Alan Whitehead
Main Page: Alan Whitehead (Labour - Southampton, Test)Energy Spending Priorities: Investors and Consumers
Alan Whitehead Excerpts
Mr MacNeil
As a rural MP, I am aware of that issue. The hon. Member for Eddisbury (Antoinette Sandbach) is also assiduously aware of it, and I commend and congratulate her on raising it in Committee on just about every possible occasion. The hon. Gentleman will be delighted to know that on several occasions the Scottish Government were praised for their actions and—perhaps tongue in cheek; perhaps not—maybe I could recommend that energy policy in that area be devolved to the Scottish Government who, according to the evidence, seem to be doing a better job of it for the whole UK than other Governments.
Dr Alan Whitehead (Southampton, Test) (Lab)
Does the Chair of the Committee have anything to say about the almost collapse of solid wall insulation in homes that was predicted by the new ECO arrangements, as set against the suggestion by the Committee that by the end of the fourth carbon budget we should have in place 2.2 million solid wall insulation completions? Has the Committee considered that issue?
Mr MacNeil
It is always with certain trepidation that I give way to the hon. Gentleman, because what he does not know about energy, nobody else knows either. He sat on our Committee early on and did a fine job, and he also sat on the Committee in the previous Session, where he was highly regarded. There is some concern about solid wall insulation. If I remember right, the figures expected are far below what is needed and have almost collapsed, which, as he said, would be very worrying.
Let me start approaching a conclusion—that is more often a hope during speeches in the Commons than a statement of full intent. I thank my Committee colleagues for their excellent work on these inquiries, as well as the hundreds of companies and individuals who gave their time and expertise to inform our conclusions. It is appreciated. I Chair the Committee on Energy and Climate Change, but I am not an expert. I can, however, take information from experts, distil it, and hopefully get policy points out of that. Along the way, I will hopefully develop some expertise in those areas.
The Government’s response to our investor confidence report demonstrated disregard for the Select Committee inquiry process, and their response to our CCS report leaves important questions unanswered. Their response to the report on home energy efficiency appeared only this morning—eight weeks late. I hope that when the Secretary of State responds to this debate on the Government’s spending priorities, she will afford the House and my Committee a little more courtesy than her Department has sadly shown so far—I say that with regret because I like the Secretary of State personally. We have raised the issue with Ministers in Committee and several times by letter, and we need more information that businesses and homeowners might use and need to plan their energy futures. That would be an important step.
Finally, it is only right that a Committee should reflect that it is not all about MPs or the Chair, and we are fortunate to have talented people working with us. Last, but by no means least, I thank Dr Farrah Bhatti, the Clerk, Gavin O’Leary, the Second Clerk, Stephen Habberley, the specialist, Jamie Mordue, senior committee assistant, Henry Ayi-Hyde, Committee support assistant, and our ever cheerful Nick Davies, the media officer. For the investor confidence inquiry I thank senior specialist Andrew Buglass, founder of Buglass Energy Advisory, and Kirsty Hamilton, a lady with many jobs—of course she has because, like your good self, Madam Deputy Speaker, she has a Scottish background.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to follow the hon. Member for Eddisbury (Antoinette Sandbach). She has made a very thoughtful contribution, most of which I agree with. I hope that this will set the tone for the rest of the evening’s debate, because there is now a wide consensus that the storm of changes that were made last summer to a whole range of renewables incentives has created enormous problems for investor confidence and substantial uncertainty over the Government’s direction on energy policy overall. The three excellent reports from the Energy and Climate Change Committee that we are also discussing this evening underline how the problems have arisen and what they consist of. However, we have also seen the acceptance by the Government of the fifth carbon budget in the past couple of days. It is great that they have accepted it. It would have been nice to have included shipping in it, but I understand that they are not going to proceed with that. Nevertheless, they have accepted the fifth carbon budget, which describes the onward march of renewables as absolutely essential for the reduction of our emissions.
The fourth carbon budget dealt with the essential nature of carbon capture and storage and the forward march of energy efficiency in homes. I made the point in an intervention earlier that the fourth carbon budget assumed that there would be 2.2 million solid wall treatments in homes, but the changes that have taken place over the past year have all pointed in the opposite direction to the imperatives that the Committee on Climate Change put forward in the carbon budgets. There are therefore real question marks in relation not only to investors but to future policy overall. How can we be on target with those budgets—as I hope we will be—at the same time as undertaking all the recent changes?
The cancellation of the carbon capture and storage programme was thoroughly deplorable. The justification for the changes to the renewables incentives was that this was all about the levy control framework. The framework came in in 2011 and it was supposed to place limits on the levies that were arranged in relation to certain renewables. This would also have an effect on what customers’ bills would look like, as the levies would be passed down to customers’ bills in the end. However, the levy control framework was almost inevitably going to be a car crash, both in terms of how it was conceived and of what it was going to look like by 2020.
There now seems to be some clarity about future auctions relating to contracts for difference under the framework up to 2020, but it does not look as though there will be much money in those auctions. It does not look as though they will be significant, and the levy control framework itself will come to a sharp cliff edge at the end of 2020. That is partly because when the framework was first designed, it was largely based on the renewables obligation, which involved a fixed amount of payment from the Government to those receiving renewables obligation certificates, whereas the change to contracts for difference has resulted in varying sums coming forward. As energy prices go down, so the cost of the payments goes up, resulting in less and less money in the levy control framework. This is a fundamentally badly designed arrangement for dealing with future renewables deployment if we are serious about getting that deployment in line with our carbon budgets.
We need clarification on whether there will be a levy control framework from 2020 onwards. I was interested to discover this morning that a consultation about changes in the 2014 contracts for difference orders had turned into a consultation about whether there should be a levy control framework at all after 2020—not about what it should consist of, or how it should work. I believe the Secretary of State indicated in her “reset” speech that some offshore wind would be auctioned after 2020, in which case there must be a levy control framework, but that is all the information that we managed to obtain. The consultation consists of one question and nine pages, and it does not tell us a great deal about the framework itself.
Mr MacNeil
I was interested in what the hon. Gentleman said a few moments ago about the effect of the levy control framework in an environment of low energy prices. Such an environment puts greater demands on the framework, which was probably conceptualised when prices were higher, or even heading in that direction. Another question is posed by the fact that the framework is not being revised to take account of the future capacity market.
Dr Whitehead
The hon. Gentleman—the Chair of the Committee—is right to raise those questions. The effect on the levy control framework of the change in prices—and it should be noted that the prices of gas, electricity and oil are now below the lowest conceivable scenario in the Department’s energy projections—was simply not anticipated by the Department when it designed the framework. Moreover, the framework only takes into account the expenses to consumers of power. As the hon. Gentleman said earlier, it is clear that investment in renewable energy is affected. The change in the merit order and the downward pressure on prices has a real effect on wholesale prices. It is estimated that for every pound that is invested, about 60p comes back. That has not been taken into account in the calculation of the costs of the levy control framework, and I think that it is an argument for another fundamental redesign of the framework after 2020.
The hon. Gentleman mentioned another issue that I consider to be as important as the levy control framework itself: the signals that are given out by the parallel arrangements for the capacity auctions, which have exactly the same effect as the framework on customer bills. The energy companies will pay into a levy, which will eventually land on customers’ doormats in the form of a bill. However, although the Department has said that capacity auctions for the continuation of supply of non-renewables for mineral-based power stations will be within the levy control framework, they have kept the sums involved in those auctions outside the headline total for the limit of the levy control framework up to 2020.
That may not be particularly surprising. It is clear that all the billions of pounds that have been thrown up against the wall in relation to capacity auctions—when it comes to trying to get some new gas-fired capacity power stations on stream, or, failing that, to ensure that gas-fired, coal-fired and, indeed, nuclear power stations can continue to supply energy—bear no relation to the limits that have been set for the levy control framework. Not only do they bear no relation, but the Committee on Climate Change estimates that some £70 of a customer’s bill will fund renewables by 2020. It is currently about £35.
On capacity auctions, a new auction was recently announced for a period preceding those of the two T-4 auctions that have already taken place. The estimated cost to consumers for those capacity auctions will be something like £15 on the bill for the first two auctions and as much as £36 for the most recent auction. If we add the figures together, we find that by about 2020 the cost to the customer of capacity auctions will be about the same as all of the costs rolled up for renewables under the levy control framework, yet one is capped and the other is not. If the Government are prepared to put up £5.5 billion on capacity auctions but not to proceed with the levy control framework, which is actually able to deal with renewables investment over the next few years, that must send a message to renewable and low-carbon investors. That is fundamental and needs to be addressed.
I will bring my remarks to a close, but I hope that the Secretary of State will indicate in her response that the levy control framework will be coming forward after 2020 in a decent form and that it will be reviewed to take into account my points about its operation.