Energy Bill [HL]

Lord Bourne of Aberystwyth Excerpts

Wednesday 22nd July 2015 Lords Chamber

Moved by

[Lord Bourne of Aberystwyth]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)]

My Lords, your Lordships’ House has had several opportunities to debate energy issues this year, and I know that the debate on this Bill will be as full and rigorous as it has always been in the past.

The Government’s energy priorities are clear: keeping bills as low as possible for families and businesses, and powering the economy while decarbonising in the most cost-effective way. These are challenging and critical objectives, but the Government have a long-term plan, underpinned by carbon budgets, to meet our responsibilities.

Keeping the lights on is non-negotiable. Our modern technological society cannot function without power. A diverse energy mix, including homegrown sources, provides the most resilient system. Tackling climate change is also non-negotiable. Your Lordships know that climate change is a threat not just to the environment but to our national security, global security and long-term economic prosperity. A global deal is the only way both to deliver the scale of action required and to drive down the costs of climate action, so the global conference in Paris this December is a serious opportunity to avoid its catastrophic effects and open up new avenues for low-carbon industries.

Going for clean energy makes economic sense, and it makes business sense: clean energy is a boom market, bringing jobs, investment and growth. But it makes sense only if we keep costs pinned down. The vital financial support that has been provided to the renewables sector has helped new and innovative technologies, while increasing the amount of low-carbon electricity that powers homes and businesses across the United Kingdom. Financial support has already driven down the costs of renewables significantly and these are continuing to fall, making it easier for the industry to thrive without subsidies.

To work for everyone, decarbonisation has to be affordable and sensitive to the impact it has on people’s pockets and wider economic circumstances. The Government have today announced a package of reforms to take control of the costs of renewable electricity subsidies under the levy control framework. This is part of the Government’s commitment to control energy bills for hard-working British families and businesses as we continue to move to a low-carbon economy and make progress towards our carbon reduction and renewable energy targets. This will provide the basis for a more sustainable approach to future low-carbon electricity investment. Consistent with this, in the autumn the Government will set out their plans in respect of the next contract for difference allocation round.

In line with keeping bills as low as possible and ensuring that markets work for consumers, we are proposing to introduce competition to the way our networks deliver electricity, which will open up the energy market to innovation and could potentially save British bill payers £390 million over 10 years. The role that United Kingdom businesses can play in meeting the United Kingdom’s climate change targets is undoubted. By incentivising reductions in energy consumption and emissions, the Government are giving business the tools to achieve that goal. Likewise, by cutting red tape and bureaucracy and creating a simple energy tax system that rewards energy and carbon saving, we are empowering businesses to increase productivity, support growth and ensure their place in a competitive global market. We want to collaborate with industry and the wider green economy sector to ensure that we develop a framework for simplicity and stability.

With regard to North Sea oil and gas, the Bill will complete the work started in the previous Parliament to implement fully the recommendations of Sir Ian Wood’s review into United Kingdom offshore oil and gas recovery and its regulation. The Bill is evidence of our continued commitment to support development of North Sea oil and gas. The United Kingdom’s oil and gas industry is of national importance and makes a substantial contribution to the United Kingdom’s economy, energy security and employment.

The Bill will build on the establishment of the Oil and Gas Authority—OGA—on 1 April 2011 as an executive agency of the Department of Energy and Climate Change, and the powers taken in the Infrastructure Act 2015 to establish the principle of maximising economic recovery in the United Kingdom continental shelf. The Bill has been welcomed by Oil & Gas UK, the trade association for the industry. The chief executive, Deirdre Michie, recently said:

“The OGA is a critical catalyst for the work being done to sustain offshore oil and gas activity and the Bill aims to provide the new regulator with the tools and capabilities it will need to do the job effectively and efficiently so we support its swift passage through Parliament. The provisions contained in the Bill complete the implementation of Sir Ian Wood’s recommendations for MER UK – Maximising Economic Recovery from the UK Continental Shelf”.

The Bill will formally establish the OGA as an independent regulator, which would take the form of a government-owned company, and transfer regulatory powers and functions to the OGA, providing it with new powers to be an effective steward and regulator of petroleum recovery.

Implementing the Wood review recommendations will be done in a way that is compatible with our climate change targets. The 2011 Carbon Plan noted that Britain will still need significant oil and gas supplies while we decarbonise our economy and transition to a low-carbon economy. Maximising recovery by increasing efficiency of production, as well as increasing levels of production of the United Kingdom’s oil and gas, will help to maintain security of supply as well as boost growth and jobs. In 2014, oil produced on the United Kingdom continental shelf was equivalent to around 56% of United Kingdom oil-product demand, while gas produced in the United Kingdom was equivalent to just over half of United Kingdom gas demand. Any oil and gas demand that we do not produce ourselves has to be met by imports, at significant extra cost to the economy. The falling oil price makes effective stewardship of North Sea oil and gas all the more important, as the oil and gas industry in the United Kingdom supports an estimated 375,000 jobs. With industry collaboration and facilitation by the OGA, we will help to drive down costs and improve efficiencies across the sector.

Your Lordships may recall that the March Budget also introduced a number of measures that will help encourage more than £4 billion of additional investment in the United Kingdom’s oil and gas industry over the next five years. Petroleum revenue tax is to be cut from 50% to 35% to support continued production in older fields, while the existing supplementary charge for oil companies is to be cut from 30% to 20%, backdated to January. The Government will also invest in new seismic surveys of underexplored areas of the United Kingdom’s continental shelf.

The Bill will make retrospective provision protecting the taxpayer from liability for historic fees which have been charged, and prospectively enable more comprehensive charging of the offshore oil and gas industry for permits and licences for environmental and decommissioning activity. I thank the Select Committee on the Constitution for its recent report on the retrospective power in the Bill. The Government believe that it is right to protect the taxpayer from the costs of regulating the industry, under the “polluter pays” principle, and will respond to the Select Committee’s report before Committee stage.

Moving to onshore wind, decarbonisation must work in particular for the local communities where infrastructure is built. So the Bill makes provision, alongside new planning guidance, to give local people the final say on new onshore wind development applications in their area. The Government made a manifesto commitment to change the law so that local people have the final say on onshore wind applications and the Bill is part of the Government’s delivery of that commitment, alongside forthcoming secondary legislation and the new considerations for applications for planning permission announced by the Department for Communities and Local Government.

The Bill also helps to deliver the Government’s manifesto commitment to end new public subsidy for onshore wind by bringing forward the closure of the renewables obligation to new onshore wind in Great Britain one year earlier than previously planned. This was a clear and unambiguous manifesto commitment. We have made a great start with renewable power and we will want to be in the best possible position to decarbonise the economy in a cost-effective way, so we will be pushing for an ambitious deal in Paris. We have made excellent progress so far. In 2014, 19% of electricity generation was from renewable sources. We are on track to meet our ambition of 30% of electricity from renewable sources by 2020, and the Bill will not change that.

In 2014, operational onshore wind farms in Great Britain received in the region of £800 million under the renewables obligation. We would expect this to increase to £1.1 billion per year if, as expected, a total of around 11.6 gigawatts of onshore wind comes forward under the renewables obligation. We are therefore taking action to provide us with better control of spending on subsidies and we will ensure that bill payers continue to get value for money as we move to a low-carbon economy.

In conclusion, this Bill seeks to reform onshore wind subsidies and put more power in the hands of local people to make decisions on the development of new wind farms in their area. This Bill will help to support jobs and growth by reinvigorating our domestic oil and gas industry. I believe that the measures in the Bill will keep Britain on the road to economic recovery and secure our energy supplies. I thank noble Lords for their engagement in this progress today. I look forward to a good debate today and throughout the progress of this Bill. I beg to move.

--- Later in debate ---

[Lord Bourne of Aberystwyth]

My Lords, first, I thank your Lordships very much indeed for what has been a debate of extremely high quality with some important contributions, to which I shall try to do justice, on subjects ranging from the Oil and Gas Authority and wind to the old chestnut of the East Ayrshire coalfield. I am very grateful for the advance notice of that question, otherwise I might not have been able to deal with it; I will certainly try to as I address the points raised within the suggested time.

Let me begin by dealing with two general points. The first was raised by the noble Lord, Lord Purvis, at our meeting yesterday, when I also met the noble Baroness, Lady Worthington. I was of course aware of the likelihood, although not of the certainty, of announcements today at that stage, but I could not share anything because of market sensitivity. The only conversations that Ministers are allowed to have are with devolved Administrations—which brings me on to the second issue. We have very good avenues of communication, and such things continue to be shared, as they were yesterday, with Scotland, Wales and Northern Ireland. That does not mean that we agree, but we of course continue to do what previous Governments have done.

I will try to deal with the issues in the way that they were set out—the Oil and Gas Authority, wind and then miscellaneous. I am not in any way denigrating the importance of the miscellaneous questions, but they are not directly represented in the Bill. I will try to do justice to the contributions that have been made. I start with a general point about what will be forthcoming as we go through the Bill. We are certainly hoping for an impact assessment by Committee stage. We very much trust that that will happen, as we trust that there will be a settled position on the grace period, an issue raised by many noble Lords and by the noble Baroness, Lady Maddock, in a briefing meeting. As soon as I am in a position to give information on that, I will ensure that it is circulated to all noble Lords because I am cognisant of the fact that they will need to be aware of it in the Recess.

Turning to the Oil and Gas Authority, the noble Lord, Lord Grantchester, raised the question of how the environmental importance issue will be dealt with. DECC will continue to be responsible for that in relation to the Oil and Gas Authority, but it will of course work alongside it. The decommissioning strategy will be delivered; indeed, it is the prime issue that will be dealt with by amendments that we will introduce. That is not yet in the Bill and we hope to come back in Committee with more detail on that.

Many noble Lords raised the issue of carbon storage—I have it under the heading of oil and gas, but also under miscellaneous—including the noble Baroness, Lady Worthington. I thank her for her kind comments and I understand her passion and share many, if not all, of her climate change goals, so I am sure we will have a good working relationship. The noble Lords, Lord Grantchester, Lord Oxburgh, Lord Whitty, and Lord O'Neill, the noble Baroness Lady Worthington, and others raised the issue of carbon storage, which it is important we look at. It would be a responsibility of the Oil and Gas Authority, although not its core responsibility. I hope we will be able to look at that as the Bill proceeds through Committee and beyond.

On Norway and Scandinavia, again, I agree that a lot of this draft legislation is based on the experience of Scandinavia, which is a good example for us. I am sure that we will continue to learn lessons from there and exchange good practice.

Moving on to a general point about the Oil and Gas Authority and the tribute to Sir Ian Wood paid by noble Baronesses, Lady Worthington and Lady Liddell, the noble Lords, Lord O’Neill and Lord Purvis, and others, I quite agree. We have not really done anything other than present the report as it is. We believe that it is a good report and we are giving it legislative strength. The timing—2014—might not have been of our choosing, I agree, but we are where we are and we have to make sure that the authority is smart, nimble and able to take on new challenges as they develop.

I am happy to look at and engage with the example of transferable skills and research given by the noble Baroness, Lady Liddell. It was a helpful suggestion, so we will be in touch and make sure that noble Lords are aware of what we are doing in that regard.

The noble Lord, Lord Oxburgh, asked about the number of staff who would be transferred. The current figure is 103, which is an increase from the figure I was given earlier this morning, so we are obviously recruiting at a rate of knots. The majority will come from the Department of Energy and Climate Change, but expertise is retained in the department and of course we are continuing to recruit. There was a suggestion that the industry was trying to do this on a small budget, but that is not the case. We will obviously continue to recruit.

My noble friend Lady Byford raised some specific issues about the stable and predictable regulation regime set out in Clause 4 and asked for more information about that. I am happy to write her and copy noble Lords in on the detail that we have.

The noble Viscount, Lord Hanworth, talked about the regulatory role of the Oil and Gas Authority. Yes, it is of course the regulator and is subject to controls, but the oversight will be with the Secretary of State, who will be the sole shareholder of the company. No doubt we can look at that as the Bill goes through Committee. Those are the prime points on the Oil and Gas Authority. It seemed to receive a general welcome, and no doubt we can look at the detail as we proceed.

Obviously, we will not all agree about wind. There are differences even within party groups. I notice that some are more enthusiastic than others about onshore wind. Clearly, the fundamental point is that industry should not have been taken by surprise by the attitude of the Conservative Party to wind. One thing we cannot be accused of is ambiguity: the manifesto made our stance very clear.

A general point was made about the affordability of bills. My noble friends Lord Howell and Lord Ridley rightly said that affordability is an issue. Looking at the figures, the action we have taken has trimmed bills by £7 annually, which is not something that we should dismiss. But there is a concern and we should not categorise it as tawdry. We may disagree with it, but there are people who feel that there are sufficient land-based wind farms and they affect the quality of their lives, so let us put that in perspective. We have just had an election in which that was an issue.

To return to planning, developers can obviously still appeal against a decision from the local authority as they can in relation to shale. The point was made that somehow, the planning regime is fundamentally different in relation to shale. It is not. As we know from the decision recently taken in Lancashire, a decision is taken at local level and then there is the potential for appeal. In a similar way—although not identical because they are different planning regimes—there is a local element and then an appeal in both cases.

Reference was made to the certainty that is needed for British industry and investors regarding the supply chain. I agree. We need a sustainable approach to decarbonisation to 2020 and beyond. There was a Written Ministerial Statement this morning outlining these changes, which I hope that the noble Lord, Lord Purvis, has. There was a press release, too, as is customary practice, but this was not announced only by press release. It makes it clear that there is a levy-controlled framework beyond 2020. I reassure noble Lords that in the autumn, we will say what we will be doing about contracts for difference.

My noble friend Lord Ridley questioned the need for Clause 60(3). It is simply there to ensure that generators who do a credit before the closure date will not be affected. A general concern was expressed about the grace period. There is an ongoing dialogue on that issue, which is why it was not dealt with in the Bill and we will return to it in Committee. That dialogue will finish at the end of July. We will then study the representations made to us and come back with something. I will make sure that noble Lords have sight of any decision as soon as it is made. That is why the measure has not been included in the Bill. I know that noble Lords will want us to look at these considerations with some care.

The number of projects affected is in the region of 250. It is not a precise figure—we cannot be absolutely certain which projects will proceed, so to that extent it is a best guesstimate. Again, that will be covered in the impact assessment. The noble Lord, Lord Cameron, also talked about the grace period and the need for dialogue, which I quite agree with. The noble Lord, Lord Judd, stressed the importance of areas of outstanding natural beauty, and I agree. Some people may well say that some wind farms are already in such areas, but I thank the noble Lord for his thoughtful speech. He asked how the costs were determined. I think they are published, as we will be able to see as we go through the Bill, but they are determined by the Office for Budget Responsibility.

[Lord Purvis of Tweed]

I hope that the Minister will forgive me for bringing him back to the issue of planning. Just after he received clarification from the Box, I took the opportunity of looking again at page 57 of the Conservative Party manifesto, which says that it would,

“change the law so that local people have the final say on windfarm applications”.

The Minister confirmed at the Dispatch Box a few moments ago that that was not the case. The current practice of developers being able to appeal to the planning inspectorate will carry on, so that is not being implemented. Is that true?

[Lord Bourne of Aberystwyth]

Noble Lords will understand that I am approaching this constructively. I am not going for the party knockabout, so let us leave that for another occasion. I am trying to be constructive and explain how we can take this forward.

The noble Lord quite rightly raised a point on public interest and national security grounds; perhaps I may get back to him on that with examples. The two go together. The national security point will be fairly evident, the public interest one perhaps less so. Thinking on my feet, it could involve something like piracy, but that word has connotations of the old type of pirate. However, it could mean someone taking over one of these installations, which, while it might not represent a threat to national security, may demand urgent action in the public interest by the Secretary of State. It could be something like that, and I will certainly write to the noble Lord with more precise information.

As I understand it, coming back to the announcements on solar made this morning, we do not need primary legislation for any action that is taken consequent on that consultation, and therefore I do not think that we will need to amend this legislation. If I am wrong about that, I will write to noble Lords, but I think it can be achieved through secondary legislation.

I shall move on to the miscellaneous points, although that is not to say in any way that the issues are not important. A regular theme of the debate was energy efficiency. It was raised by the noble Baroness, Lady Maddock, and the noble Lords, Lord Oxburgh, Lord Teverson, Lord Judd and Lord Foulkes, among others. It is a vital issue and a lot is already happening that does not demand legislation from us now. I refer to the smart meter programme, the delivery of which in 2020 will make a massive difference. Since April 2010, we have delivered the installation of more than 1.5 million measures such as boilers, insulation and so on which have made a material difference. That links to another area of responsibility, namely fuel poverty. We are currently looking at how to ensure that our fuel poverty measures are more closely allied to improvements in energy efficiency than perhaps they have been in the past. That is something we are looking at and it is certainly important.

On nuclear, a matter raised by my noble friend Lord Howell and touched on by the noble Lord, Lord O’Neill, and others, we are expecting the contract to be concluded at the end of the year. I think my right honourable friend the Secretary of State mentioned this yesterday to the Select Committee in the House of Commons. We are certainly looking at small nuclear, as I think I have indicated previously; it is important. Progress is being made on Wylfa and I discussed it again yesterday with the devolved Administration in Wales. Those matters are progressing. I think I have dealt with carbon storage.

[Lord Foulkes of Cumnock]

Could the Minister deal with the question of whether insurance will be available?

[Lord Bourne of Aberystwyth]

I am coming to that; I had not forgotten. I think the noble Lord has also tabled a Question for Written Answer on this and I hope he has had a response because I have it here, although I will not read it out. I think he will be reassured that we believe there is sufficient cover at the moment. The Government will continue to monitor the insurance market for capacity in this area and to encourage insurers to enter the nuclear insurance market. I offer the noble Lord my apologies if the response has not yet arrived, but it is certainly on its way to him.

On contracts for difference, raised by the noble Viscount, Lord Ridley, the noble Lords, Lord Whitty, Lord Oxburgh, and others, I have indicated that we will be announcing our approach. Of course it is important that we look at the totality of the position on renewables; I totally agree with that.

The noble Lord, Lord Teverson, raised issues around the automotive industry. He is absolutely right to say that there is a massive opportunity for the United Kingdom in this area. We are working across government on this with the Department for Transport and there is a certain urgency. It is an important issue and it would be great to see British industry have an edge in the area.

The security of the national grid was raised by noble Lords. That was one of the first visits I made, and obviously there are connections with other countries such as Norway and France. I think security of supply is in place.

The Competition and Markets Authority was touched on by the noble Lord, Lord Foulkes, in relation to switching. He will be aware that we are currently studying, and will soon be responding to, the preliminary findings of the Competition and Markets Authority, which had a default mechanism in those preliminary findings for those people who do not switch and are on an expensive tariff. They are put into a default mechanism tariff, which will be better for them. I hope he is reassured by that. The noble Lord also raised the issue of smart grids, which are very important. We are looking at them as part of the smart energy programme.

Finally, I turn to the East Ayrshire coalfield. We are aware of the issues, as the noble Lord indicated, and at the moment the Treasury is looking at the Hargreaves and Banks proposals he mentioned. We will come back to him on that; it certainly has not been forgotten.

[Baroness Worthington]

In anticipation that the Minister is about to finish, I want to touch briefly on two points. I hope I will be forgiven if the noble Lord has already mentioned them. On the European targets, I should like some clarity on the statement from the Government that we are on track. We are not on track. We would like to see some information about how we will compensate for failing to meet the targets for the other two aspects of the energy policy. Related to that, I should like some reassurances because, as I understand it, to have an auction for the CFD, as was planned, the Government would have to be making decisions in August, not in the autumn. Can we assume from this that the planned CFD auction for this year will not take place, and what will that mean in terms of our being able to make progress with our targets?

[Lord Bourne of Aberystwyth]

I thank the noble Baroness for those two points. On the European targets, we are certainly on track, as I think she will accept. Indeed, I think she said that in relation to the electricity target, which is the one that wind directly affects. The other targets are certainly challenging and we are seeking to address them. I have mentioned what we are doing on cars, but I accept that they are challenging. However, I am sure she will agree that the track record of the United Kingdom in meeting our targets is, in European terms, very good, and I am sure it will remain so. On the auction, as I say, we will be making a statement in the autumn about the future of contracts for difference, and I have indicated that there is a future for the levy control framework, but I cannot really add to that at this stage.

Once more, I thank all noble Lords for a wide-ranging debate, which has gone far beyond the narrow remit of the Bill, but that is no bad thing. I hope that, as we go through the Bill, we can engage in the constructive way we have today.

Bill read a second time and committed to a Committee of the Whole House.