Energy Bill [HL]

Viscount Ridley Excerpts

Wednesday 22nd July 2015 Lords Chamber

[Viscount Ridley (Con)]

My Lords, I declare my energy interests, as listed in the register, mainly in unsubsidised coal, although I also have much smaller indirect interests in wood, wind and grain ethanol.

I shall confine my remarks mainly to the renewables and wind parts of this Bill. I welcome, like others, the Oil and Gas Authority, and strongly welcome the Bill. At last we can see an end to the ruination of many parts of the British landscape, funded by regressive hidden taxation and carried out by crony capitalism. In particular, Northumberland has borne more than its fair share of the onshore wind industry, as we discussed in a debate in this place a few months ago. It is welcome, therefore, to know that this might come to an end.

We have heard a lot from the Benches opposite about the plight of wealthy investors in wind power in the coming months. It is time to hear of the needs of ordinary working people on whom the cost of the renewable energy subsidy burden has disproportionately fallen in recent years. I am proud of the fact that it is a Conservative Government who are standing up for ordinary people to try to halt the runaway cost and overspend that has happened in this industry. I congratulate the Secretary of State, through my noble friend the Minister, on tackling the grandfathering of biomass, as announced this morning, a technology that produces more carbon dioxide than coal. I urge the Secretary of State to push ahead urgently with the early closure of the renewable obligation to under five megawatt solar farms. A five megawatt solar farm needs 25 acres of land, and a policy that distorts the market to switch land from producing food to producing extremely expensive and unreliable energy is a bad policy.

By the way, it is a myth that is being repeated here today that onshore wind is the cheapest renewable. It is not. Hydro is cheaper; biomass is usually cheaper; and, as we have heard, landfill gas is cheaper. So we should not fall into the error of thinking that it is by far the cheapest.

Please note that the measures announced today, and those in this Bill, will not achieve the Government’s stated priority of:

“Reducing energy bills for hard working British families and businesses”,

as the cost of renewable subsidies will still double by 2020. Bills will still go up, not down, and this will be the case even if wholesale gas prices fall. The Secretary of State’s announcement today includes a table that confirms that we are on course to spend £1.5 billion more a year by 2020 than the levy control framework limit—that is, £9.1 billion instead of £7.6 billion. That means a £20 billion overspend cumulatively.

The Renewable Energy Foundation, and John Constable, its director, in particular, have predicted exactly this situation for a number of years, and today’s announcement precisely confirms their predictions. The REF figures, based on the Government’s own planning database, suggest that we have 49 gigawatts of consented capacity for renewables, which would generate roughly 148 terawatt hours of electrical energy, which is 34% over the 110 terawatt hours needed to meet the 2020 target. This is probably an underestimate as it omits small-scale solar photovoltaic, existing unsubsidised hydro and sub-10 kilowatt generation. Then, there is a further 14.7 gigawatts of renewable capacity pending in the planning system. If that was all built, we would have a 67% overshoot of the 2020 target for renewables. So we have to slow down this spend, and we have to grasp the nettle that it has to be slowed down offshore as well as onshore. Almost half the renewable electricity that we will get in 2020 will come from offshore wind. Notwithstanding the hopes of the noble Baroness, Lady Liddell, will the Government confirm that there will not be a huge expansion of contracts for difference for offshore wind in the wake of these announcements?

We have to address the environmental problems created by the mad wind rush we have seen in recent years and the damage caused to landscapes, peat, birds, human health and tourism. I draw my noble friend the Minister’s attention to a 10-minute rule Bill introduced yesterday by David Davis MP, in which he pointed out that many wind companies are not liable for any damage that is proved against them in terms of nuisance because they are now shell companies. That is a relatively new phenomenon. So who carries the cost of decommissioning these wind farms when they need to be decommissioned in the 2020s and 2030s?

I have a series of other questions for the Minister. He said that this measure is intended to give local people the final say. He will know that in the planning system there is, obviously, a right to appeal. Does giving local people the final say over onshore wind farms mean removing that right of appeal or in some way circumscribing it? I would like a little clarity on that, if possible.

There is some strange wording in Clause 60, on which I would like clarification, because it removes the right to renewables obligation certificates in 2016, but not the right to accredit or register for renewables obligation certificates after that. What is going on here? Would this allow speculative developers to still register after 2016 in the hope of a change in policy, a change in government or a fall in the price of wholesale electricity? It would be helpful to have a little clarity.

Finally, my noble friend the Minister said that decarbonisation makes economic sense. However, the figures that he gave me on 24 June, in answer to an Oral Question, confirm that the cost of decarbonisation using offshore wind or solar are £120 a tonne and £110 a tonne respectively under the renewables obligation, and this does not include many of the system costs. Yet these numbers are far higher than the cost of damage that climate change is likely to cause, brought forward to the present, even in the estimates by the noble Lord, Lord Stern, which do not exceed £50 per tonne. So there is a danger here that, in spending huge sums on decarbonisation, we are putting a tourniquet round our neck to stop a nosebleed.

--- Later in debate ---

[Baroness Worthington (Lab)]

My Lords, it is a genuine pleasure to respond to a debate that has had a veritable all-star list of energy experts contributing to it. I begin by thanking the Minister for his introductory comments. My sense is that we now have a very capable and committed Minister but, sadly, he comes before us with a rather shoddy and politically tawdry Bill. That is to be greatly regretted because important things need to be done in energy policy. There are big issues to be tackled and 2015 is a big year for climate change. I fear that we will waste precious parliamentary time on a Bill that is not complete, is lacking in important detail and is very confusing and conflicting in the messages that it is sending.

As many noble Lords have mentioned, the Bill is in two parts, the first relating to the setting up of the Oil and Gas Authority and the second consisting of a meagre two clauses that seem to be designed to destabilise the wind industry.

Many noble Lords have spoken very eloquently about the first part of the Bill. It is indeed necessary to implement the findings of the Wood review. However, the timing of the review was rather unfortunate, being published in February 2014—mere months before we saw a radical resetting of the global oil price. The noble Lord, Lord Howell, and my noble friend Lady Liddell pointed out to us that things are changing rapidly in the global oil and gas industry, and my fear is that this aspect of the Bill reads slightly as though it is out of touch and out of time with what is happening in the industry today.

I say that because we have seen a dramatic falling off of revenues from oil and gas from the North Sea continental shelf. It is now a very different place. I am sure that we will go through this in detail in Committee but we must ask whether the Government have truly reflected on whether the powers they are giving the OGA will be fit for purpose.

The statistics are quite astounding. Revenues from offshore oil and gas have already tumbled by 40% but they are likely to tumble again from £2.1 billion last year to only £0.7 billion in 2015-16. This is a serious issue. The future scenarios upon which we are relying that might see rising receipts are predicated on an oil price of between $70 and $100 a barrel. We must ask ourselves whether that is likely. It is possible—everything is possible—and even plausible that, with renewed investment in the North Sea and a renewed commitment, we will see production levels creep back up again. However, no matter how much wishful thinking we might apply to this problem, we will not see a return to the activity levels that we had in the heady days of the 1970s, 1980s and 1990s. Production peaked in 2000 and has been falling steeply since the start of this century. My noble friends Lady Liddell and Lord O’Neill hinted that there is a future for the North Sea but it is likely to be very different from the one we see today.

It is likely that some of the skills will be transferable into the offshore renewables industry and equally likely—again, the noble Lord, Lord Oxburgh, spoke eloquently on this, as did my noble friend Lord Whitty—that the North Sea will reinvent itself as a source of storage for CO₂ as we move to decarbonise our fossil fuel industries. This creates a challenge for the OGA because part of its job, in addition to trying to create some transparency and openly negotiate reinvestment in the North Sea, will be considering decommissioning—the rolling out and management of decommissioning. However, the risk is that, because it is largely determined by private sector players, the decommissioning may occur out of sync with our needs for carbon capture and storage.

If we do not get on with the carbon capture and storage element of our energy strategy, we could see a mismatch where infrastructure that would otherwise be re-used for carbon capture and storage is simply decommissioned because the carbon capture and storage project is not yet up and running. Will the Government consider creating a hierarchy in the OGA’s thinking—where the talk is about efficiencies and investment but then thought is given to re-use for CCS, and only then is thought given to decommissioning—so that we do not run the risk of a timing mismatch?

Another subject which I am sure we will talk about in Committee and which was mentioned by my noble friend Lord Grantchester is the core functions of the OGA and whether they are fit for purpose and comprehensive enough, given today’s concerns. I certainly echo my noble friend’s comments that the core functions should include references to environmental considerations and climate change. One aspect of the new regulatory authority will be that it can levy fees and raise finance for necessary expenditure, including on environmental issues. A very interesting proposal has been posited by the academic Myles Allen from Oxford University. He has been asking whether the time has now come to ask the extractive industries, which are currently extracting fossil fuels to be burned for our energy sources, to pay a levy towards the climate change damage that arises from the use of their products. We may wish to explore that in Committee.

The Bill has two functions—looking at oil and gas and the more minor measures on onshore wind—but I am left wondering whether it could have been different. Could we not have had a much more positive Energy Bill from the Government? There is an agenda here that I support. The Government said in their manifesto that they will seek to decarbonise at least cost. That is a very sensible aim. I am a technology neutralist—neutral in terms of which technologies we should be deploying. I do not believe that there should be holy cows within the energy sector, where certain technologies are protected. I honestly believe that market forces should help us to determine which of the technologies should succeed. That should be overlaid with strategic oversight from government to determine which technologies will play to the UK’s strengths and to ask where we can invest in and develop technologies that will give us a lead in the global race towards decarbonisation.

That leads me to think that we are missing a trick on carbon capture and storage. The Bill, had it perhaps not been rushed through at quite the speed that it has been and had a little more consideration been applied to it, could have been an excellent vehicle for kick-starting our focus on carbon capture and storage, not least because of the measures regarding the Oil and Gas Authority but also because we have now recognised that we need to do something to help industry to decarbonise. We talk a lot about electricity decarbonising but there are still large sources of greenhouse gas emissions in this country that will need to be decarbonised or these industries will simply be forced to leave the European Union and move elsewhere, because the caps on those emissions are tightening.

There has been some very good work on the subject of how to decarbonise our industrial sector. A recent report commissioned by DECC or the DTI—I forget which—asked the Teesside Collective to think about policy mechanisms for funding industrial decarbonisation. There are some very interesting ideas there. When will the Government start to take this seriously? When will we see some policy consultation on how we are affordably to provide industry with decarbonisation options that mean that it can reinvest in the UK and get primary production of materials going again, safe in the knowledge that we are insulated against carbon prices in future? That is the sort of Energy Bill that I would have liked the Government to have come forward with, had they given themselves a little more time to reflect and to produce a more strategic set of measures.

On process, there is no impact assessment for the Bill, which I find curious. When will we see an impact assessment? It has been mentioned by noble Lords today that the methodologies that the Government are using are opaque. The Government say with great confidence that they are on track to meet their renewables targets. Can we see those figures written in black and white please? As my noble friend Lord Grantchester mentioned, it is simply not true that we are on track to meet our EU renewables targets. We may be doing reasonably well in electricity, but we are falling drastically behind on heat and transport, and the target represents all energy, not just electricity.

When it comes to assessing how well we have done, if I were the European Union DG responsible for assessing our performance, I would look very gravely on a Government who come out of the traps with this short-sighted set of measures to rein back on renewables at a time when we have no comprehensive plan and no confidence that we will hit our targets. That seems to me to be wilfully trying to miss targets, and I would take a dim view of it. That will cost the UK taxpayer money, let us be clear, because we cannot simply flout the rules having signed up to them. There will be financial consequences to our missing those targets. Let us see the analysis and see how the Government can be so confident that they can tie their hands behind their back by destabilising some of the most successful aspects of our energy industry.

I have moved seamlessly on to the second part of the Bill, which is clearly the most controversial. It contains merely two clauses at the moment, although, as the noble Lord, Lord Purvis, stated very clearly, we need to see the detail. We need to scrutinise it. There has been no consultation and there is no impact assessment. The Government owe it to Parliament to bring forward that detail as soon as they can so that we can scrutinise it. We have only these two clauses and we must try to derive from them the Government’s intentions and plans. It seems to me that the reality is that this is obviously just narrow party politics. When she announced the early closure of the RO, the Secretary of State namechecked several Conservative Back-Bench MPs. This is clearly more about party politics than anything else. What angers me the most is that it puts in jeopardy the UK’s economic growth for the sake of narrow interests raised by a very small number of MPs. The whole of the UK economy is benefiting from our investment in our energy infrastructure. To put that at risk and seriously damage investor confidence in the way that the Government are is wholly irresponsible.

Several noble Lords mentioned investor confidence, including my noble friend Lord Whitty, the noble Baroness, Lady Maddock, and the noble Lord, Lord Cameron. It is a serious problem. The think tank E3G states:

“Every time these announcements come out, the U.K. looks like a less attractive place in which to invest. I think a number of investors will be pricing in much higher risk now”.

That was true when the Bill was published; it is even more true after today’s announcements. It is really regrettable that we should kick off this new Government with something so short-sighted and tawdry—that is the only word that I can come up with. They are simply enabling a very small but vocal group to issue self-congratulatory press releases while putting serious investment and serious jobs at risk and making us appear to be a country that does not know which way it is going when talking about the need to address climate change and to decarbonise.

The noble Viscount, Lord Ridley, made good points and some of them are obviously being listened to. He and I agree on a few things, and one of them is that there should be a focus on a least-cost approach to this. I am not saying that we should continue to provide subsidies when they are no longer necessary; that is not my aim at all. My aim is that we conduct ourselves in a way that gives investors confidence and allows for an orderly transition—a phrase that has been repeated here today. That is the phrase that the Government have used. An orderly transition is what is needed. This is a long distance from that; the Bill does not represent that.

[Viscount Ridley]

I am very grateful to the noble Baroness for allowing me to intervene briefly, since she mentioned me. The central point to all this is that we are on course to overspend—from £7.6 billion up to £9.1 billion—on subsidies for those industries. What would the Opposition’s position, or anyone else’s, be about reining in that expenditure, because the cost is falling most heavily on the people who can least afford to pay it?

[Baroness Worthington]

I thank the noble Viscount for that intervention.

On the levy control framework, there is an interesting policy that the Treasury invented. I honestly think that it was invented simply for us to have this conversation later down the line. That number represents a partial figure for what is being added to bills as a result of government policy. It is incomplete; it does not include everything. It also makes no reference to the counterfactual. We live in a world with infrastructure built in the 1960s that has now served its time, is closing and will need to be replaced. That involves higher capital costs. You cannot replace assets that have already had their capital costs paid and expect energy prices to stay the same: they will not. The counterfactual is that we will have to spend more money on electricity as we build a new infrastructure.

That is not taken into account in the Treasury’s levy control framework, so it is a particularly redundant policy, and I would not use it as my measure of whether we should be cutting an industry off at the knees just as it is showing signs of success, in the false belief that we are on track with our targets. We are not. We desperately need inward investment and jobs in the UK. The Government do not have a great record in stimulating growth in the economy—far from it. They are desperately cutting costs to mask the fact that economic growth is virtually stagnant—or would be if it were not for immigration. Here we see them recklessly upsetting investor confidence in one of our success stories.

It could have been so different. It could have been done in a much better way. We could have made it clear that we are encouraging a wider range of technologies. We could have talked positively about some of them. We could have heard more about the fact that an increasingly wide range of renewables is now being deployed, but we have not. Unfortunately, we have had a very negative spin on what has been a success story for the UK.

I have not done justice to the debate, because it has been so rich and varied, but I thank noble Lords for all their contributions. As noble Lords can see, this is a subject I feel great passion about. I hope that, as we go into Committee, we will find some way to improve the Bill. I am sure that there are some measures in it that are necessary, but it is not the Energy Bill that we would have brought forward. I hope that through the scrutiny process of Committee we can make changes to make it something worthy of our efforts.