Pensions: Low-carbon Investments

Baroness Verma Excerpts

Thursday 20th March 2014 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I thank the noble Lord, Lord Harrison, for opening this debate and all noble Lords who have contributed. This important debate allows me to lay out what the Government are doing to ensure that we have in place an environment of certainty for long-term investment. Above all, we must strive for certainty for low-carbon energy policy, a certainty which allows all investors and pension investors in particular to fund energy infrastructure. The current low-carbon investment regime provides this certainty, which, in February this year, led to the manager of a pension fund owned by the state of Quebec acquiring a 25% stake in the 630-megawatt London Array offshore wind farm for £644 million.

There have been several other major pension investments in solar PV projects supported by the small-scale FIT scheme, notably by Aviva insurance. PensionDanmark has also made a number of UK investments in renewable obligation-backed projects. As we complete the much needed reforms to the energy market, we need to ensure that policy stability sustains and investments continue at pace.

The central ask of the pension community is long-dated, index-linked products which deliver stable returns from assets that are well understood and low-risk. Pension companies are not looking for a fast buck; when they invest they are in for the long haul. Our new contracts for difference are private law, long-term contracts which seek to remove the volatility risk associated with the wholesale energy market. The returns from these contracts will be index linked to ensure investments retain their real value.

We have also provided a back-up route to market through our off-taker of last resort provisions. This further reduces risks for debt and equity providers, and improves competition and liquidity in the power purchase agreement market. The transition from the renewable obligation to contracts for difference is being taken forward in a structured manner and our reforms will ensure that our targets are hit at the lowest possible cost to the taxpayer.

The Government have three objectives for energy policy: to keep the lights on, to keep energy bills affordable and to deliver our climate change goals. To achieve the necessary change, I was privileged to lead the Energy Bill through this House, and the Energy Act 2013 is now law. The Act provides the legal and financial mechanisms necessary to attract the investment that we need and at the right price—investment which could support up to 250,000 low-carbon jobs by 2020.

Noble Lords have raised a number of questions and points. I shall try to answer as many of them as I can. Where I feel that colleagues in other departments may offer greater detail, I will ask them to write to the Committee.

To the noble Lord, Lord Giddens, I say that I am pleased to be chief and extremely proud to be an Indian—so that ticks both of the noble Lord’s boxes. I turn to the more important points. The noble Lord, Lord Grantchester, touched on a range of issues which I think were covered in my speaking notes, but I remind him that the EMR, the biggest reform of the electricity market since privatisation, was done under this Government. We wanted to provide investors, particularly in the renewable, low-carbon sector, with long-term certainty. The previous Government, of whom the noble Lord was a supporter, had 13 years during which they knew that 20% of current electricity power generation would come off grid by 2020. They failed to address that issue and we must now, sadly, play catch-up in a range of areas. We have to accept that there are issues at stake.

To the noble Baroness, Lady Jones, I say, yes, of course, we all sign up to individual responsibility. This Government and the party opposite had complete consensus when we worked through the Climate Change Act 2008 to ensure that we as a country set standards and examples for the world to follow. However, we cannot do it at any cost; we have to see how it impacts on consumer bills. The noble Baroness gives a deep sigh, but I say to her that, when you are in government, you have to take a whole load of decisions. Some of those decisions may not be taken as quickly as we would like, but they have to incorporate consideration of their economic impact on all our consumers, not just a small section of them.

We will remain on track to being the greenest Government ever—that was a promise and a pledge that we made and the Prime Minister has reiterated it. We have through the Treasury set a levy control framework of £7.6 billion up to 2020. So I do not think that there is any lack of ambition on the part of this Government to deliver on low carbon if they are putting in that sort of up-front surety and investment.

Some of the more detailed points raised by the noble Lord, Lord Whitty, around pension funds will need to be responded to by other colleagues in more detail. I will ensure that the appropriate colleagues receive a note from me after this debate.

The noble Lords, Lord Whitty and Lord Giddens, mentioned other countries. I am pleased that China has taken some very big steps towards addressing its carbon emissions. We are seeing great progress in its building of offshore wind—it is building more offshore wind capacity than any other country. It has recently created its own renewable feed-in tariff for solar. Its manufacturing sector has significant wind turbine and solar companies. It is also investing heavily in new nuclear.

I turn to India. I read an article very recently on advice it took from us at DECC on the 2050 calculator. It has incorporated the 2047 calculator to see how it can address issues of introducing more renewable energy.

[Lord Giddens]

Would the noble Baroness agree that there is a massive possibility in China for the development of pension funds in relation to environmental issues? There are no pension funds in China: it is families who save. The country has to build a welfare system from the beginning and therefore, at least in principle, has the opportunity to circumvent some of the difficulties we find in western countries.

[Baroness Verma]

The noble Lord raises a very important point. We should be actively having this sort of discussion with all our global partners.

Since 2010, this country has seen £35 billion of investment in the renewable sector and there is £20 billion more in the pipeline. I would dispute with anyone who says that investment is not coming here. The noble Lord, Lord Grantchester, thinks we are not attracting investment. We have attracted more investment than did the noble Lord’s party when it was in government. It is not a competition. The noble Lord, Lord Boateng, did not speak in the debate but he may shake his head. We have significant investment coming through, with new nuclear as well as the renewable sector. We should be proud of being a country that people want to invest in and of offering an environment that enables the investment to come in.

I am always mindful of time. The noble Lord, Lord Whitty, also mentioned the National Association of Pension Funds—I think that it was the discussion around a national pension fund that the Treasury may have raised in 2011.

[Lord Whitty]

The Chancellor said he was bringing together the large pension funds to look at their investment in infrastructure.

[Baroness Verma]

My Lords, I am told that I have two minutes. We have made progress. A £500 million fund to be managed by Dalmore Capital will, hopefully, be unveiled and be available. I think that is the fund the noble Lord is referring to, but I will read Hansard and make sure.

The noble Lord, Lord Whitty, also mentioned the carbon floor price. We have to establish a price that sends a credible signal to help drive billions of pounds of investment in low carbon energy generation. However, we also have to put it against what is happening with our partners and member states. We cannot let our industries be at a disadvantage because we have not been able to reduce the burdens on our energy-intensive industries.

I have been told that I need to sit down very soon, but I would like quickly to touch on the reference made to the Green Deal by the noble Lord, Lord Grantchester. I remind the noble Lord, over and over again, that this is a very long-term programme. We did not come in singing it with bells and drums, but it has seen significant measures being put in place. We have seen over 500,000 measures installed under ECO. The noble Lord must be aware that some may have used the Green Deal bank but others may have their own finance.

Committee adjourned at 5.59 pm.