Renewable Energy Generation: Island Communities

Tuesday 4th July 2017 Westminster Hall

[Sir David Amess in the Chair]

16:00

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I beg to move,

That this House has considered support for renewable energy generation in island communities.

I am delighted to serve under your chairmanship, Sir David, and I am pleased to welcome the Minister to his new role. He is one in a fairly long line of Energy Ministers during my tenure in the House—I am not entirely sure how many I have seen—but he brings with him a reputation for being a diligent and effective Minister, and I wish him well in his time in the Department. It is the convention on these occasions to say how pleased we are to have secured the debate. Although I will keep my tie on, I will break with convention by saying that I am not particularly pleased; I have been around this course for the past 15 years and I am immensely frustrated that debates of this sort are still necessary.

I think it will be helpful for those who might be watching our proceedings from elsewhere to be quite clear not only what the debate is about but what it is not about. It is not about individual projects that may be under consideration; there are a number in my constituency, including in Orkney and with Viking Energy in Shetland. To say that we need a strategy to unlock the potential of renewable energy generation is not to say that any individual project in itself is right or should go ahead, nor is it to be confused with the consultation currently being undertaken by Ofgem on replacing Shetland’s power station with a 278 km, 600 MW high-voltage direct current cable. That is exciting some comment at the moment, but it is a proposal of which I remain to be convinced; having been around this course for many years, I do not regard it as quite so difficult or challenging for that particular project to get a cable on the seabed.

The debate is about how Government and the forces of government can unlock the potential for renewable energy generation that we all know is there within our island communities. A study commissioned jointly by the then Department for Energy and Climate Change and the Scottish Government in 2013—the “Scottish Islands Renewable Project”—estimated that the Western Isles, Orkney and Shetland could between them supply up to 5% of Britain’s total electricity demand by 2030. That is a quite significant prize and it is within our grasp. However, it is something that we already know will only happen if we can get everybody working together.

In that connection, I welcome the intervention this morning from Councillor Donald Crichton, chair of the Sustainable Development Committee in the Western Isles Council, calling for cross-party consensus building on this. As he said, the Conservative party’s manifesto commitment at last month’s general election to

“support the development of wind projects in the remote islands of Scotland, where they will directly benefit local communities”

is an important and welcome step. Similarly, I also place on the record my appreciation of the efforts of Lord Dunlop of Helensburgh, who, in his time as a junior Minister in the Scotland Office and before, did a lot to push this particular issue.

That manifesto commitment was welcome, and I am pleased that it has survived the cull of so many other commitments from that unfortunate document. However, we are looking to the Minister for some outline of what the commitment will actually mean in practical terms. If you will forgive me, Sir David, there is quite a history here, and it is important that we remind ourselves of some of it. A lot of the issues that underpin this history come from the fact that Ofgem—for reasons that are understandable in relation to non-renewable technologies—has for some time adhered to a system of locational charging. For renewable projects, far from the centres of populations and the ultimate points of consumption, that does not necessarily make the same sense, so we have looked for different ways around that over the years.

Back in the days of the late Malcolm Wicks, we tried the idea of a cap on transmission charges. That was brought in by him and the then Labour Government, and was then extended by Chris Huhne when he was Secretary of State for Energy, but that in itself did not provide the solution we had hoped for. We then moved on to the new contracts for difference regime, and within that it was suggested that we could have a dedicated islands strike price. Unfortunately, at the point that that was being submitted to the European Commission for state aid approval, it was felt that it could be delayed by the islands element, so it was removed for later submission. It was resubmitted at a later stage and went through the pre-approval application process, which concluded some time around the end of 2015.

In the meantime, we had a general election, and the Conservative Government that came in in 2015 had a manifesto commitment to have a moratorium on onshore wind developments. The point at which the Government decided to go ahead with the CfD auction round that we are currently part of, without any provision for the islands, sticks in my memory for two reasons. First, it was the morning after the American people had elected President Trump, and secondly, I remember very clearly taking the call from the Secretary of State on my mobile phone while I was going through Edinburgh airport. However, a consultation period followed, which should have ended in the early part of this year and to which we I think we still await the Government’s formal response.

I remind the House of that history at this point because it is germane to the debate. Although the commitment in the Conservative party’s manifesto from last month is new, the issue is not—it has been within the machinery of government for some considerable time. Although we hope that that commitment will be given the green light, it is far from the case that the work needs to start from scratch. What is now needed is the degree of political commitment to implement the commitment and to tell us exactly what it means, because time is not in plentiful supply.

If provision for the islands of Scotland is to be included in the next round of CfD auctions, we are looking at something that has to go through the machinery of government and possibly even the state aid consent procedures in order to be in place by the end of next year, so there is a need for some degree of urgency in the approach to this. When the industry hears from the Minister later, it will be looking for a degree of clarity. We are not looking for the blueprint on everything that is meant by the manifesto commitment, but we want to hear some sort of outline or framework through which this can be turned into a reality.

What are we looking at here? Are we revisiting the idea of an islands strike price, or are we looking at something that might, somehow or another, find a mechanism for including onshore island generation with offshore wind? I do not know just how doable that would be, or how workable it would be from the point of view of the industry, but those are some of the ideas that have been floated. Alternatively, does the Department have some new mechanism that is going to be brought forward?

In any event, when in all those processes will the work start in order to obtain state aid approvals? I understand that the Government will proceed on the basis that, regardless of what happens with Brexit, state aid regulation compliance remains a feature of our regulatory landscape for the foreseeable future. Is it the Government’s aspiration that any projects that would be brought forward under this new scheme would be eligible for the next round of CfD auctions? If that is the case, will the Minister at this stage consult within Government to get a commitment that the next auction round will not go ahead unless and until this scheme is in place and island-based projects are able to compete?

[Ian Murray (Edinburgh South) (Lab)]

I am grateful to the right hon. Gentleman for allowing me to intervene in the limited time he has. Will he explain to the House whether there is any other route to market for island wind if there is no access to the next round of CfD funding?

[Mr Carmichael]

The answer to that depends on what we mean by “route to market”. There are other ways in which the energy generated can be used, and a lot of innovative work is being done in relation to non-distributing technologies such as the use of hydrogen, but for all intents and purposes, for the projects being considered at the moment across the country, there really is not. Those in the industry will have a view on that, and if they bring forward something we are not currently considering, I think we will all be in the market for hearing it.

Finally and most obviously, we will want to hear in fairly early course exactly what is meant by the expression “community benefit”, which has been around the renewables debate for as long as I can remember and has meant different things to different people in different places at different times. If it is to form part of policy, a clearer definition will be necessary.

[Derek Thomas (St Ives) (Con)]

I appreciate the opportunity to intervene. Does the right hon. Gentleman agree that a significant motivating factor for accelerating the development of renewable technology has to be reducing household energy bills as part of the community benefit? Those bills are often higher in island communities such as the Isles of Scilly in my constituency, owing to the inaccessibility.

[Sir David Amess (in the Chair)]

We are fresh from an election, and there are lots of new Members here. The usual procedure in a short half-hour debate is that there should be prior discussions with the person whose debate it is as to whether they are prepared to take interventions. Of course, there is nothing to stop any Member intervening on the Minister’s speech.

[Mr Carmichael]

I am grateful for that timely reminder, Sir David—although it has driven from my mind the question that the hon. Gentleman asked. Perhaps I could write to him about it in the fullness of time. It was about driving down price, which is one of the important opportunities of a more diverse and flexible market structure than the one we have. The issues faced by my constituents are not dissimilar to those facing the hon. Gentleman’s constituents in the Isles of Scilly.

We want to hear a bit from the Minister today about something beyond the situation regarding wind generation. We would like to see a willingness from the Minister, his Department and the Government to engage with the renewables industry beyond the onshore, or even offshore, wind sector. The United Kingdom already has a pipeline of wave and tidal stream projects that could be some of the most significant and forward-leaning projects to be found anywhere in the world. The estimates we have seen are in the region of £76 billion-worth of development by 2050. It is a significant global market for which we are doing the initial heavy lifting at this point. I have seen in my constituency, and especially in Orkney over the years, how the industry has pulled itself up inch by inch, but in recent years it has been pushed backwards by a lack of dedicated support for wave and tidal projects. I hope that the Minister, in his time in the Department, will have some proper regard for that.

We need a proper ring-fenced pot for wave and tidal power. A pot of that sort could be transformative. It would not need to be particularly significant in size, but for it to be guaranteed would make a massive difference to those involved in the development of these technologies and would give a very positive signal to those who are looking at bringing their projects to this country to develop them and to put devices in the water at places such as the European Marine Energy Centre in Stromness. I know the Minister has not yet visited that centre, but I strongly encourage him to do so in the earliest possible course, because there he would see for himself the potential that is being thwarted by the inclusion of wave and tidal projects within the pot for emerging or less established technologies, where they are competing with offshore wind.

To give an illustration of what is involved here, the offshore wind sector currently has 5,100 MW of installed capacity, with a further 4,500 MW under construction. The marine renewables industry, by comparison, has 10 MW of installed capacity. In that context, it is pretty straightforward and easy to see which is the genuinely less established technology that requires the support found in the title of the pot.

To bring down the costs is not rocket science. We have been here before and seen it with other low-carbon industries. We have to get the devices into the water. We see what happens to them there, learn the lessons, innovate, improve and repeat. That work is still being done by those who demonstrate a commitment to marine renewables.

We have a burgeoning supply chain. We have investment from local councils in Orkney, which I would be happy to show the Minister. As I indicated to him this morning, we have a sector that is desperate to re-engage with him and his Department. I hope that in the time he has in this position—which I hope is both long and productive—he will engage with the sector, because the opportunities that it brings to the future development and the industrial strategy to which the Government still lay claim are significant indeed.

16:17

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Richard Harrington)]

Sir David, it is as ever a great pleasure to serve under your constituency—under your chairmanship; I am sure your constituents feel the same about your activities on constituency days. In my first Westminster Hall debate, you were a mere Mr Amess. I am delighted you are here.

The right hon. Member for Orkney and Shetland (Mr Carmichael)—I remember when he was my right hon. Friend—is a gentleman in the true sense. The way he has conducted the debate, on a subject in which he has a lot of interest and expertise, and the way he speaks up for renewable energy generation in island communities, is truly commendable. As he is fully aware, he has me at a little disadvantage, as I have been in the job for precisely three weeks. I am not yet the expert he is, but I would like to make it clear to him and other Members that I have listened carefully to every word and intend to set out the Government’s position in what I hope he will accept is the right way at this stage.

We know that the islands have long been a hotbed for innovations in renewable energy generation. The Burgar Hill wind turbine site in Orkney, for example, hosted some of the most innovative experimental turbines in the ’80s and early ’90s. As has been said, the European Marine Energy Centre, which is also located on Orkney in the right hon. Gentleman’s constituency, has since its creation more than 10 years ago maintained its position as the world’s leading wave and tidal stream testing facility. The fact that it has hosted the prototypes for almost all the world’s leading devices, including the Atlantis turbines deployed in the Pentland Firth last summer, is a testament to its premier global status.

I also understand that the grid infrastructure necessary to support the proposed wind farms on the remote islands of Scotland could, if built, act as a springboard for further development of our wave and tidal sector and give this emerging industry a further boost towards commercialisation, helping to maintain the UK’s leading position in these technologies. The challenge for the wave and tidal sector will be to innovate and to reduce its costs sufficiently that it can compete with other renewable technologies. Those costs have fallen significantly during the past few years, and we fully expect that downward trajectory to continue. This is now a very competitive market, and developers will need to respond to that challenge; the sector can no longer take high subsidies for granted.

As the right hon. Gentleman is aware, my right hon. Friend the Secretary of State for Business, Energy and Industrial Strategy visited the Western Isles this year to learn about this issue at first hand. The hon. Member for Na h-Eileanan an Iar (Angus Brendan MacNeil) kindly hosted the Secretary of State’s visit, and I shall take this opportunity to thank him again for what my right hon. Friend described as a productive and informative trip. I know that it will not help or please the right hon. Gentleman unless some action is taken, as he has pointed out to me.

The issues are clear, and we know what the gains are. I shall go through the issues in no particular order. The first is ensuring healthy competition to support the best projects and get the best value for the consumer, while recognising that it may take a certain volume of projects to justify building the all-important new island-to-mainland links. I am aware that those are a vital piece of the overall picture, with their own timeframes and set of complex decisions, so there are really two areas of decision.

The second issue, as the Secretary of State made clear, is ensuring that local communities, which have been enthusiastic about this industry, receive appropriate benefits for hosting these projects.

[Mr Bob Seely (Isle of Wight) (Con)]

Excuse me, Sir David, if I do not quite get some of the etiquette right.

I thank my hon. Friend the Minister for what he has said about the importance of the popularity of tidal and other energy-efficient projects. It is right to say that islanders can play an important role, but does he agree that energy policies should take into account other policies such as regard for the landscape? Wind turbines were very unpopular with many of my constituents, because of the damage that they did to the landscape in areas of outstanding natural beauty, but solar panels are more popular. Should wave and tidal power take off, there would be, again, an aesthetic element as well. It is wonderful to have these things, but that should not be at the expense of a tourism economy in a place such as the Isle of Wight.

[Richard Harrington]

I thank my hon. Friend for his intervention. Time does not permit me to answer in full, but I would be happy to meet and discuss this subject with him on behalf of his constituents.

Thirdly, we have to define what is meant by “island wind projects” in a legal context, and that is being done; we are working through the issues. The right hon. Member for Orkney and Shetland is very aware of that matter.

Last but not least, we need to give clarity to the developers of island projects while being fair to developers of other projects elsewhere and to consumers across the UK.

[Brendan O’Hara (Argyll and Bute) (SNP)]

This issue is also very dear to my hon. Friend the Member for Na h-Eileanan an Iar (Angus Brendan MacNeil), who has been unavoidably delayed while travelling here today. He is very concerned, as I am. Given the promises made in the Tory manifesto and by Tory candidates at the general election, when will the Government act to introduce an island CfD? The lack of a CfD and the locational pricing model are severely hampering the industry on the islands, and this is a vital sector that we need to survive.

[Richard Harrington]

I can assure the hon. Gentleman that we are aware of that issue and we are fully on it. I am happy to meet him if he would like to discuss it separately, but I have only five minutes left now and I do not want to break into the time for the key points that I need to raise.

There is a range of options for overcoming the issues that I have outlined, and I hope that by taking a pragmatic approach we can do so quickly. We need to understand the costs of the projects and the impacts on consumers’ bills. My officials have begun the process of updating the evidence base to set an appropriate strike price—the maximum that these projects could get paid for each unit of electricity that they produce. We must not forget that any additional costs that arise as a result of awarding support contracts are ultimately paid by households and businesses in their electricity bills.

Our approach to supporting new renewables, of competitive auctions with limits on the maximum price that we will allow, ensures that we support only the more cost-effective projects. That approach is not new but has been applied very successfully to other technologies, such as offshore wind. The industry is confident that the renewables support auction currently under way, whose outcome is expected in the coming months, should lead to a significant further drop in price. Whatever approach we take will need to work in this context of quite rapid price changes, and we want to see the outcome of our current auction before making decisions regarding the remote Scottish islands.

We have been through very clearly the importance of local support. Not everyone in the islands will support the development of the wind farms, but I am told that the majority of residents do. I understand that a poll of 1,000 Isle of Lewis adults commissioned by Lewis Wind Power found that seven in 10 supported having wind farms on their island. That is encouraging, but such support should not be taken for granted. It needs to be rewarded in the way that has been discussed—through community benefit funds and other systems. The Scottish Government have informed my officials that all the developers on the islands have committed to pay at least £5,000 per megawatt of capacity per year into such funds for the lifetime of a wind farm. That means that the Viking wind farm on Shetland, for example, could provide up to £1.85 million every year to the community. That money could be used for all sorts of projects: schools, local support groups, scout groups—the list is endless. Developers are also offering communities the opportunity to own a stake in projects, which is something that the UK and Scottish Governments are keen to see more of. Beyond direct income, we should also acknowledge the other benefits that these projects could bring. For example, jobs will be created not just during construction but throughout the lifetime of the projects.

Wind energy can play an important role for the country as a whole in producing the electricity we all need to support the running of our economy and our daily lives and in helping to reduce the harmful emissions associated with our energy systems. We all appreciate the commitment that island communities will have to make to ensure that we have access to long-term clean power. That is why it is absolutely right that they should benefit from hosting the projects.

We recognise that there are different ways of delivering the benefits, but of course it is important that any commitments that developers make are real and go beyond warm words. The Scottish Government are considering this issue closely, and I very much welcome that work. I look forward to meeting the right hon. Member for Orkney and Shetland and a group of developers, which we discussed outside the Chamber. That is a very good idea, which I am keen to progress as soon as possible.

I hope that my response today, in the short time that I have had, provides some reassurance to Members, as well as to the constituents we all represent, that the Government will support the development of onshore wind projects in the remote islands of Scotland, where they will directly benefit local communities.

Another very good point made by the right hon. Member for Orkney and Shetland is that we are not starting from scratch. We know that, and I do not mean just the manifesto commitment, but everything that went before.

[Mr Carmichael]

I understood the Minister to say earlier that the Government would not come forward with firm proposals until after the conclusion of the current round of contract for difference auctions. Is that indeed the case? May I ask him to take that away and consider whether it is really necessary? At the very least, given the pressures of time on us here, we should have everything ready to go once we reach that point.

[Richard Harrington]

I am very prepared to consider that point as the right hon. Gentleman has asked me to do. I hope that hon. Members will bear with us as I and my officials tackle the issues that I have outlined. I hope to come back very shortly with a decision. I say “very shortly” because I want that on the record and because of the respect in which I hold the right hon. Member for Orkney and Shetland. In the meantime, I will shortly be meeting the hon. Member for Na h-Eileanan an Iar to discuss these issues further, and I would be happy to meet any other Members of this House.

Question put and agreed to.