Foulkes of Cumnock (Lab)
I wonder whether the Minister can tell us how that relates to Clause 59.
Lord Bourne of Aberystwyth
The noble Lord has made a fair point but I am coming on to Clause 59 and will happily do so. Of course it has an effect on energy policy across the board.
I thank noble Lords who have participated in this debate and I will seek to answer their points, which have properly been raised. The issue obviously affects the energy mix that helps us to reach our decarbonisation targets. I should say that there is no way that we will reach them if we do not have new nuclear, so my point certainly is relevant.
Clause 59 seeks to amend Section 36 of the Electricity Act 1989 by removing the obligation to obtain consent from the Secretary of State for Energy and Climate Change to construct, extend or operate an onshore wind farm in England or Wales. To be clear, this requirement relates to new wind farms with a capacity greater than 50 megawatts. Smaller wind farms, including those owned by the community, are already consented by the relevant local planning authority.
The change, alongside further proposals to make secondary legislation amending the Planning Act 2008 and the Electricity Act 1989, will have the combined effect of removing the requirement for planning consent to be obtained from the Secretary of State for the construction of new onshore wind farms. Instead, developers will need to apply for planning permission under the Town and Country Planning Act 1990, where the primary decision-maker is the local planning authority.
The Government were elected with a clear commitment to give local people the final say on whether to have a wind farm in their area. This should not have taken anyone by surprise. These changes help deliver just that, as was stated in our manifesto. This is important. The majority of the population do not live in the vicinity of a wind farm. For those who do, we have seen many examples of local community groups vigorously opposing wind farm developments because of local impacts relating to noise, amenity and visual changes. It is against that background that the proposal appeared in the manifesto. By transferring decisions to the local level, we are putting local communities in the driving seat. Onshore wind farms should get the go-ahead only when local people have said they want them, and where. That said, onshore wind will continue to be important to help us deliver our renewables targets. It will certainly not disappear and we anticipate that there will be new onshore wind farms—community wind farms and so on.
I turn to some of the specific points raised. The noble Lord, Lord Teverson, mentioned paragraph 130 of the memorandum. It remains the case that all electricity applications are caught by the policy. I believe that all existing Electricity Act 1989 applications have been decided, and the issue should therefore not arise. If I am wrong, I will write to the noble Lord, Lord Teverson, and to the other noble Lords opposite. We will consider this issue soon when the Electricity Act order comes before us.
The noble Lord, Lord Teverson, and the noble Baroness, Lady Young, also raised the issue of planning authority and neighbourhood plans. There is a transitional arrangement for when a valid planning application for a wind energy development has already been submitted to a local planning authority and the development plan does not identify suitable sites. In such instances, local planning authorities can find the proposal acceptable if, following consultation, they are satisfied that it has addressed the planning impacts identified by local communities and therefore has their backing. This is set out in the ministerial Statement made by my right honourable friend the Secretary of State for Communities and Local Government in another place, and I will make sure that it is circulated to noble Lords so that they are aware of it. That should cover the point.
My noble friend Lord Howell made some powerful arguments on onshore wind, the ongoing situation and the potential—or almost certain—overdeployment of onshore wind, even following this action, in terms of both the budget and the plans for onshore wind. Onshore wind is becoming cheaper. My right honourable friend the Secretary of State for Energy and Climate Change has met with some developers who are happy to carry on deploying without the subsidies. I appreciate that we are not being specific about this at the moment, but we anticipate the continuing importance of onshore wind. However, it is important to look at the whole range of renewables, not just onshore wind.
It would be interesting to know the Opposition’s position on fracking. It is legitimate to ask that because the issue has been raised. We are obviously trying to encourage new energy sources in order to reduce costs and increase energy security. However, local communities, across the range, must be fully involved in planning decisions—be it shale or onshore wind—and we proceed on that basis. There should and will be a full public consultation for both. On that basis, I believe that Clause 59 should stand part of the Bill.
Lord Teverson
My Lords, I thank the Minister and everybody else who has taken part in this debate.
First of all, I absolutely agree with the noble Lord, Lord Howell, that where subsidy—whether it be through tax breaks, ROCs or whatever—starts to be excessive, we must cut that back. Indeed, when he was Secretary of State, Ed Davey took a number of very tough decisions around solar and wind energy that did exactly that. None of us, certainly on these Benches, want profiteering from this area. That is not really what we are getting at in this debate. Clearly, value for money is important; the more that we can make it competitive, the better.
I press the Minister to tell us the challenge there still is to get neighbourhood plans across England, so we can understand; perhaps he will not be able to come back on it now. Whether this mechanism decided on by the Government works or not, I would still be very interested to hear where we are on it. Only by that being effective can even this system, as revised by the Government, really work. I would be pleased to get further feedback on that.
Clearly it is not appropriate to have a vote here, but I am very concerned that we have government policy going in one direction on one form of energy and in completely the opposite direction on another. That means inconsistency and a lack of confidence nationally and internationally in terms of finance. However, based on the Minister’s reply, I withdraw my opposition to the clause.
Baroness Worthington
“( ) In section 32LA (1) after “order” insert “subject to subsection (2A)”.
( ) After section 32LA (2) insert—
“(2A) The power to make a renewables obligation closure order applying to Scotland may only be exercised by Scottish Ministers.””
Baroness Worthington
We now pass to the second relatively controversial aspect of this Bill: the decision to close the renewables obligation a year earlier than had been originally legislated for in the Energy Act 2013.
Many of the people involved in the Energy Act 2013 will be aware of discussions that were had at the time when we debated the rights or wrongs of closing the RO. This amendment would return powers to control how the RO was dealt with in its final years to Scottish Ministers. We tabled this amendment to give ourselves an opportunity to state, for the record, that when we were debating the RO closures in the House of Lords—the power to close the RO was introduced by amendment in the House of Lords—it was under quite an unusual set of circumstances. The Minister was not present, so I hope it will be helpful if I give him some context.
Before the Energy Act 2013, Scottish Ministers had full control over the renewables obligation in line with the Scotland Act 1998, which devolved powers to the Scottish Government in respect of supplying electricity from renewable sources. The Energy Act 2013 took back this control through a government amendment tabled in this House, giving the Secretary of State the power to close the RO, including in Scotland. The justification for this change in the law was that it would facilitate a coherent and transparent closure across the UK and a move towards the new contract for a different system. However, that was not without concerns, and concerns were certainly raised in the other place. Fergus Ewing MSP was particularly vocal in his concern that the way this had been chosen to be dealt with was the stripping of Scottish Ministers’ powers in this area of discretion.
Since then, we were all working on the assumption that it would be an orderly transition from the RO to a new system of support. As recently as January this year, we had a statement from Ministers that there was no intention to review the RO and that it would continue as was planned. Then we saw the manifesto from the Conservative Party. I know that it is stating the obvious, but manifestos are not a document of government; they are a document of a political party. While you can claim that you can use the Salisbury convention, this is a rapid change in policy with significant implications not just for investors in the private sector—and the knock-on effect for all investors who are looking to bring their technologies and their investment to the UK—but particularly for Scotland, where there has been a real need for inward investment and a greater role for the private sector in creating jobs. For that to be so significantly affected by this manifesto commitment is truly regrettable, and I know that the Scottish aspect will be talked about in great detail when the Bill leaves this place and enters the other place.
Lord Foulkes of Cumnock
My Lords, I first say a word of thanks to the noble Lord, Lord Bourne, because I sounded a bit intemperate when I intervened earlier during his speech. I have known him for a while, both for his work in Wales and as a Back-Bencher before he received his well-deserved promotion. He has been one of the most diligent Ministers in keeping Members of all sides in touch with progress. I have had more letters faxed from his office than from anyone previously. It is really helpful and I am grateful to him for it.
My noble friend Lady Worthington has tabled one of the most significant political amendments to this Bill. I know that the noble Lord, Lord Bourne, will listen carefully, but I hope that he will consider all the implications of this measure. I know because I have worked with him that he understands devolution, because of his Welsh connection having been a Member of the Welsh Assembly, and he will know that there are political implications as far as Scotland is concerned.
As my noble friend said, these powers were repatriated to Westminster under the previous Energy Act on the clear understanding and promise from the Government that there would be no policy implications. It was said that it was just a technical change and that it would not affect any policy decisions. It was accepted by all sides, here and in Holyrood, because of that assurance. The Minister will know—and the noble and learned Lord, Lord Wallace, knows a lot about this—that it is an exceptional thing to repatriate powers. Normally, they are going in the other direction: from here to Holyrood, month in and month out. So it was exceptional and, as I understand it, done without acrimony. But the Government have now used that for an entirely political purpose—a policy purpose—in contradiction and contravention of the promise they made, without any consultation whatever with the Governments of Wales and Scotland. That is why Fergus Ewing MSP, the Energy Minister in Scotland, was understandably very upset. He continues to be annoyed about it.
This action has been taken in bad faith. I see the noble Viscount, Lord Younger, who knows Scotland very well. I remember his father extremely well as a very diligent Secretary of State for Scotland. He would have understood the issue. I hope that the Minister and the Government will consider restoring the powers to the Scottish Parliament and Scottish Government up to 2017 so that decisions within Scotland about onshore wind and ROCs in Scotland should go back to the Scottish Government. That is not a lot to ask and I think the Government are honour bound to consider that in light of the promises they gave when this power was repatriated.
I understand the problems of giving assurances off the cuff and on the spur of the moment, but I hope that the Minister will agree to take this away and consult his colleagues in the department and either accept this amendment or bring forward an appropriate amendment to deal with what is an action taken in very bad faith.
Lord Wallace of Tankerness (LD)
My Lords, I welcome the amendments tabled. I thank the noble Lord, Lord Bourne, for indicating that he would be willing to recommit these relevant clauses of the Bill when we have an opportunity to consider the grace period provision that the Government intend to bring forward. That shows a constructive response to the concerns that have been raised.
This is not really an interest to declare but, when I was Minister for Enterprise and Lifelong Learning in the Scottish Executive, as we then called it, I had some responsibility for the renewables obligation. The Labour and Liberal Democrat coalition in Scotland did much to take forward the case for the development of renewable resources in Scotland. To give the figures for Scottish renewables, around three-quarters of United Kingdom’s onshore wind developments are in Scotland. Therefore, that is where the impact of this measure will be most heavily felt. My noble friend Lord Teverson just handed me the Conservative manifesto and there is nothing in the wording on local decision-making to indicate that the period would be brought forward from April 2017 to April 2016, so I do not consider that this provision of Clause 60 is a manifesto commitment.
Given that the Scottish onshore sector directly employs more than 5,400 people and contributes £9 million to local people in community benefit each year, and that some 70% of people in Scotland support further development in wind and the benefits that it brings, it would be helpful if the Government recognised that there is a particular Scottish dimension to this. Obviously, planning matters are devolved to the Scottish Parliament. Clause 59, which we have just debated, does not apply to Scotland so, to that extent, a distinction has already been made. In terms of this proposal, it would be in the spirit of devolution and constructive working with the Scottish Parliament and the Scottish Government if Scottish Ministers were able to determine that the current situation—as we understood it—will continue to 2017. That would allow the position to be tailor-made for the part of the United Kingdom where there is the greatest concentration of onshore wind power.
My understanding is that the particular provision was devolved to Scottish Ministers by executive order under the Scotland Act 1998 and thus it was executive devolution. That is why, when it came to the 2013 legislation, it was possible legislatively for the renewables obligation to be withdrawn. However, as the noble Lord, Lord Foulkes, said, the understanding was reached on a timetable which has suddenly now been changed. I know that the industry in Scotland is extremely concerned about it and I would therefore encourage the Minister to look at what is being proposed to see if there can be a particularly Scottish carve-out for this. If he does not feel he can go that far—I hope he would be able to—when we come to debate what might be done in terms of grace periods, perhaps provision could be made to enable Scottish Ministers to devise their own grace period provisions, given that there are some very particular issues with regard to the development of onshore wind in Scotland.
Viscount Ridley (Con)
My Lords, before coming to the substance of the amendment, perhaps I may express my gratitude to the noble Lord, Lord Teverson, for his surprise that I am in my place and remind him that one should never believe everything one reads in the newspapers. I am only too glad to do my best to provide some grit for his oyster.
Before I go on, I should declare my energy interests as listed in the register, mostly in coal, although the wind industry has not in fact been a particular threat to coal. It has been more of a threat to the gas industry, which in some ways would have been a threat to coal. I urge my noble friend the Minister to stick to the Conservative manifesto commitment on this and not to visit upon Scotland a ruination of its landscape that would not be acceptable in England. I would say to the noble Baroness, Lady Worthington, and the noble Lord, Lord Foulkes, that, yes, there is a difference between the policy of the coalition Government at the start of the year and the manifesto commitment of the Conservative Party, but that is because we had a change of government at the election.
The Government should not be taken in by the wind industry’s assertion that most people do not object to onshore wind. The commonly quoted research on this is often out of date and simplistic. For example, a MORI survey which is used to show that people do not mind or are supportive of wind farms was conducted in 2003, when a 15-turbine wind farm was considered large. Nowadays in Scotland they often comprise more than 30 and sometimes as many as 70 turbines. The land area of Scotland from which turbines are visible has dramatically increased over a short period. According to data from Scottish Natural Heritage, 20% of Scotland was theoretically visually impacted by turbines in 2008, whereas by 2013 it was almost 46%.
Lord Foulkes of Cumnock
The noble Viscount is making a powerful and coherent argument, but does he not agree that all we are suggesting is that this debate, in which he is taking part, would be better conducted in the Scottish Parliament where these matters are being considered? Indeed, it is now looking at energy in its overall, global sense. Would that not be much more appropriate? That is all the amendment is suggesting?
Viscount Ridley
Yes, but the point is that a lot of the subsidy that would go to Scottish wind farms comes from English taxpayers, so English taxpayers do have a role in this. Moreover, we are looking at this as a United Kingdom; I think most of us in this Chamber feel very strongly about that.
The noble and learned Lord, Lord Wallace of Tankerness, mentioned community benefit. It is worth pointing out that community benefit from wind farms is small when compared with other benefits. Supporters of onshore wind argue that community benefits can be substantial, but such claims need to be put into context and their worth assessed against wider factors that are important to communities. The Scottish Borders draft development strategy for 2014-20, which came out in July, compared the value of tourism with the value of current wind farms to the Scottish Borders economy. It found that in 2012 the gross value added of serviced, non-serviced and self-catering accommodation and day visitors was £182 million. In comparison, onshore wind energy contributed around £10.8 million gross value added.
Again, I urge my noble friend not only to stick to his guns on the renewables obligation, but to resist pressure to include the contracts for difference in a different way for Scotland. That would probably affect Scotland and Wales differently from England because of the planning constraints in England. That would beg the ethical question of whether it is acceptable to protect England from further intrusion but allow Scotland’s landscapes to be ruined.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Baroness, Lady Worthington, for moving the amendment and noble Lords who have participated in the debate.
First, I shall set out the Government’s position and then deal with the points raised by noble Lords. The purpose of the amendment is to enable Scottish Ministers, rather than the United Kingdom Government, to close the renewables obligation in Scotland in relation to onshore wind.
For background, the legal powers for the Government to close this, as has been rightly said, were included in the Energy Act 2013. The reason for that was to ensure that consumers and the industry had clarity on the closure arrangements associated with the renewables obligation as part of the transition to the contracts for difference regime, and the confidence that closure would take place consistently across Great Britain during this process of transition—a point made by my noble friend Lord Ridley. The energy situation is on a GB basis and it is best that we move on that basis. These reasons still hold firm today.
Furthermore, energy policy across Great Britain is reserved to the United Kingdom Government. We are committed to implementing the recommendations of the Smith agreement, which are forthcoming in the Scotland Bill, and we are doing that throughout that Bill. We are doing it based on the Smith agreement and the agreement within that process of the five political parties of Scotland—the Conservative Party, the Labour Party, the Scottish National Party, the Liberal Democrats and the Greens. However, transferring legal authority to close the renewables obligation in Scotland to Scottish Ministers goes considerably further than this. My department has engaged and will continue to engage with Scottish Ministers and officials, as I do, throughout the development of this policy, in line with the spirit of the Smith agreement.
Finally, this proposed change could prevent the United Kingdom delivering on its ambition to end new subsidies for onshore wind. I appreciate that this is not popular throughout the House but it is, after all, based on a change of Government and on policy enshrined in the manifesto at the other side of a general election. It could also have wider impacts on the management of low carbon spend with possible increases to consumer energy bills.
To deal with the points made on the history of this, I appreciate that they were made absolutely correctly by the noble Baroness, Lady Worthington. I thank the noble Lord, Lord Foulkes, of whom I am a considerable disciple on devolution issues, as he knows. The noble Lord was at his disarming best, which is considerable, and I appreciate what he was saying about the need to keep Scottish Ministers involved. I also thank the noble and learned Lord, Lord Wallace of Tankerness, for his kind words on consultation and what he said about the need to keep the Scottish Government involved. It is common ground between the Scottish Government and the United Kingdom Government that the currently integrated GB-wide energy arrangements are in the interests of everybody, with Scotland being a net beneficiary of that. That is very much at the forefront of our thinking on this issue and it influences our thinking.
I take seriously the points made absolutely correctly by my noble friend Lord Ridley—I am very pleased that he is here today—on the importance of acting on a United Kingdom basis. That is what is behind this amendment. It is certainly not to do down Scotland—far from it. As noble Lords appreciate, this party—as are others here—is very much committed to ensuring that Scotland gets more than a fair deal within the United Kingdom. That is clearly important. With that, I respectfully ask the noble Baroness if she will withdraw her amendment.
Baroness Worthington
My Lords, I am grateful to the Minister for his response, and for the contributions from other noble Lords in this debate.
This is an issue that will not go away; it will come back and be debated with different amendments. As I said, this is a probing amendment, which is designed to enable us to have this debate. It is a very important debate. I know that the noble Viscount, Lord Ridley, has well-known views on this, but surely it is a matter of some subjectivity whether one considers the landscape to be ruined. Perhaps we should be weighing that against the economy being ruined by destabilising a very important, growing industry in a country that desperately needs inward investment and jobs. Comments were made, but it is the job of government to run the country in a way that tries to enable a good and sound policy environment that people can understand and act on in good faith.
We will spend the rest of the afternoon discussing these clauses—there is plenty to get at—so I will not make some of the points that I will make later, but I will flag in particular that the Minister has talked about a transition. I have sufficient concern that we are transitioning to something very uncertain. We do not know when the next round of CFD auctions will be held. We have seen a departure from the expected schedule already, very soon into the new Government. That will cause considerable concern and we will come to it.
The justification is that this is about an orderly transition. That masks the political nature of these clauses. As my noble friend Lord Foulkes said, this is quite a political amendment and quite a political part of the Bill. I do not think the Government will be able simply to brush this off and say that it is all for the good of the UK. Clearly, we have the Scottish Parliament for a reason. When it comes to these matters, where it has had powers in the past, it seems to go completely against the trend that there should be no concession from the Government on the Scottish Parliament having some say in this, particularly in this case, where the Government have taken the Salisbury convention and stretched it to its maximum. It is true that there is nothing specific in the Government’s manifesto about the sudden alteration of a policy that was discussed at length following a great deal of consultation not that long ago.
On the basis that we will return to this, I am happy to withdraw the amendment at this stage.
Baroness Worthington
Baroness Worthington
In moving Amendment 34B, I shall also speak to Amendments 34C, 34D and 35D in this group on the detail associated with the closure of the renewables obligation as we see it in the Bill. We have tabled a number of detailed amendments because we have been promised that the Government will bring forward detailed amendments to help to create some level of understanding and detail of how this provision of the early closure will work in practice. It is one thing to write a sentence in a manifesto, but something else to implement it in a way that does not cause great uncertainty or see people who have invested in good faith lose money because of what is essentially a political decision taken by a party that has been given the opportunity to form a Government. Being in government is very different from writing a manifesto, as I have said previously and will no doubt say again.
The amendments are designed to put some detail into this part of the Bill. They relate to the grace period, meaning how we will strictly define in law which projects are deemed to be sufficiently advanced to be allowed to continue under the RO, and the dates by which that will be judged. Amendment 34D would extend the renewables obligation accreditation period to 31 March 2017 for those schemes that submitted a planning application by 18 June 2015—the date on which all this was made public by the Government in their announcement.
Amendment 35D relates to the RO closure and grace period. Proposed new Section 32LD requires the Government to set out the grace period in regulations. This is just a placeholder while we await the Government’s promised amendments, which I hope we will be able to debate after the recess when we have the recommital to Grand Committee. We have gone into detail about what should happen in the event of variations of planning permissions and set out circumstances by which planning permission will be deemed to have been granted where there has not been a clear resolution. Proposed new Section 32LH sets out a means by which the grace period would start only once the clause has commenced.
These opposition amendments are rather detailed due to the absence of detail as yet from the Government. I have further comments to make about the clause which I think we will be given an opportunity to discuss when we discuss whether Clause 60 stand part. Therefore, I will keep my comments on the generality of the clause until then and move Amendment 34B on the grace period. As I say, I do so in the absence of the Government’s own amendments, which we look forward to seeing.
Lord Wallace of Tankerness
My Lords, I am very grateful to the noble Baroness, Lady Worthington, for speaking to these amendments regarding the grace period. We will come on to the principle of what is happening but I think it is recognised that there are important reasons why there should be a grace period, not least because of reasonable expectations that have been raised within the industry. If those are ditched, a stream of litigation could follow in its wake. Obviously, it would have been far preferable for the Government to bring forward their own amendments, although we recognise that that will happen. The Minister has indicated that he will seek a recommittal of some clauses. Can he give us any indication of a timescale of when the amendments might be tabled? It would be very unfortunate if we got them only some 48 hours or less before we had to consider them in detail.
We know from the impact assessment that has been made available that there has been an engagement exercise with hundreds of industry representatives, developers, investors and supply chain representatives right across Scotland, Wales and England, which concluded on 31 July. I am sure that the issues around the grace period must have featured prominently in those discussions. If the Minister can give us a flavour of the representations the Government have received, that would be very useful.
The comments of the noble Baroness, Lady Worthington, on the opposition amendments were helpful as they indicated some of the things that we can reasonably expect to see in the Government’s amendments when they are brought forward—for example, that the grace period should be extended by an equivalent period of time as between 18 June and Royal Assent where projects have not been able to make a credit commitment prior to Royal Assent in cases where otherwise the project would have been capable of generation by 31 March 2017.
One of the things that the industry finds very difficult to grasp is why the requirement appears to be that planning permission has to be granted rather than sought. I think I am right in saying that in some of the solar cases the requirement was that an application was pending. There is a whole range of reasons why consent may not have been given, many of which are beyond the power of a developer to do anything about. Therefore, it could be somewhat arbitrary to say that a planning application had to have been consented to as delays could be beyond the developer’s control—for example, a rather tardy planning authority could be involved. What is the position if there is an appeal? Clearly, planning permission will not have been granted but an appeal may well be made on very solid grounds and could subsequently be granted.
One of the other issues that has been raised concerns delays to grid connections. Delays are sometimes caused due to aviation concerns coming into play. From my previous incarnation as a Scottish Minister, I know that these were often pertinent reasons that could delay an application. Even where planning permission and a grid connection contract are in place, there may well be delays due to the timing of the connection—for example, where there is a long wait for a significant line reinforcement and upgrade. I have had specific representations on that. I do not think that it would be helpful or proper to air those and name companies on the Floor of the Chamber but I will write to the Minister and I would be grateful if he would respond to the points made in that regard. That is the flavour of issues that we look to the Government to respond to when they bring forward their amendments. In the mean time, we are grateful to the noble Baroness, Lady Worthington, for flagging up these issues.
Lord Cameron of Dillington (CB)
My Lords, I support this group of amendments. I was not sure whether I would speak to this group or in support of the clause stand part Motion in the next group. I want to make a small but vital point and endorse the point touched on by others about the need for government consistency and clarity as soon as possible.
First, I declare an interest as a farmer and landowner, and also as a trustee of a trust in Scotland that has renewable investments, although no wind farms are involved. I also declare myself someone who would like to see the proper and ordered development of our renewable capabilities in this country.
It seems to me that it does not matter whether you are for or against wind farms, onshore or offshore—like the Government, you may prefer the more expensive and, to my mind, much more risky offshore wind. The point is that if a Conservative Minister can say in January that your investments are safe and that no changes in the rules are proposed, but then six months later the rules have changed, that undermines not only energy investment in this country but all investment. It makes banks run a mile. Say the Treasury had made promises to a car manufacturer to invest in northern England, and the investor spent millions preparing for the project on marketing exercises, planning and costings—I know from my own experience that preparing a project can often account for as much as a quarter of the total cost of a project. What if then the Treasury went and pulled the rug out and changed the rules? There would be a universal outcry—similar to that if a referee changed the rules in the middle of a game of football. To some extent, this is a game—an international game of investment. If we are going to compete economically, we must continue to be seen as a reliable country in which long-term investments are safe.
I admit that the Government’s manifesto commitment on land-based wind farms introduces a mitigating factor, but as the noble and learned Lord, Lord Wallace, pointed out earlier, it is only a peripheral factor to this clause, which is why I am speaking in favour of this group of amendments rather than in the stand part debate. But we must get a firm investment background sooner rather than later, and these amendments bring a degree of consistency back to the table. None the less, it would have been better if the Government had produced their own paper on grace periods, as they promised to do before Committee.
Even if we agree the government proposals on grace periods next month, that may be too late for some projects even if they are eligible at that stage. The trouble is that they are dependent on banks and credit, and banks are naturally cautious and, in my experience, inordinately slow about getting their processes and procedures in place, and even about producing the money. It could be months before these eligible projects get the go-ahead to proceed or to reproceed with their investment.
I will not say any more, but we really must get the rules fixed as soon as possible and then stick to them. That also applies to the basic ground rules for CFDs in the future. Bearing in mind that it takes at least five years to prepare for these projects, bankers and other investors must know with certainty where they stand as opposed to the state of limbo the Government have left them in at the moment. I hope that the Government will be able to respond positively to these amendments and give us some hint of exactly when we are going to hear what their views are.
Lord Foulkes of Cumnock
My Lords, I have just remembered that I should have declared an interest earlier, as I did at Second Reading, in that I am a trustee of the Climate Parliament, a grouping of Members of Parliament from around the world concerned with climate change. While we were discussing this earlier, I got an email inviting me to the annual Scottish Renewables reception on 27 October in Dover House, which David Mundell, the Secretary of State for Scotland, is hosting. That should be a very interesting occasion given our debates today and previously, as well as those we will have subsequently. I am certainly looking forward to it, although I do not know whether David Mundell will be.
There is very little to add, noble Lords will be pleased to hear, to what has been said by my noble friend Lady Worthington, by the noble and learned Lord, Lord Wallace, and, particularly, by the noble Lord, Lord Cameron. I thought his arguments about investment and uncertainty were very powerful indeed. I have had a number of letters—I have no doubt other Members have too—of concern from people who have invested money in this area in good faith and really think that the Government have let them down. The noble Lord, Lord Cameron, put that very well.
I find it peculiar and worrying that the Government have taken so long to come up with any indication about what grace period or arrangements might be agreed. As I think the noble and learned Lord, Lord Wallace, said, I hope that the Minister will give us some indication that we will be told as quickly as possible, preferably well in advance of our sitting in October. I was disappointed to hear that it will be in the Moses Room. I hope that that can be looked at again and that it could take place on the Floor of the House, so that there is proper consideration of it. But wherever it is, I hope that we will know well in advance the proposals that the Government are putting forward and, even more importantly, that the industry and all those involved know of them well in advance. I know that my noble friend Lady Worthington and, I am sure, the Liberal Democrats will make it clear to the industry that we will go along with the Government if we agree with their proposals. That will give some degree of certainty to the industry. As I say, since so many good arguments have been made by the previous speakers, there is no need for me to repeat them.
Baroness Byford (Con)
My Lords, perhaps I may make a small contribution. I apologise to other noble Lords that I was not able to be in the Chamber when the first amendment was moved, which is why I did not take part then. We come to an area on which I spoke at Second Reading: my slight concerns about the grace period and not having enough information on it. It would be remiss of me not to follow up on that. I have listened to the whole of the discussions on this issue.
I remind noble Lords that we are not talking about a few pennies here. In fact, at Second Reading the Minister rightly reminded the House of the costs. He said that:
“In 2014, operational onshore wind farms in Great Britain received in the region of £800 million”,
which is a lot of money,
“under the renewables obligation”,
and that the Government,
“would expect this to increase to £1.1 billion per year if, as expected, a total of around 11.6 gigawatts of onshore comes forward”.—[Official Report, 22/7/15; cols. 1120-1.]
Because of that, and having listened to the various contributions on uncertainty, I would press the Minister to tell us as much as he can about where we are and how we are to proceed. That is the nub of the question. I do not think there was disagreement; perhaps some would like it to continue and be honoured for ever and ever. However, as I said at Second Reading, when new industries are being started, to me, government money is needed to pump-prime them. It is to start things and get them off the ground and once they are up and running, they should be able to come in at a cheaper rate. Looking to long subsidies was therefore not something I favoured.
I certainly hope that the Minister will be able to tell us a little this afternoon about the Government’s plans for the grace periods. The noble and learned Lord, Lord Wallace of Tankerness, said that litigation might follow. I do not know whether the Minister has information on that, because it would be quite worrying. Maybe the noble and learned Lord can help me a little.
Lord Wallace of Tankerness
The point I was making was that if the Government had not done anything about grace periods, litigation might have followed. That is doubtless what has driven the Government to accept that there has to be a grace period.
Baroness Byford
I fully understood what the noble and learned Lord said and I took it on board, because clearly one wants to avoid that if we can. Nobody wants to end up there—not only because of the litigation but because of the delays it incurs, which other noble Lords have spoken to.
At the moment, I have slightly mixed feelings on this. In principle, I am quite supportive of what the Government are trying to do. In considering whether the approach should be different, in that a Scottish Minister should be able to decide, we should note that three out of four of these onshore wind farms are based in Scotland, so three-quarters of that money would be coming from England to support what Scottish Ministers might or might not decide to do. That is another debate we could have, but I hope the Minister can tell us more about the grace periods and when we are to receive more information.
I suspect that, like me, other noble Lords—and the Minister and his department—have found it difficult dealing with the Bill after the Recess in what is not the formal, long period for debate. We deserve greater clarification and, if the Minister cannot give it to us tonight, I hope it will be provided quickly in another of his wonderful letters that have kept us up to date with government thinking.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Baroness, Lady Worthington, for moving the amendment. I hope to explain a bit about the Government’s thinking on this area and then to address the points reasonably raised by noble Lords.
Clause 60 introduces a provision to close the renewables obligation to new onshore wind farms in Great Britain from 1 April 2016—a year earlier than originally planned. There are two key reasons why I believe that that is the right approach. First and foremost, I and the department are committed to delivering the Government’s ambition to end any new subsidies for onshore wind while continuing to combat climate change. I appreciate that that is not something that all political parties or all noble Lords want, but I return to the point that there has been an election. I accept that things were said under the previous Government, but they were a different Government. It may be that the transition is more difficult because they were a coalition Government, but it should not have taken noble Lords entirely by surprise that this Government sought to make a change in this area. Secondly, the Government are committed to keeping domestic energy bills as low as possible.
With that context in mind, let me turn to the amendments. Their purpose is to clarify the terms of the grace period applying to the closure of the renewables obligation to onshore wind, specifically allowing those projects which had applied for planning permission as at 18 June—the date of the policy announcement—to continue to be able to accredit until the original renewables obligation closure date of 31 March 2017. In addition, the amendments would provide further detail about how the grace period would operate in certain planning scenarios and propose extra time for projects that have encountered difficulties in securing financing.
When my right honourable friend the Secretary of State announced the early closure of the renewables obligation to onshore wind, she also proposed a grace period to protect investor confidence, as I think noble Lords are aware. The proposal was to offer a grace period to those projects which, as of 18 June 2015, already have relevant planning consents, a grid connection offer and acceptance of that offer—or confirmation that no grid connection is required—and access to land rights.
At the time of her announcement, the Secretary of State also said that she wanted to hear the views of industry and other stakeholders before framing the terms of the legislation. As such, my department has been conducting an engagement exercise to understand whether our proposed grace period draws the line in the right place. This means balancing the interests of onshore wind developers with those of the wider public. That is what we are considering at the moment. We are still reviewing the feedback and evidence provided by stakeholders in order to inform our final policy position.
I am not in a position today to frame the final terms of the grace period, and it is not right that I should trail a running commentary on where we are, as I have been invited to do by noble Lords who, as I can understand, want to hear more. I must wait until the final terms of the grace period are fully thought through, following the conclusion of the department’s analysis.
I appreciate the understandable wish that all this had happened earlier. The noble Baroness, Lady Worthington, the noble and learned Lord, Lord Wallace, the noble Lord, Lord Cameron, my noble friend Lady Byford and the noble Lord, Lord Foulkes, all expressed frustration at the fact that we do not know what the grace period proposals will be. I understand why I am being pressed on this, and I will ensure that the House has reasonable notice of the Government amendments.
I agree that 48 hours is insufficient and hope and believe that we can do better than that. If I may, I will provide a commentary on where we are on this by the usual letters if there is any difficulty with bringing the amendments forward in a timely way. I quite understand that the House wants to know exactly what the Government are doing or seek to do in this area. I confirm that we will endeavour to give appropriate, reasonable notice of the amendments ahead of the day and recommittal in the Moses Room.
Baroness Worthington
My Lords, I am grateful to the Minister for his comments and for the contributions from other noble Lords. As I said, we will have the opportunity in the next debate to discuss the principle of this clause. Here, though I am tempted not to, I will keep my comments to the grace period issues. I am very grateful to the Minister for giving us an assurance that he will give us sight of those amendments with more than 48 hours’ notice. That would be absolutely correct. The noble Lord may find it annoying to keep us posted with a running commentary but it is not as annoying as we find having to respond to huge amounts of information that is very delayed and late.
Lord Bourne of Aberystwyth
I hope I did not give the impression that I find it irritating to give a running commentary. I do not. It is absolutely appropriate that I should and, as I indicated, I am very happy to do so on where we are on the grace periods. I indicated that I will seek to ensure that the House has reasonable notice of those amendments. Furthermore, I will give an indication that we are or are not on course for that. I hope it will be the former case.
Baroness Worthington
I thank the noble Lord. The grace period is incredibly important. We are talking about sunk costs of hundreds of millions of pounds that people have put in, in good faith, on the back of the Energy Act 2013, which has been changed rather intemperately with very little notice and no consultation. You can see why people are concerned about getting the detail and getting it early. We have had two months since the Bill was introduced in which to have these amendments come forward, and it is regrettable that we still do not have them.
As I said, the next debate will give us the opportunity to discuss the broader context and particularly the impact assessment and what it tells us about the logic and rationale for this more generally. Given that we will have the opportunity to discuss these amendments in the Moses Room after we come back from recess, and that we will have good early sight of them, I am happy to withdraw this amendment.
Lord Wallace of Tankerness
My Lords, we gave notice that we would seek to oppose that Clause 60 stand part of the Bill as an opportunity—one already foreshadowed—for a general debate on the merits of the proposal that no renewable obligation certificate should be issued under a renewable obligation order in respect of electricity after 31 March 2016 by an onshore wind generating station accredited after that date, in other words a year earlier than the established timetable that coalition Ministers signed up to.
I take the point made by the noble Lord, Lord Howell, although my noble friend Lord Teverson effectively rebutted it. Of course one does not wish to pour money in to help profiteering or have dead weight. However, it is very clear that the coalition agreed that the renewable obligations for onshore wind and others would cease on 31 March 2017. It is bringing that forward by a year that gives rise to such consternation in the industry. It is an understatement that the announcement, made just over 10 months before it takes effect, has caused widespread dismay in an industry in which, by its very nature, there will always be very long lead times. One developer who wrote to me said,
“Unilateral changes to policy have impacted upon investor confidence and the sector will without doubt see retrenchment that will result in a loss of jobs and growth in Scotland and around the UK. The loss of clean, affordable and secure energy is coupled together with a loss of investor confidence in the UK Government’s willingness to remain as a reliable, long term partner for infrastructure developments, that often take upwards of five years merely to bring to a planning application stage.”
That reflects what the noble Lord, Lord Cameron of Dillington, said on the last amendment. It is not just with specific regard to wind power that this change at relatively short notice can have an impact. All the sources of renewable generation of electricity have long lead times. There will now be a question mark over each of them as to whether the Government, if they are capable of changing policy at very short notice in respect of onshore wind, will also change it in other developments. Inevitably, that could have a chilling effect on these developments.
It is interesting that the Renewable Energy Country Attractiveness Index published by Ernst & Young in June indicated that in terms of onshore wind the rankings for the United Kingdom had gone down from eighth to 11th. I think that was in the course of just one year. It noted that onshore wind was quickly becoming one of the country’s cheapest sources of energy. The Government’s intention to withdraw support for onshore wind therefore contradicts their pledge to reduce emissions at least cost; energy prices could be pushed up as more expensive sources such as offshore wind are used to fill the capacity gap as onshore wind projects fall away. Of the many sources of renewable generation of electricity, possibly with the exception of hydropower, onshore wind might be said to be the most mature.
I indicated in an earlier debate that 75% of these developments are in Scotland, which directly employs more than 5,400 people. They generated more than a third of Scotland’s electricity needs in 2013 and are driving billions of pounds of investment to allow the United Kingdom to meet its renewables and climate targets. What concerns us about this clause is the threat to business confidence, to jobs and to the prospect of the United Kingdom meeting its climate targets.
With regard to business confidence, I have already indicated that what can happen in one sector can happen in others. The conclusion of the Ernst & Young survey of lender attitudes to the early closure of renewable obligations support mechanism and a survey undertaken for Scottish Renewables published over the weekend states:
“Raising project finance for UK onshore wind RO projects has become more complex, more expensive and increasingly more difficult since the early closure of the RO and supporting grace period. As a result there are fewer banks willing to lend to UK onshore RO projects. Those that are considering lending are seeking better terms and some form of mitigation against the situation with no ROC revenue; and as we move closer to the RO accreditation end date, the ongoing uncertainty makes it harder for projects and sponsors to raise senior finance”.
So there would appear to be an issue of business confidence. The Minister said in an earlier debate that the Secretary of State had met the developers and assured them that wind power would continue. He mentioned in another context that there would continue to be community developments. The sense I am getting is that this is not the cast-iron guarantee that he indicated the Secretary of State’s approach seemed to be. There is also the question of the position on onshore wind power with regard to future CFDs and, in particular, when the next CFD will be. If business confidence is damaged there is inevitable damage to jobs and the industry as a whole. RenewableUK said the changes to financial support for onshore wind threatens survival of the industry in the UK and 19,000 jobs supplied to the sector.
One cannot readily understand why a Conservative Government, who purport to be business-friendly, are threatening what has become a very important business in the United Kingdom over recent years. The purpose of this debate is to try to flush out the Government’s expectations. What reasonable expectation can the industry have that onshore wind will be included in a future CFD round? Can the Minister give an indication when that will be? We are always told that one of the reasons for doing this is to drive lower consumer bills. I cannot fathom why you would prejudice the renewable technology sector, which is likely to deliver most and is becoming steadily cheaper? If you take out onshore wind, solar and hydro, then you are looking to the more expensive options such as offshore wind, tidal power and wave power—developments that I would very much support, but which I readily acknowledge would be far more expensive. Nuclear power is often the Government’s other option, but we hear that Hinkley Point is probably looking as far ahead as 2027 before that is actually commissioned and, again, it is more expensive than onshore wind. I believe that there is a threat to our climate targets.
The fourth carbon budget, published in December 2013, set out the requirements on decarbonisation including projections on how to decarbonise electricity by 2030, which the climate change committee says is necessary to maintain the most cost-effective path to the low-carbon economy. It set out four scenarios and it looked at the high and low scenarios in favour of nuclear and wind. If one takes out onshore wind, which is not going to reach its expected level because of the lack of developments from this measure, and if we believe that the contribution of nuclear is going to be very delayed, how do the Government think they will meet these decarbonisation targets? Uncertainty impacts on a whole range of renewable technologies and it would be useful in this debate if the Government gave the House a clear indication as to how they see the road to a lower carbon economy, given that they are taking away support for the cheapest option and will have to rely on the more expensive options.
The Government talk a good game—they talk about going to the Paris climate change talks and wanting to give leadership. But it is difficult to see how leadership can be given when the practice is to undermine some of the very measures that would allow us to move forward and meet our renewables targets. Therefore, if the Government are to give any leadership at all in Paris, and have any credibility there, they must set out very clearly how they see the components of their renewables strategy as we move forward. On the back of this particular clause I do not think that any of us have much confidence that they will do so.
Viscount Ridley
My Lords, I kept my powder dry on the general points until now, which ran the risk that some of the points I would like to make have been made, particularly by my noble friend Lord Howell, and very eloquently. I would like to encourage the Minister to stick to the manifesto promise to get rid of onshore wind subsidies, to stand up for consumers and not to do the bidding of what is, effectively, a crony capitalist industry addicted to state subsidies.
The Government wish to pursue decarbonisation without making energy either unaffordable or insecure. We have heard this many times as the principle behind both the Government’s and the Opposition’s stance, but, like the Minister, I am curious to know what the Opposition’s stance will be after this weekend. Wind simply does not help in this regard; it is not solving the trilemma at all. It is putting up energy costs, reducing energy security and failing to make a significant dent in emissions.
The fact is that the increased onshore wind production of recent years has failed to make any measurable reduction in carbon dioxide emissions, due to significant, intractable problems of intermittency, location and energy density. We know that the best way of cutting emissions is for gas to replace coal and, indeed, for coal to go to supra-critical use, which is much more efficient. That is not happening in this country because nobody wants to invest in new up-to-date combined cycle gas because wind is dumped on to the system at zero marginal cost. As a result, no new CCGTs are being built because the economics of operating them has been destroyed. I challenge those who support these amendments to give me a number in tonnes or percentages of emissions that have been reduced as a result of the wind power that has rolled out already. I cannot find such a number and it is impossible to say that it is significant at all.
I, too, like the noble and learned Lord, Lord Wallace of Tankerness, had a letter from a wind company saying that wind energy is clean, affordable and secure. I am sorry, but I do not think it is any of those things. It is not true to say that it is cheap. The industry keeps saying that it is the cheapest form of renewable energy, but that is wrong. We know hydro is cheaper, as the noble and learned Lord, Lord Wallace, said.
Besides, a lot of the cost of onshore wind is still hidden. The Department of Energy and Climate Change has not used a total-systems approach in its cost modelling. In other words, it does not factor in the costs of transmission, grid integration, back-up during periods of intermittency, and so forth. The department appears to understand this as it has recently commissioned Frontier Economics to undertake a study into the true costs of energy generation by wind. It would be wise for the Government to wait for the outcome of this research before providing any more financial support to onshore wind.
The wind industry is, as my noble friend Lord Howell said, a Hood Robin industry: it takes money disproportionately from the poor, for whom energy bills are a larger proportion of spending, and gives it largely to the rich, in the form of landowners or investors. A lot of the money in wind is sheltering from inheritance tax through business property relief, as we learnt in this morning’s papers, which is something only rich people need to do. Does the Minister share my amazement that this monster of regressive redistribution was invented by Ed Miliband, encouraged by the Lib Dems and may or may not be supported by Jeremy Corbyn’s Labour Party? This is yet another case where the Conservatives are standing up for ordinary people, while the left looks after the interests of the metropolitan rich.
It is just not true to say that onshore wind is clean. True, it emits no smoke or effluent here, but the rare earth metals in a wind turbine’s magnets, roughly a tonne of neodymium per turbine, are mined and refined in China in one of the most polluting industries on earth, and the steel in the turbine’s tower can only be made using coal.
We have not solved the problem of adding an intermittent source of supply to the electricity grid. The very large amounts of wind generation currently being added to the system are not solving the security problem. In fact, they are the problem. In other words, the greater the percentage of electricity from wind in the system, the more some other kind of quick-response generation is needed, and this often means keeping old, fossil-fuel stations going.
It is worth reiterating that the Secretary of State has confirmed that the UK has enough onshore wind projects in the pipeline to meet the 2020 renewables targets, so there is no need to offer any further financial incentives.
Finally, the noble and learned Lord, Lord Wallace, and, with respect to the previous amendment, the noble Lord, Lord Cameron, said that the wind industry needs certainty. Like me, the noble Lord, Lord Cameron, is a farmer. Farmers would have loved some certainty about the wheat price earlier this year. It plummeted, and we had no warning at all. To argue that this industry peculiarly needs certainty when others do not is not fair. Once a subsidy is in place, it should be possible to withdraw it. Otherwise, if we say that we are going to withdraw a subsidy, people will always respond that they have not had time to adjust to that. I hope the Minister will confirm that he will stand firm against this attempt to keep electricity more expensive, more unreliable and probably no less carbon-intensive.
Lord Howell of Guildford
My Lords, I declare my interests, as I did on earlier days in Committee, as president of the Energy Industries Council, chairman of the Windsor Energy Group and adviser to industries and investors concerned with energy as in the register. I echo what the noble Lord, Lord Foulkes, said earlier. The noble Lord, Lord Bourne, has been exceptionally helpful in the way he has circulated and kept us all up to date with the evolution of government thinking. I realise that this is a changing situation, and even when we have finished with this legislation, we will be looking at further changes in the pattern of energy and energy support, and in world, European and national perceptions of how best to move towards meeting the challenge of climate change and lowering emissions globally, which is itself a matter of constant debate.
The noble Lord, Lord Cameron, was right to say that investors need certainty. Of course they do. Investors always long for maximum certainty, minimum risk and nice returns. That is nirvana for investors, but when investors or their advisers are dealing with projects and commitments of finance that depend on government support and state subsidy, a certain degree of sagacity and caution is called for. I make a distinction between specific projects where one of the partners is the state or the Government. They must go forward in a legalised, contractual form and should not be departed from. It would be an appalling act of arbitrary sequestration for such things to change. It has happened, I am afraid, but it is not something I wish to see from a British Government. One expects the funds that have been promised by Governments to be given.
When it comes to a commitment to an apparently unending pattern of subsidy heading into the future, the noble and learned Lord, Lord Wallace, reminded us that the coalition Government had an idea that this sort of subsidy should end. When it comes to investing in something where you will depend on the continual supply of taxpayers’ money, sensible investors ought to be very cautious. Governments change, as my noble friend reminded us, and technological changes change the basis on which the original subsidy policy was evolved. Moods change, and—dare I say it?—even science changes. I would not go as far as Cardinal Wolsey, who lay on his deathbed saying, “Put not your trust in princes”, but there has to be a sensible assessment when an investment is profitable simply because taxpayers’ money is promised to it for a long period into the future. There has to be a sensible assessment by the investor, the entrepreneur and the project organiser of how it is going to stand up and how big a risk is being taken. It may be that people see that they can pop in with short-term investments and hope to get out before the policy changes, but that does happen, and a certain realism is required. I agree with the noble Lord, Lord Cameron, that ideally all investors would love total certainty about their returns for ever, regardless of the source.
The noble Lords who gave notice of their intention to oppose Clause 60 standing part of the Bill want subsidies to go on or feel that they should not have been curtailed in the way they have been, even though, as my noble friend Lord Ridley pointed out, the pipeline is full, which is language for saying that the amount of subsidy element that has been assigned for this has reached its peak in terms of political reality, common sense and our obligations, whether imposed through our Climate Change Act or through conformity with European objectives. Noble Lords think the subsidy is gone, but my question is: when will the subsidies cease? If this is a mature industry, at what point does a mature industry cease to need a very substantial degree of subsidy, quite regardless of the point we made earlier that the subsidy tends to end up in very well-lined pockets and costs a lot for those who can least afford it? As my noble friend Lord Ridley said, onshore wind electricity is still expensive. It is true that it is not expensive compared with offshore, but when you add in the roads, the system costs, the requirements for integration and balancing in a very complicated electricity system and all the other items that my noble friend itemised, we are not talking about cheap electricity. One day, it may be so; one day, onshore, and possibly offshore, will be able to get costs down to competitive rates, possibly to lower rates than anything that is likely to come out of the latest nuclear project from EDF at Hinkley, which has an enormously high rate for 35 years to come. I hope that long before then wind power electricity will be considerably cheaper than anything that EDF is planning, but that still will not make it cheap. We are heading for a major glut in gas production; we can already see that from the fall in oil prices. As gas prices are related to oil prices, the barrel of oil equivalent of the gas price will, for many years to come, be not at all expensive and probably low. Compared with all that, these renewable sources, which have their place, which must contribute and which I support, will remain expensive. In other words, someone has to pay for them.
Lastly, the noble Baroness, Lady Worthington, has alleged, I think along with others, that there is a contrast between the need to restrain further subsidies—not to halt the development of onshore wind, because if it can get its costs down and, as I mentioned earlier, if many investors believe that they see tax advantages in it, it will go on, even if the subsidies are withdrawn and we close off the renewables obligation completely— and the Government’s attitudes to fracking. I hardly dare mention fracking because almost anything one says in this very controversial area gets wildly distorted. If fracking proceeds in the UK—I say “if” because oil is at $50 and likely to become lower, with many people now talking about $25 and $30—the investment attraction of gas or oil extraction by hydraulic fracturing will, frankly, not be great. It could become an additional gas source to the many already available to us. There is LNG, obviously, and Norway is willing to pipe us a lot more gas, while even the Russians want to sell us gas direct through their Nord Stream pipeline extension. If all those ifs fall into place, we will have gas.
Lord Teverson
My Lords, perhaps I may intervene on a couple of those issues. The noble Lord, Lord Howell, completely forgets about the demand side in demand response management. That will become a lot simpler and more important as time goes on. No other part of economics that works properly in this world concentrates only on supply and ignores demand. That is one of the real challenges in policy-making, and it is starting to move forward.
On investment and guaranteed returns, I agree. When people investing in renewables sometimes complain about what is going on, I often compare the energy system to the common agricultural policy, as was, and say that this is heaven: there are guaranteed prices out into the future. Why do we do that? Because it is recognised that the Government are not going to invest, CEGB-wise, as they did in the old days. The biggest component in that conversion is capital costs. The biggest way you can make a difference to the cost of high-capital-intensity energy—not just renewables but nuclear and a lot of other technologies too—is by keeping the cost of money absolutely down. That is a decision that we make for good policy reasons: to keep the cost of energy as low as possible because the capital costs and cost of financing are as low as possible.
The noble Lord asked when we will get to a point where we stop subsidising. I suppose the answer is when we start charging fossil fuels the cost of the pollution that they put into the atmosphere and what they are going to cost future generations who will have to cope with climate change—next to the migration issues that they will face in the future, what we have now is nothing—along with all the issues and costs that there will be around it. When fossil fuels count that back into the present cost, that is how a realistic carbon price can be arrived at, as is often talked about on all sides of the House. That is one way of doing it but we have not managed to do it sufficiently. The Chancellor in the previous Government decided to cap the carbon price floor where it was, so that policy has been blocked as well. Those are some of the answers to the noble Lord’s questions. Are we left with a perfect world? No, we are not. That is why we have a mixture of technologies at the moment to try to drive this agenda forward, so that we move towards a sane and safer future for us all.
There are two important points here. First, I am probably on the same agenda as the noble Viscount, Lord Ridley, on the gas side, but the way to get gas into this equation is to take coal out of it. That is the most important thing that we can do, as Dieter Helm often preaches at us as policymakers. So that whole area needs to be taken into consideration.
Secondly, it is one of the ironies that through this legislation we are throwing away one of the cheaper, though admittedly not perfect, technologies. Yes, there is variability in wind power. As I have said many times in this House, I can see many wind turbines from my own house. Do they ever stop? Hardly ever but, while it is not intermittency, I agree that there is a high degree of variability. However, I remember a government statistic from about five years ago, when we had started going through the alternative planning system for major infrastructure projects in the Moses Room. This was a time when wind power did not make up the proportion of energy generation that it does now and then the utilisation of the total UK fleet of generators—sometimes we make it sound as if it were something like 90% to 95%—was in fact 50%. So we have major redundancy even within our conventional power systems. Some of these arguments can be rather exaggerated.
Viscount Ridley
Before the noble Lord sits down, I wonder if he could answer the question that I posed: how much has wind power reduced emissions by? If you take into account the full integration costs and the fact that, as he has just said, we have been unable to drive coal off the system with gas because gas does not want to come on to the system because of wind, it is very hard to argue that there has been any significant reduction as a result of wind power.
Lord Teverson
I absolutely agree about the failure of gas to drive out coal. That is why I have been a major advocate of emissions performance standards, which we brought in with the Energy Act 2013, but we have delayed actually doing that. I wish that I had the numbers with me. My noble and learned friend is showing me a document but I do not have my glasses on, so I hope I will be forgiven for not being able to read it. I do not know what the CO2 figure is—I am sure that government documents from DECC have said what it is and I shall have to look it up—but I am absolutely certain that through the increase in the proportion of energy transmission through renewables the levels have gone down, because renewables, which are zero-carbon technologies, are a much bigger proportion of our generation. Over the same time, I am pleased to say that energy efficiency has gone up by 2% per annum, or whatever the figure is. I look forward to finding out that information and informing the noble Viscount. I do not necessarily recognise a lot of his figures within the context of what he is talking about but I am sure that they are as good as any quoted in the House.
Baroness Worthington
My Lords, I am grateful to the noble and learned Lord, Lord Wallace, for opposing the Question that the clause should stand part of the Bill. It is tempting to engage on the many points that have been made about the principle of onshore wind in general, but I would rather stay focused on Clause 60 and say why I have a great deal of sympathy with the noble and learned Lord’s proposal that it should not form part of the Bill. That is mainly due to the process by which the Government have conducted themselves. I do not wish to misquote the Minister but he said that he needs time to think things through in relation to the grace period, and that is quite a telling statement. It is clear to me that this clause has not been fully thought through and that it has been put in hastily, without due consideration of the full implications and without due consultation. For those reasons, I am very supportive of the idea that we should simply take the clause out, do the thinking and consulting, and then come back with something that is fit for purpose.
With regard to things being fit for purpose, during the course of the Bill we have had exchanges about the impact assessment. We now have an impact assessment in relation to this clause, but I have to say that it was not exactly worth waiting for. It does not cover some of the most important issues in enough detail. It is incredibly lacking in proper detail in its attempt to make a net present value calculation of the implications of introducing the clause, and I find that it has significant weaknesses.
My overall impression is that the department is building the aeroplane as it takes off from the runway and that not enough thought has been given to this clause. It all seems to hinge on two words in the Conservative Party manifesto: “new” and “subsidies”. There is a great deal of subjectivity in interpreting the phrase “new subsidies”. It cannot be claimed that the RO is a new subsidy—it has been in existence for a number of years—and it cannot be argued that the RO provides, in the words of the noble Baroness, Lady Byford, subsidies for ever and ever. It does not do that. It does not create an unending subsidy. The RO is closing. It will close, as we agreed in the Energy Act 2013, in March 2017. That is not far away—in the grand scheme of things, it is about 12 months. In their haste to generate some kind of political benefit from this attempt to destabilise onshore wind, in those 12 months the Government are destabilising investment across the energy market, and that is deeply regrettable. I am very grateful to the noble Lord, Lord Cameron, for stating the wider implications of what the Government are doing here. There is a question of how we deal with industry and how we encourage people to invest in the UK.
I raised a general point about my disappointment with the impact assessment. I made it clear in a letter to the Minister and on the Floor of the House that we wanted to see the impact assessment properly make the case for the Government’s concern about the levy control framework running out of money or not having sufficient money. I am afraid that there is insufficient detail in the impact assessment. It does not give us any sight of the Government’s numbers on this or explain why they are so concerned.
More than that, the impact assessment makes me fear that the department does not even understand the energy policy that it is governing. When it comes to considering the benefits and costs of this intemperate change to policy, which was changing anyway, it considers only the positive benefit of a reduction in resources—by which I assume it means the amount of money that has been spent on onshore wind—and then it sets against that the increased cost of the EUA purchases. It makes very precise calculations over a period of 24 years to 2040. I am in the business of monitoring the carbon market in Europe and not a single analyst can give you any degree of confidence about the numbers relating to the carbon price over that period. I am afraid that the table on page 15 is really a work of fiction.
Lord Bourne of Aberystwyth
I thank the noble Baroness, at least for her very last point about how she is looking forward to my response. I thank the noble and learned Lord, Lord Wallace, for tabling his opposition to the clause, as it provides me with the opportunity to explain why Clause 60 should stand part of the Bill. I will then turn to specific points made by noble Lords during the debate.
Clause 60 would close the renewables obligation to new onshore wind projects in Great Britain a year earlier than originally planned. On the one hand, we had some noble Lords saying that it is only a year; on the other hand, we had some talking about it as though it were the end of civilisation as we know it. Therefore, there is something of an inconsistency in some of the arguments being deployed.
There are two key reasons why I believe that closing the RO is the right approach. I should say, first, that onshore wind will remain important and will remain massively deployed. We will spend more on onshore wind next year than we are spending this year, so, again, that needs to be accepted. Jobs are, and will continue to be, provided by that industry. Perhaps I may pick up on one point about jobs uncertainty. It is because we are still considering the situation in relation to the grace period that we are unable to say with any degree of certainty what the jobs position will be.
First and foremost, I am committed to delivering on the Government’s ambition to halt the spread of onshore wind while continuing to combat climate change. Secondly, it is essential that the Government keep domestic energy bills as low as possible for consumers and act when necessary to ensure that costs are contained and remain within our low-carbon spending cap. That is not to say that the Government do not recognise the need to strike the right balance in taking developers’ interests into account when implementing this policy. I have indicated what we are doing in relation to the grace period and the engagement exercise that my right honourable friend the Secretary of State is engaged in. I will explain this further in due course.
Let me set out why the Government are taking the necessary steps to close the renewables obligation to new onshore wind projects. The Government’s ambition for onshore wind was made very clear within our manifesto. I know that many noble Lords understandably regret the outcome of the general election, but there was a general election; it was a manifesto commitment and, of course, we remain committed to implementing it. That is what democracy is about. The essence of that is choice and people made their decision. As such, we now have the mandate to halt the spread of subsidised onshore wind. Clause 60 aims to deliver part of this pledge by closing the renewables obligation to new onshore wind from 1 April 2016—a year earlier than originally planned.
I would like to provide reassurance to noble Lords that by taking this step, the Government are not shying away from their commitment to tackle climate change. We are confident that we can meet our 30% renewable electricity ambition by 2020 without additional onshore wind, other than that already deployed. Indeed, we are running ahead of the projections.
Baroness Worthington
We will consider this matter later but it is simply not true that we are ahead of our European renewables target. That target relates to all energy and we are not on track in regard to it.
Lord Bourne of Aberystwyth
I hope the noble Baroness will agree that we are on track in relation to the electricity ambition.
Lord Teverson
The obligation relates not to electricity but to energy. There is no electricity obligation of any kind.
Lord Bourne of Aberystwyth
My Lords, onshore wind has deployed successfully to date and is an important part of our energy mix. Our analysis demonstrates that when we take early closure of the renewables obligation into account we still expect total UK deployment of onshore wind to fall within our Electricity Market Reform Delivery Plan projections of between 11 and 13 gigawatts by 2020. This is our best estimate of what we would need to meet our 2020 targets and what we can afford under our low-carbon spending cap. In fact, the department’s projections relating to the 18 June announcement estimated that by 2020 onshore wind deployment, in the absence of intervention, could be between 12 and 15 gigawatts. The upper end of this range is significantly higher than the 11 to 13 gigawatts set out at the time of the delivery plan. Without any action, we could deploy beyond this range. As the 18 June announcement made clear, we therefore considered it appropriate to curtail further deployment of onshore wind, thereby balancing the interests of onshore wind developers with those of the wider public.
This takes us on to my second point: affordability. My noble friend Lord Ridley referred to the trilemma and the fact that the Government are seeking three things, as the previous Government did: to ensure affordability, security and carbon-free. That very much remains the aim. Tackling climate change must be done in a cost-effective way. We want to ensure that consumer energy bills are kept as low as possible while we cut carbon emissions.
The Government have provided vital financial support to the renewables sector, which has helped new and innovative technologies, reduced our emissions and increased the amount of low-carbon electricity that powers homes and businesses across the United Kingdom. In short, subsidy is necessary to give some impetus to development, and that is what we have done, but we have to keep the costs under review and control.
However, the Office for Budget Responsibility’s latest projections show that subsidies raised from consumer bills are currently set to be higher than expected when the schemes were set up under our low-carbon spending cap, the levy control framework. This is due to a number of uncontrollable factors, including lower than expected wholesale prices and greater than expected renewable generation. The revised levy control framework forecasts indicate that spending in 2020 is projected to be £9.1 billion in 2012 prices for low-carbon generation. The Government set a limit of £7.6 billion. As such, the current forecast is £1.5 billion above that limit. These additional costs could be met through increases in consumer energy bills. It is therefore only right that we now look at ways to protect value for money and affordability under the levy control framework. My department has announced a package of measures to deal with the projected overallocation of renewable energy subsidies. The onshore wind measures are therefore part of a co-ordinated approach to managing spend under the levy control framework.
Baroness Worthington
I am sorry to interrupt but this is an important part of the Bill. Can the Minister explain how it will be possible to spend less under the levy control framework by removing the ability for more and cheaper renewables to come forward? Either we miss our European targets or we will be using more expensive renewables to hit our targets, which will run through the levy control framework even faster. I simply do not understand how one can use the framework as a reason to remove one of the cheaper forms of renewables. If affordability is our goal—which I agree it should be—then surely we should enable technologies to compete fairly on price and not rule out some of the cheapest versions.
Lord Bourne of Aberystwyth
On that specific point, the noble Baroness will know that the costs of deploying some renewable technologies is falling. That is certainly true of onshore wind; it is also true of solar. It is important but I have to say to the noble Baroness that, in reaching our decarbonisation targets, nuclear remains a vital part of the mix. I see that she agrees and it would therefore be interesting to hear at some stage whether the Opposition are committed to backing the Government in relation to that important point, as they have done previously.
That brings me to the issue of investor confidence. It is a fair point to make. I can understand that there is a need for certainty but it must be balanced against the need to get it right in relation to the grace period. That is why we have taken somewhat longer than expected and why we are to have recommittal to a fourth day in the Moses Room to consider that issue. We cannot rush engagement on the grace period and get the intention right in relation to investor confidence. I come back to the point that no one should have been taken by surprise that the Government were going to alter the position in relation to onshore wind; it was in the manifesto. I do not therefore accept the uncertainty argument that somehow people are taken by surprise. I have indicated that we will bring forward amendments on grace periods and will ensure that noble Lords receive them in a timely manner, ahead of the recommittal stage in the Moses Room.
I shall seek to deal with some of the points made by noble Lords. The noble and learned Lord, Lord Wallace, rightly said that business confidence was an important part. I agree and I hope that I have dealt with how we regard that as important, but we want to get it correct.
My noble friend Lord Ridley made telling points about how we have to balance interests in relation to the trilemma and our commitment in the manifesto. He reminded us of the fact that there are sometimes no easy ways in which to deliver, even in relation to onshore wind. As he said, there are carbon costs and costs in relation to the manufacture of turbines and so on. There are no easy answers.
My noble friend Lord Howell correctly reminded us of the need for back-up facilities, which takes us back to nuclear. Many renewables are intermittent in nature and we therefore need back-up to them. That point was well made.
The noble Lord, Lord Teverson, correctly said that there were things to be done on the demand side that were not in the Bill. I accept that but I can reassure him that work is continuing in the department on innovation, improvements in white goods and regulation. The important programme of smart meters, which started under the previous Government, is continuing apace. All these are important points that we take on board.
I accept the point that the noble Baroness made: this is a political position—there is no doubt of that. It was a difference between parties in their manifestos. On that basis, I remind noble Lords that it was in the manifesto and therefore respectfully beg that this clause should stand part of the Bill.
Lord Wallace of Tankerness
The Minister has indicated that a justification for the position is to reduce domestic consumer bills. That is not an unreasonable thing to try to do. However, I just want to make sure that I understand the impact assessment. On the second page, it says:
“Reduced risk to LCF from over-allocation of renewable energy subsidies, and benefit to consumers from reductions in consumer energy bills (in 2016/17 average household electricity bills could be up to £3.40 (0.6%) lower, with a central estimate of around £0.30 (0.05%), compared to the Do Nothing option) (2014 prices)”.
I am more than ready to stand corrected, but am I right in thinking that the central estimate of the Government in this is that this measure will save 30p in an annual domestic electricity bill?
Lord Bourne of Aberystwyth
The noble and learned Lord has correctly identified the part of the impact assessment that deals with this. It could be a saving of up to £3.40. I accept that that is not a massive amount, but it has to be taken account of in the context of the fact that we are seeking to keep within the deployment estimates that we put forward. I do not think it should be sniffed at: this does not appear, on the face of it, to be a massive amount, but it makes quite a considerable difference to some consumers that we are reducing bills by that amount. That is what we are seeking to do and I make no apology for it. However, that is only part of the consideration.
Baroness Worthington
As I said, the impact assessment is really rather lacking in detail. It may make those assumptions, but it does not give any detail as to what the ingoing parameters are on those numbers. If instead of onshore wind we build offshore wind to compensate for the lack of delivery on the target, there will be a net increase to customers’ bills under this clause.
Lord Bourne of Aberystwyth
I accept that obviously there is a question about what is used instead. However, I remind the noble Baroness and the House that, even with this action, we are well above the deployment estimates that were made in relation to onshore wind.
Lord Wallace of Tankerness
My Lords, I am very grateful to all noble Lords who took part in this debate and, indeed, to the Minister for his response. He has set out the position that the Government are coming from.
It is important that we look at this clause in detail. Like the noble Baroness, Lady Worthington, when I saw that there would be no new public subsidy, I took it to mean that there would be no “new” subsidy, as opposed to an old one—ROCs are certainly quite old. However, I hear the interpretation that the Minister and his Conservative colleagues place on it. One can only speculate as to whether they ever thought they would have to deliver this policy.
The noble Lord, Lord Howell, with wonderful understatement, thanked the Minister because he thought that we were hearing an evolution in government thinking. The noble Baroness, Lady Worthington, said that it was like building an aeroplane as it was taking off along the runway. Some might say that it is making it up as you go along. The lack of clarity in some areas of the impact assessment and the fact that we do not yet know what will happen with the grace periods gives some indication that perhaps this was a policy that had not quite been fully thought through, if I can just leave it at that. However, some concerns continue.
I can understand why the Minister said at the outset of his remarks that, on the one hand, people say it is just a year but, on the other hand, people say it is the end of civilisation as we know it. I take the political point that the Government won an election, but to change an important policy less than a year—just over 10 months—from when it will come into effect is causing considerable concern in the industry and calls into question whether such a change could take place in other spheres of renewable policy.
I have always supported the idea that there should be a balance; a mix of different renewable sources. If one source is seriously challenged because there is a sudden change of policy, it begs the question as to whether others will follow.
I cannot quite yet get my head round the cost. I do not quibble with the fact that, for some people, 30p a year, or just over half a penny a week, might make all the difference—although I find it difficult to buy that. However, the other part of the equation that I cannot quite follow is this: if renewable onshore electricity generation is not going to qualify and therefore its future is more under question, and the others, including nuclear, are going to be more expensive, how can that lead to benefits in the longer term for the domestic consumer? The noble Baroness made that point in her final intervention. That has not yet been explained to us, and perhaps a reworking of part of the impact assessment might highlight some of these issues.
The noble Viscount, Lord Ridley, asked whether any use of onshore wind had led to carbon emissions. I just look at the Government’s impact assessment—I may have been slightly critical of it but I will now use it. Paragraph 4.26, on environmental issues, says that option 2, which is the proposal,
“will lead to lower levels of onshore wind deployment and hence increased carbon emissions within the UK power sector relative to the Do Nothing option”.
So the Government themselves believe that it will lead to increased carbon emissions by having lower levels. The impact assessment goes on to say that,
“these will be offset by decreases in emissions elsewhere in the EU within the capped EU-ETS traded emissions sector”.
We must polish up this sentence. Here, the Government say that what they are doing will actually increase carbon emissions but that Europe is going to come to their aid. It is not very often we see a Conservative document saying that the European Union is going to come to our aid. It is probably worth it just for that.
I will share with the noble Viscount, Lord Ridley, figures that come, I think, from a briefing by the RSPB and which make reference to this. I saw this only this afternoon and have not had a chance to check out the reference, but it suggests that a modern wind turbine has a capacity of 2 megawatts and is expected to avoid emissions of over 1,880 tonnes of carbon dioxide in an average year. I will share that reference with him and, as with all these things, we will trade statistics. However, that and the Government’s own impact assessment suggest that there will be a reduction.
I am not going to press this, but it has been useful to flush out some of the Government’s thinking on this. No doubt we will return to some of these issues when we come to look at periods of grace.
Lord Grantchester
“Renewable and other technologies
Within six months of the passing of this Act, the Secretary of State shall publish an assessment of the progress towards decarbonisation of energy supply, including a strategy for the development of renewables and a strategy for energy efficiency within the supply system.”
Lord Grantchester (Lab)
My Lords, I rise to propose Amendment 35 and declare an interest, in that I am undertaking a planning application with regards to solar technology.
The Energy Bill is largely focused on securing the value of energy supplies of oil and gas in the North Sea through the creation and operation of the Oil and Gas Authority. It is encouraging and positive. In contrast, the final two clauses bolted on to the Bill do the exact opposite. They seek to bring onshore wind to an early closure, dismantling the least costly form of renewables technology. They undermine investor confidence, as others have stated already tonight and as Ernst & Young reports in its research. They raise alarm bells throughout the renewables sector. These clauses raise wider questions and concerns regarding how wind power, and indeed other renewables, will feature and impact on an overall energy strategy.
Just recently, the Minister’s department issued a further consultation on the feed-in tariff regime for solar power. All this is against the back-cloth of the European Commission’s report in June, which highlighted that the UK is falling behind the trajectory necessary to achieve the UK’s national renewable energy targets, which are so necessary to achieve substantial decarbonisation of the energy supply.
On transport, the aim is for 10% to come from renewable sources by 2020. At present, the UK is at only 3.5%. On heat, the target is for 15% to come from renewables; at present, the figure is only 4.9%. While the electricity sector may presently be on track, there are misgivings that its renewables element will continue slowly to fall following this Bill. Quite simply, this Bill is moving in the wrong direction on both fossil fuels and renewables. It facilitates recovery of oil and gas for generation while reducing support for one form of renewable energy, onshore wind, making more difficult the installation of the cheapest form of renewable energy. This legislation will increase consumer bills.
The help for operators recovering oil and gas in the North Sea is said to include substantial tax breaks. Can the Minister confirm that private contracts between operators and HMRC are being drawn up and include offsetting decommissioning costs against previous tax payments? That is a worrying development set against reduced support for wind renewable technology.
The amendment would require the Government to give an account of how their carbon reduction programme is progressing. They must set out the pathway to achieve the 2020 targets for carbon reduction, for renewables use and for energy efficiency—the so-called 20-20-20 strategy. Discussions are continuing on the EU target for 2030, which is to be set out in Paris at the end of the year. Discussions are focused on a single target for 2030 rather than on several targets. While this is recognised, we nevertheless need to understand that strategies will still be required to meet the overall reduction in a co-ordinated way through carbon reductions in supply, heat and transport and efficiency. While the Government may claim that they can meet their 2020 target, they are certainly unco-ordinated and unclear about what happens beyond that.
The impact of recent government decisions is to reduce support for renewables—onshore wind in this Bill; solar in changed arrangements for that sector—while making it easier to use North Sea oil and gas and easier for fracking ventures. The direction of energy policy in relation to energy decarbonisation is further shown through measures on onshore shale gas and oil, giving rise to considerable doubts about the Government’s overall intentions. This is aggravated by the reported delays in bringing new nuclear power capacity into the system, given the problems at Hinkley Point with EDF. Of considerable concern is the position in relation to state aid. Existing clearance was predicated on the basis of technology-neutral auctions. As the Government no longer appear neutral, is this in jeopardy? Can the Minister confirm that DG Competition, in the Commission, could re-examine their judgment?
All this raises doubts about the trajectory of decarbonised electricity. It is therefore important that as early as possible in this Parliament, the Government make clear their decarbonisation strategy and how far it is working. Let us see their analysis and how they can be so confident that the targets will be met, while they tie the hands of very successful aspects of the renewable energy industry. This amendment would require the Government to produce for Parliament an assessment of their strategy and progress towards decarbonisation of electricity supply. The report should include the Government’s assessment, first, of the expected contribution from renewables and, secondly, of measures designed to improve the overall energy efficiency of the electricity supply, reducing demands for carbon in this manner.
Such an assessment should also cover the broader aspects of energy efficiency—commitments notably absent from this Bill and from government pronouncements since the election. I accept that this is beyond the scope of the Bill and, hence, it is not referred to in the amendment; I therefore refer explicitly only to energy efficiency within the supply system. Energy, and hence carbon, is wasted at each stage: in generation, transmission, distribution and use. In reality, to be comprehensive, such an assessment would also look among other things at the contribution of both nuclear power and demand reduction and redistribution technologies, but this amendment confines itself to those aspects covered by the remit of the Bill.
The objective of the amendment is that Parliament receive a report within six months of the passing of the Act, which will enable us to assess the progress of and plans for decarbonisation of the electricity supply in a holistic manner. If the Government are not prepared to accept the amendment, I would expect them to tell the Climate Change Committee how they propose to report to Parliament about the impact of the Bill and other policy changes on the difficult aim of decarbonising electricity supply. I beg to move.
Lord Whitty (Lab)
My Lords, my name is also on the amendment, but I must apologise to the Committee for not being here during its long discussions on the previous two amendments, which relate to the contribution that renewables, in particular wind power, make to the reduction of carbon emissions and the decarbonisation of electricity supply.
This clause or something like it is necessary in the Bill because of the consternation that the changes in support for and expectations of wind power, solar power and other renewables have caused within those industries. They are concerned not that, understandably, the Government wish to reduce the subsidy as those technologies become more competitive with conventional energy, but that they should change the pace at which and the terms on which they are doing it at such short notice, and with such drastic impacts on projects conceived and put to planning long before those changes were proposed. Some of that will have been covered in earlier debates, but the fact is that the renewables industry will lose confidence in this Government’s support for and wider commitment to the objectives established under the Climate Change Act, and those we hope will be established at EU and global level, if they are not prepared to continue such support.
If the Government have a better way of reporting to this House and to the country how well they are doing on their carbon reduction targets and their overall trajectory towards reduced carbon use, it would be helpful for the Committee to hear of it, but, in default of that and in reaction to what has been already announced, it is legitimate for us to put within this Bill an obligation on the Secretary of State to produce a report within six months of the passage of the Act. I hope the Minister can accept something like this amendment or indicate what alternative methods of report the Government are now proposing.
Lord Teverson
Although I agree in principle with what this amendment is trying to get at, I have a recollection—I cannot find it, so I may be wrong—that under the Energy Act 2013 the Secretary of State has to give an annual report to Parliament anyway. If that is the case, I just want an assurance from the Minister that that report would cover the sort of issues discussed in this debate. We could have endless reports, but the main thing is to have a key area of reporting where all these things come over at one time, and that Parliament can debate them.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lords, Lord Grantchester and Lord Whitty, for proposing this amendment, and the noble Lord, Lord Teverson, for his timely comments, which I will come to. I found some of the contribution of the noble Lord, Lord Grantchester, reassuring in that he is pushing us on the Hinkley state aid issue. I hope he is in a position to confirm that it is still the Opposition’s policy to encourage new nuclear because that is what it sounds like to me. I am able to give him the reassurance that we remain confident that the commission’s decision that Hinckley is compliant with state aid rules is legally robust. But of course, on decarbonisation in general, I return to the point that new nuclear is a vital part of the mix. Without it, we would be nowhere near achieving our goals. Therefore, I hope we can get some sense of what the Official Opposition’s policy is on new nuclear—and on new coal. Some things that the new leader has said indicate that he is in favour of regeneration of the coal industry in the United Kingdom, which would undermine what we seek to do. Some clarity on that would certainly be welcome.
The Government are already obliged and will report in the coming months on their progress towards decarbonisation of the energy supply, the development of renewables and the development of energy efficiency. We have obligations under the Climate Change Act, the EU renewable energy directive and the EU energy efficiency directive to report on these topics in the coming months. Therefore, the Government cannot support the amendment, which could lead to unnecessary duplication. You do not fatten a pig by continuously weighing it and we already have these three obligations, which I will refer to in more length.
The Committee on Climate Change reports annually on the Government’s progress towards meeting carbon budgets, which includes an assessment of progress towards decarbonisation of the energy supply. Under Section 37 of the Climate Change Act, we are obliged to respond to the Committee on Climate Change’s annual progress report by 15 October each year. That remains true this year. We will publish our response to the Committee on Climate Change’s 2015 progress report by that date, and that will specifically address progress towards decarbonising the energy supply.
On renewables, the 2013 Electricity Market Reform Delivery Plan—which I think is what the noble Lord, Lord Teverson, was referring to—set out our ambition of achieving at least 30% of electricity from renewables in 2020. We are on course to achieve that, with renewables representing almost 20% of generation in 2014. We will also report by the end of this year on progress against our 2013-14 interim targets as part of the EU renewable energy directive.
Finally, we are committed to energy efficiency as a vital element of meeting our statutory goals on fuel poverty and climate change. We set out our strategy in 2012 and updated it in 2013. We will report by the end of April 2016 on progress achieved towards national energy efficiency targets, as part of the EU energy efficiency directive. In the light of those already substantial obligations and the reassurance that I have given, as well as the work that is done in the department, which takes considerable time, I hope that the noble Lord proposing the amendment will feel able to withdraw it.
Lord Grantchester
My Lords, I thank the Minister for that reply and for being keen to hear about our policies. I was questioning only whether state aid issues could be re-examined by the commission if the UK appeared to divert from its stated neutrality towards renewable technologies. I am heartened by his reply, notably that the Committee on Climate Change will press forward with its annual reports to which the Government are mandated to reply. On that basis, I beg leave to withdraw the amendment
Lord Whitty
“Decarbonisation obligation
(1) Within six months of the closure of the renewables obligation on 31 March 2016 for onshore wind generating stations, the Secretary of State must bring forward regulations for a decarbonisation obligation.
(2) A “decarbonisation obligation” means the level of carbon intensity of electricity generation in the United Kingdom that a relevant supplier may not exceed in respect of the total kilowatt hours of electricity that it supplies to customers in England and Wales during a given year.
(3) In setting a decarbonisation obligation, the Secretary of State must first obtain and take account of advice from the Committee on Climate Change.
(4) In this section, “relevant supplier” means electricity suppliers supplying electricity in England and Wales.”
Lord Whitty
In the unavoidable absence of my noble friend Lord Foulkes, I will speak to Amendment 35A. As we have just discussed, electricity decarbonisation is a key component of our carbon reduction strategy. The amendment would provide a mechanism whereby decarbonisation by supplier is built in and becomes transparent, and is therefore enforceable supplier by supplier. It would require the Secretary of State to issue regulations to place on each electricity supplier—subject to definition in the regulations—a maximum level of carbon intensity in the electricity that it supplies within England and Wales. This decarbonisation obligation would be a proportion taken over the year of the carbon content of the electricity supply to its consumers over the course of that year.
The amendment of course does not specify exactly how the obligation would be expressed nor the level, nor whether there would be a single figure or whether that would be varied supplier by supplier depending on their pre-existing achievement of reductions in carbon intensity. That is a matter for consultation prior to the regulations being promulgated. The only specification in the amendment is that the Secretary of State needs to take the advice on this issue of the Committee on Climate Change—I am glad to see that the noble Lord, Lord Deben, has joined us at an appropriate point. Therefore, that would be the benchmark against which the Secretary of State calculates the requirement. It is noticeable that the amendment would apply only in England and Wales. There would be different arrangements in Scotland and Northern Ireland.
The amendment would give a crucial mechanism to the Secretary of State for ensuring that the pace of decarbonisation in the electricity supply was maintained, transparent and understood supplier by supplier. It would be an important additional weapon in the Secretary of State’s armoury. The Minister has assured us that we are on track for 30% of renewables by 2020. We need to go much further than that to meet what will be the requirements for carbon reductions over the years beyond 2020. I beg to move.
Lord Teverson
My Lords, I was pleased to add my name to the amendment, although I do not pretend to be an expert on exactly how it would work. There was a great celebration in February this year when our Prime Minister, to whom I give full credit, made a declaration jointly with Nick Clegg, the then Deputy Prime Minister and Ed Miliband the then leader of the Official Opposition. They made pledges through the Green Alliance, one of which was to accelerate the transition to a competitive energy-efficient, low-carbon economy and to end the use of unabated coal for power generation.
That was a fantastic declaration at the beginning of a general election campaign when politics was running high and competition between political parties was starting to move into a more confrontational stage. Yet three party leaders came together and said that low carbon and taking out unabated coal would be key. I see the amendment as something that could move us towards that solution in a concrete way. That is why I support it so strongly.
The Energy Act 2013 started off being about decarbonisation. It made it clear that the Secretary of State had the ability to—and in parliamentary Bill language that presumed that the Secretary of State would—declare a decarbonisation target in 2016 when the Committee on Climate Change came forward with its recommendations for the fifth carbon budget. My question to the Minister on this key area in meeting Climate Change Act obligations is whether the Secretary of State intends next year to follow that through in the carbon budget that is recommended and the one that is subsequently agreed.
The other attractive thing about this amendment is that it tries to find a least-cost way through to decarbonisation. As previous debates have shown, in this House we are united in wanting to decarbonise our economy at least cost. We all know that that is important to consumers, for fuel poverty and to the competitiveness of our economy. This amendment finds a way to do that.
I welcome the amendment and I agree entirely with what the noble Lord, Lord Whitty, has put forward. I will be interested to learn from the Minister how the Government intend to take forward the pledge the Prime Minister made in February. Will the Government move next year to a decarbonisation target for 2030 and, as part of that, will they make sure that coal really does disappear from our system as soon as that is practically possible?
Lord Deben (Con)
My Lords, it is not for the chairman of the Committee on Climate Change to comment much on the means whereby we reach the targets which have been set by the committee. That is not its role. The committee’s role is to set the targets and to insist that they are met. That is one of the difficulties of being the chairman because my instinct is to comment on all these things with enthusiasm and some pretty clear views, but that is not what I am statutorily allowed to do.
However, it might help the Minister if I say this. This may be a formulation that works; I am not sure. There are complications in it which might lead the Government not to want to do it. I want to say a word about a decarbonisation target, which the Committee on Climate Change has recommended. It has done so because a decarbonisation target would give security to those who are investing in low carbon technology, and above all in low carbon generation. One of the problems that all Governments have to face is that the timetable of private industry is very tight. First there is the timetable for how long a particular managing director will be in place and what is going to happen over the next two or three years—I am told that it is generally about three years. The second timetable is an important one, covering the length of time major investment takes between thinking about something and actually delivering it.
One difficulty—it is one which the Committee on Climate Change emphasised in its report to Parliament this year—is that most of the measures we have in place will fall off the cliff in 2020. We are now talking about “tomorrow” in the investment cycle because people often have an investment cycle which lasts certainly for five years and very often for seven or eight years. The committee sought to ask the Government to ensure that we knew where we were going to be in a progressive way after 2020. The Government have made it clear that certain things will continue, but not how much and how long. That security is important for investment.
The second point is that it is occasionally the belief of all politicians that if they promise something in 2050, everyone will believe it and proceed to get there. But I remember an embarrassing debate in this House when I pointed out that the previous Labour Government had an energy Bill from which they had removed every date except 2050, and I worked out that there was not a Member of the Government who was likely to be alive when the one promise that had been made would be delivered. That is a dangerous position because if we are to be taken seriously, we ought to make promises that will be delivered at least in our likely lifetimes.
What I want to put to the Minister is simply this: we need to have some sort of interim point between 2020 and 2050 towards which people can work with some confidence, and we have suggested a carbon intensity target for 2030 entirely on that basis. I hope that the party opposite will not be upset by this, but one of the reasons I want the target is because I am a capitalist and I do not want to judge what is going to be the best way of achieving it by 2030; in other words, I want to be as unrestrictive as I can. I just want to deliver the ends, and that is why I always talk about targets, not means. I do not know what mixture of means will enable us to reach the target, and that is why I am less enthusiastic about those who insist upon this proportion from renewables, that proportion from other low carbon technologies and this proportion from nuclear. I have always felt that a portfolio is what we want, and if possible I want an unprescriptive target because we do not know the ways in which we are going to achieve it. But we must give people the confidence that if they pursue those ways, there will be a proper return from the market on the investment that they have carried through. That is why a carbon intensity target is a valuable thing. I hope that the Government will wish to do that in 2016, for reasons we all now know. A carbon intensity target would be unprescriptive, but it would give real confidence.
This amendment, on the other hand, is much more precise. It gives a role to the Committee on Climate Change, for which I thank the noble Lord, and I am sure that if we were asked to carry through this role, we would do it to the best of our ability. But I wonder whether this particular mechanism is the best one. There are complications which the Government might want to think about, but I hope that in discussing it, the Government will not cast aside the need—I think it is that—for a decarbonisation target for 2030 to give people the confidence to plan. It is no good saying that they know that our emissions must be cut by 80% by 2050. Frankly, it is true and statutorily based, and we all think it is important, but it is not going to drive investment. That is why a decarbonisation target for 2030 is important. I doubt whether this is the right way forward, but I am pleased that it has been tabled as an amendment, not least in order to ask the Government to think hard about the needs of investment and confidence.
Baroness Worthington
My Lords, I am grateful to my noble friend Lord Whitty for introducing this amendment and to the other noble Lords who have spoken in favour of it—or if not directly in favour, at least in favour of us having a debate about decarbonisation. I recall that a similar amendment was tabled by my noble friend Lord O’Neill of Clackmannan during the Committee stage of the Energy Bill in 2013. We had a good debate at the time, and the arguments which were put forward were important then and are even more important now. I say that because we all engaged with the Energy Bill in good faith. We raised our concerns and we went forward on the basis that we hoped that we had a system that may be a transition to something more market-based and slightly less interventionist in order to encourage us to decarbonise our electricity system.
I apologise for stating the obvious, but the reason electricity is so important is that once it is fully or substantively decarbonised, it can then be used to decarbonise transport and heat in an effective way. It is not the only way, but it is one way. It is the sector with possibly the most commercially available technologies and certainly the widest range of known technologies, certainly at this stage, to help us. That is why electricity is focused on and why we have a 30% target for renewable electricity as opposed to 10% or 12% in the heat and transport sectors. It is right to focus on electricity.
This idea is definitely worthy of merit and I do not disagree with the noble Lord, Lord Deben, when he says that we have in the past debated a broader definition of the decarbonisation obligation or decarbonisation target. In fact, that was rather exhaustively dealt with in the debates around the Energy Bill in 2013. The way it was left was that the Government may introduce a decarbonisation target for 2030 in line with the fifth carbon budget being set. I very much look forward to hearing some strong words from the Minister stating that that is still the Government’s intention: that a decarbonisation target will be set in 2016 once we have that fifth carbon budget in place.
For all the reasons given by the noble Lords, Lord Deben, Lord Teverson and Lord Whitty, we lack a moment of clarity to help shake people’s investment decisions beyond 2020. We have renewable targets to 2020, as part of the European renewables directive, but beyond 2020 there is big uncertainty as to what low-carbon technologies, if any, will be supported by the Government. Therefore, there needs to be a framework. Why I like the idea of a decarbonisation obligation on the Government and on suppliers is because it does exactly what the noble Lord, Lord Deben, said, which is to create a market-based system.
I often find myself wondering whether I am Alice who has stepped through the looking glass. Here we are in a world where the Government—a Conservative Government—are presiding over virtually the renationalisation of the energy system. There is no element of the energy system that is not now reliant on the Secretary of State to sign a contract of some sort or another, perhaps with the possible exception of some of the interconnectors, but even there it is quite highly regulated. Now any new clean capacity needs to be signed off by the Secretary of State with a contract for difference, and all the existing capacity receives capacity payments also through the Secretary of State’s gift. Here we are, very oddly, presiding over pretty much a state-run energy system, and here I am on the Labour Benches saying that we need a much more market-based system that allows more choice and for capital to flow to the most cost-effective ways.
It is an odd situation but that is where we are. So I press the Minister to help us to understand whether the Government share our objective, which is to move towards a slightly less interventionist system with more ability for a broader set of players to dictate how we meet our targets, which means the Government setting the framework, and being clear about our objectives, but allowing a wider pool of people to find those solutions for us at least cost.
Amendment 35A is an interesting idea which proposes that rather than the Government taking on the obligation and the target, they should be passed down to the supply companies. It has some merit. It is worth noting that suppliers have been obliged to report on the carbon intensity of their electricity supply for some years now. They have a fuel disclosure requirement and an infrastructure and reporting mechanism that enables them to do that with certificates of origin. That enables them to calculate the carbon intensity of their electricity annually and report to Ofgem. Those numbers then probably sit on a website or in a document. Very little attention is paid to them, which is a great shame because we are encouraging these data to be collected but doing very little with them. If we were to look at those numbers, sadly we would see that carbon intensity has remained stubbornly similar over the past decade. We did very well in decarbonising when we had the dash for gas and replaced a lot of our old coal, but since then carbon intensity has just moved around, largely dictated by commodity prices where gas prices are higher than coal or vice versa. So there has not really been a grip on carbon intensity.
An obligation such as this would address that problem and mean that the full range of decarbonisation options, including fuel switching and phasing out of coal, would be incentivised in the most logical way forward. I am very grateful to the noble Lord, Lord Teverson. He and I have worked previously on the phasing out of coal and the use of performance standards to make sure that our old coal, in particular, is phased out in an orderly and certain way so that we can make room for clean investment. A decarbonisation obligation would help us to ensure that that transition out of coal took place. It is not the only way it can be done, but it would be a market-friendly way to meet the obligation because there would be an incentive not to purchase the coal that would count against the target. It would help to make it harder to hit the targets. The other benefit is that it would help renewables to stand on their own two feet and compete alongside other technologies. We would genuinely see which are both affordable and able to be supported by the general public.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lord, Lord Whitty, for moving the amendment, but perhaps I may turn first to the opening comments of the noble Baroness, Lady Worthington. Although I am, as she will know, her great admirer in the area of climate change, I cannot allow the allegation to go unchecked and unanswered that we are in the business of nationalising the energy supply. It shows considerable chutzpah to come up with such an argument in view of what happened at the weekend. It is far from the truth. The area is certainly highly regulated but I make no apology for that. It needs to be so.
We are committed to ensuring that the United Kingdom continues to do its part to tackle climate change in line with the Climate Change Act, which, of course, has legal backing and legal obligations. As I indicated earlier, we will respond to the progress report; as the noble Lord, Lord Deben, mentioned, we will do so by 15 October, as we do annually.
Decarbonisation remains a clear goal of the Government. Emissions from carbon intensity fell by 12% in 2014, according to the Committee on Climate Change, and we are very much wedded to that. The noble Lord, Lord Teverson, referred to the commitment of the Prime Minister and our obligations in relation to unabated coal. I agree with the noble Baroness, Lady Worthington, when she said that there is a part for all forms of energy except unabated coal. That is certainly right and I would not dissent from it. We must do this as cost effectively as possible to ensure that our energy is secure and affordable as well as low carbon, as I indicated previously.
Locking ourselves into an expensive and inflexible target for the power sector is not the way to do that. There are just too many things that we cannot predict about how the energy system will develop up to 2030. The costs of getting it wrong would be picked up by consumers for decades to come. The amendment as set out would, in effect, require the Government to introduce an additional power sector target, in the form of an obligation on electricity suppliers in England and Wales. The manifesto on which the Government were elected clearly stated that we will not support additional power sector targets.
Noble Lords will know that the subject of setting a decarbonisation target has previously been debated in this House, as has been indicated, on at least two occasions: during the passage of the Energy Bill in 2013 and of the Infrastructure Bill in 2015. I therefore know that noble Lords will be familiar with the arguments against setting a target such as this. I agree that investors want to know that we have clear, credible and affordable plans. However, the CBI has said that clarity on future financial support for low-carbon electricity will be more important in driving investment than targets. That is why we have said that we will set out totals for the levy control framework beyond 2020, providing a basis for electricity investment into the next decade. That is why we have also said that we will set out plans in the autumn on future contracts for difference allocation rounds.
For those reasons I cannot accept the amendment. I hope that the noble Lord will withdraw it.
Lord Teverson
The Minister will forgive me if I did not catch this properly, but are the Government saying that they will not undertake the clause in the Energy Act 2013 that says that the Secretary of State “may”—with the presumption that the Secretary of State “would”—set a decarbonisation target for the electricity sector for 2030? Did he say that the Government will not do that?
Lord Bourne of Aberystwyth
No, my Lords. I was saying that we would not support additional power sector targets. As I understand it, that target is already in existence.
Baroness Worthington
The target is not in existence. The power was created in the Energy Act to allow the Secretary of State to set a target, but it prevents the Government setting a target until 2016. That is the only thing on the statute book. I encourage the Minister to be very precise in his wording. I will have to read back over Hansard. The expectation is that the Government will set a target, but they certainly are not required to. We would like clarity on what the intention is.
Lord Bourne of Aberystwyth
My Lords, I appreciate that point. On the clause as set out, I have made it clear that we will not come forward with this additional obligation. The manifesto is absolutely clear that there will be no power sector target. That is the position of the Government.
Lord Whitty
My Lords, if I understand that right it is very disappointing. I can understand the objection, or at least the querying by the noble Lord, Lord Deben, as to whether we need a detailed mechanism for setting carbon intensity coefficients by supply, but he argued very persuasively, and has done before, for a decarbonisation target for 2030. That is why that was written into the 2013 Act and why there was an expectation and general indication from the Minister’s predecessors that there would be a target set in 2016, but only in the context of the carbon budget, which they are obliged by the Climate Change Act to come forward with. I did not accept that argument, but I understood it in terms of the timing. There was some considerable debate about that during what became the passage of the 2013 Act.
It is very disappointing, not only to us in this House but to the various industry operators, including the supply companies, that there seems to be an abandonment of that commitment in what the Minister has interpreted from the Conservative Party manifesto. As I well know, manifestos are pretty flexible things. I hope that he can consult with his colleagues as to whether it actually meant that, or whether there was some more room—
Lord Teverson
I am not quite sure how to ask the noble Lord, Lord Whitty, this, but having read the Conservative manifesto many times and having it on my iPad on iBooks, I have not seen this obligation not to have a target anywhere in it. Has he?
Lord Whitty
My Lords, I am not quite such a conscientious and diligent reader of the manifestos of various parties—even my own—as the noble Lord, Lord Teverson. The best thing we can ask the Minister to do is to go back and talk to his colleagues—whether it was in the manifesto or not—about whether they are definitely now not going ahead with what was allowed for in the 2013 Act. If that is the case, there are ramifications. I understand why the Minister is opposed to the mechanism proposed in the amendment. I would have thought that having set the 2030 target for decarbonisation would be a useful addition to the armoury, as the Committee on Climate Change and the noble Lord, Lord Deben, advocated. If the Minister feels that that would be too much interference in the market mechanisms, I understand that. It would still be up to the supply companies how they met that obligation and what kind of technologies and contracts they entered into. The market is still operating there. I understand and accept that the Minister is not prepared to go along with that.
Lord Bourne of Aberystwyth
To be helpful, in view of the fact that there is a degree of uncertainty about what the manifesto says specifically—not least with me—I am happy to go back and have a look at it. We can come back to it on Report to ensure that I have understood the position correctly. I undertake to do that and we can pick it up on Report if that is helpful.
Lord Whitty
My Lords, that was very generous of the Minister. I thank him very much, as I think the Committee will as a whole. Before I withdraw the amendment, I will just comment on something that the Minister said on markets and nationalisation. When the then Energy Bill of 2013 first came before us, the noble Lord’s colleague, the noble Lord, Lord Lawson of Blaby, described it as “Gosplan”. There is something in that. There is nothing from any element in the Labour Party that goes as far as that. I beg to ask leave to withdraw the amendment.
Baroness Worthington
“Statement on costs of non-compliance with EU renewable target
Within six months of the passing of this Act, the Secretary of State shall report to Parliament on the estimated cost to the taxpayer should the United Kingdom not comply with the 2020 EU renewable target.”
Baroness Worthington
My Lords, that was an interesting debate. It has slightly changed the context for the next two amendments, if that does indeed transpire. We look forward to getting clarity on this. It hinges on the word “new”. In fact, so much of the Bill hinges on the word “new”, because it was a manifesto commitment to have no new subsidies for onshore wind, which could have been interpreted in lots of different ways. I think there was a manifesto commitment that there will be no new targets. We need to start to understand how the Government use that word.
As I have mentioned, Amendment 35B seeks to make up for one of the biggest holes in the impact assessment, which is to consider the implications of this new change of policy. Indeed, when we come on to talk about the last amendment, our concern about the transition to the contracts for difference regime is that this will have an impact on the taxpayer that is not yet being monetised, described or communicated by the Government.
Amendment 35B would simply require:
“Within six months of the passing of this Act, the Secretary of State shall report to Parliament on the estimated cost … should the United Kingdom not comply with the 2020 EU renewable target”.
Of course, the wording is not written in a way that it should be in a final version. However, it is an appropriate moment to raise the point that it is not the case that we can simply change our policies without due concern and reference to the implications if we were then to miss our EU requirements. As I have said in previous debates, there would be two implications. First, we would be forced to purchase renewables certificates from other countries. Let us just think about that for a second. That would mean us sending our money to other countries to purchase their investments, which would make them have more jobs and supply chains, and help them to decarbonise. We would be spending our hard-earned cash on their development of a very successful renewables industry. That does not seem like sensible policy to me, but that is what would happen if we decided simply to buy our way out of this target in the mistaken idea that this would somehow be better value for money for the Government. I would like to hear from the Minister whether there is any truth in the speculation we have seen in the media that that is one of the Government’s ideas—that they would be prepared to buy their way to compliance in terms of the targets, and what that would cost us. Secondly, we may be fined if we are in non-compliance. I would like clarity from the Minister on what the penalty regime looks like if we fail to meet our EU renewables target.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Baroness, Lady Worthington, for moving this amendment. She is right: we are continuing to make progress towards the 2020 renewables target of 15% of final energy consumption from renewable sources. The provisional figure released on 25 June showed 6.3% of final energy consumption for 2013 and 2014 came from renewable sources, against a target level of 5.4%. The Government set out their plan to meet the target in 2010. We are on track to meet the next interim milestone. In fact, as I say, the provisional figure indicates that we are ahead of it. We have a clear plan for meeting the target. I wish to say something about the specific areas of heat and transport which the noble Baroness mentioned, where there certainly are challenges. First, in relation to heat, under existing schemes the Government have supported almost 33,000 homes and 10,000 businesses, schools, farms and other organisations with new renewable heating systems. That is on top of the generation of 3.4 terawatt hours of eligible heat—enough to heat the equivalent of more than 225,000 United Kingdom homes for a year.
On transport, the Government are investing more than £500 million over the next five years in making ultra-low emission vehicles more accessible to families and businesses across the country. I think our record on this bears comparison with other EU countries, and across government departments we are putting in a lot of effort on this. As noble Lords will appreciate, the lead department on ultra-low emission vehicles is the Department for Transport but the Department of Energy and Climate Change is, of course, represented in that process and we are pushing forward with it.
We have a clear plan for meeting the target and already have many reporting requirements. I cannot accept the amendment and I hope that the noble Baroness will withdraw it.
Baroness Worthington
My Lords, I am grateful to the noble Lord for his response although I do not believe that it adequately addressed the points that I raised, particularly on vehicles and fuel which are obviously two separate things when it comes to energy. We can have as many zero-carbon vehicles as we like but if they are powered by electricity that is generated at 400 grams per kilowatt hour, that is not a solution. Equally, it is true that the escalator is frozen. I heard nothing about whether or not that will be lifted in order for us to hit the 10% figure. I hope the Minister will write to me giving a detailed response to the points that I made. I do not believe that I got the detail I sought.
Lord Bourne of Aberystwyth
I will certainly write to the noble Baroness on those points.
Baroness Worthington
I thank the Minister. On the basis that we will continue this discussion and I will be in touch on the impact assessment and the absence of detail within it, I am happy to withdraw the amendment at this stage.
Baroness Worthington
“Contracts for Difference
After section 13(3) of the Energy Act 2013 insert—“(3A) An allocation round must be held no less than annually in each year in which the UK is not on target to meet the 2020 EU renewable energy target.””
Baroness Worthington
My Lords, Amendment 35C would insert a new clause after Clause 60 to require that an allocation round should be held for the CFD—contracts for difference—process at least annually for each year that the UK is not on target to meet the 2020 EU renewable energy target. As is evident from the previous debate, there is some debate about how we measure that, but we still have to make quite a bit of investment to get to our targets, and we must ensure that we have a policy framework that is fit for purpose to enable that investment to be made.
In the Energy Act 2013, we undertook to transition from the renewables obligation to contracts for difference. There was cross-party support for the idea that contracts for difference would be a material improvement: they would give greater certainty for investors and enable us to move to a technology-neutral auctioning system, which would allow costs to come down. On that basis, the Energy Act received cross-party support and Royal Assent. However, things have changed; as has been pointed out, the Government have changed. Maybe we should not be surprised about what the Government are now doing but that certainly does not mean that we should agree with it. I feel that there is quite a degree of concern across the different parts of the House about the Government’s current trajectory.
We have been told that there will be a statement on whether there will be a contracts for difference round this year. My understanding is that if we were to be ready for an auction in the autumn, we should have already made announcements, so I would specifically like to hear from the Minister when we will have a statement on contracts for difference allocation rounds this year and what the likely date for the next round is. Here, we get to the nub of the interpretation of the word “new” and, indeed, of the word “subsidy”. If the Government are going to stick to interpreting their manifesto commitment to mean that no new subsidies for onshore wind includes contracts for difference, we need to know that now, or sooner rather than later, because it will have huge implications. State aid clearance was gained for the contracts for difference system, but that was worded in such a way as to encourage the Government to move to technology-neutral auctions as soon as possible. It would be highly problematic if the Government ruled out one of the least costly forms of renewable energy from the CFD system; the European agreement to give it state aid clearance would need to be looked at again if there were to be such a substantial change. That would cause delay across the piece. Nobody wants to see yet more uncertainty introduced into this picture, and it worries me greatly that we are going to hear in the autumn that there will be no contracts for difference for onshore wind from now on. If that is so, we need to hear about it sooner rather than later. Onshore wind should continue to be considered, alongside all the other technologies, in those hopefully technology-neutral auctions and we should move towards that as soon as possible.
We need to see onshore wind continue within the CFD process, not least because there is possibly a misunderstanding that onshore wind will continue to keep producing for ever more once it is put into the ground. In fact, that is not the case. The commercial reality is that, once you have a wind farm, you are quite able to upgrade it: you can use the existing footfall and the existing site but then upgrade either the nacelle or the entire turbine to get more power out from the same land area. These sorts of recommissioning projects could be completely ruled out if onshore wind renewables do not survive into a contract for difference regime. That risks around 1.5 gigawatts that is currently being generated from onshore wind coming offline by 2025, with no ability to repower. For that reason alone, we need to see some clarity about the role of onshore wind in the CFD regime going forward. However, it is not just the repowering; there are definitely options for continuing cost-effective deployment of onshore wind in those communities that are happy to accept it.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Baroness, Lady Worthington, for moving this amendment. She will know that, as I indicated by my letter of 6 September, we are looking at decommissioning on Report, so there may be an opportunity to look at some of the specific points that she raises then. I am certainly happy to do that.
In relation to Amendment 35C, I acknowledge that it is important that developers and investors have some foresight as to the frequency of contracts for difference allocation rounds. However, this must be balanced with the levy control framework budget available, which, as noble Lords know, is funded by a levy on consumer bills. The United Kingdom continues to make progress towards the renewables target, but the interaction of those two is important.
Committing to annual contracts for difference allocations rounds, even only in certain circumstances, would inhibit the Government’s ability to respond to evidence on levels of deployment in renewable electricity generation, costs to consumers and opportunities in other sectors. That said, as the noble Baroness rightly said, we are committed to a statement in the autumn, so that decisions on any future allocations of contracts for difference will be taken in due course. On the specific point on state aid approval, we remain consistent with the contracts for difference state aid approval. If our future plans should have an impact on our state aid clearance, we would seek an early discussion with the European Commission. However, as I understand it, that is not the case at the moment.
The noble Baroness’s amendment would unnecessarily commit the Government to a course of action which would neither benefit the consumer nor provide any certainty to renewable energy generators or investors. I have indicated that I am happy for us to look at the specific point about decommissioning on Report. We are committed to our energy targets and continue to make strong progress towards meeting them. I do not know the specific date of the statement we will be making in the autumn—indeed, I do not think it has been fixed at this stage—but I hope that gives reassurance that we will be making a statement about the contracts for difference regime. Our intention is to set out plans in the autumn in respect of the next contracts for difference allocation round, but we do not believe that an annual round is necessarily appropriate.
For those reasons, I am unable to accept the amendment and respectfully ask the noble Baroness, Lady Worthington, to withdraw it.
Baroness Worthington
I thank the Minister. I find it quite curious that an amendment asking for greater certainty in CFD allocations is described as creating more uncertainty yet the Minister’s statement, which contains no information at all about when we might expect another round of allocation, supposedly increases certainty. I just do not understand how that works. The autumn is arguably already upon us. I hope that the Government’s interpretation of “autumn” does not mean 31 December and that we will see the information come to us while we are still considering the Bill, in the autumn. That statement needs to be made in respect of and is highly relevant to the Bill.
I am grateful to the Minister for picking up on the point about decommissioning. However, given that we now have an extra day in which we will recommit to Grand Committee in the Moses Room, I wonder whether we could have those amendments in time for then. It will be only a matter of days before Report. If those decommissioning amendments could at least be made available for that day, it would certainly help to alleviate some of the pressure on Report. I feel that we are stacking up quite a lot of issues for Report.
Lord Bourne of Aberystwyth
On that point, I am happy to endeavour to make the amendments available. What I cannot do, and I had given due notice to Peers who participated in the debate, is undertake that they are debated on that day. That was not in the agreement we have in relation to the recommittal day. I will of course endeavour to table the amendments as soon as possible.
Baroness Worthington
Given that the Minister has been so excellent in communicating with us in Committee, I am happy to take it in good faith that he will do his very best. I am sure that will produce results and on that basis, and on the basis that we will revisit this after Recess, I am happy to withdraw my amendment.
“(aa) regulations under section 27(8), or”