Oil and Gas Industry

Alan Whitehead Excerpts

Tuesday 9th October 2018 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

We have had an excellent debate, with informed contributions all round, and I congratulate the hon. Member for Falkirk (John Mc Nally) on securing it. As hon. Members have said, this is a very important debate because the Budget is so close and because there are wider issues relating to the role that the oil and gas industry will play in a substantially decarbonised future. There are a number of assumptions about how oil and gas will be used in the future. As hon. Members have said, the debate is taking place literally the day after the IPCC published its report on global warming and its effects, and discussion about that report is just beginning. That must be the context for our discussions about the future of oil and gas.

As hon. Members, including the hon. Member for Kilmarnock and Loudoun (Alan Brown), have said, although the oil and gas industry in the North sea has recovered substantially from the miserable predictions and prognostications of 2014-15—it is estimated that production will be up 5% over the coming year, exploration is picking up, and various other indicators show that the industry is in a better shape than it has been in for quite a while—we must nevertheless be extremely wary of assuming that happy days are here again, and that the industry can be the cash cow for the Budget that it has been perceived to be in years gone by. The industry’s long-term future is of a different order from anything that has happened in the past, so we should strike those thoughts from our minds. Although it will make a good return for the Exchequer in years to come, it should not be seen as a cash cow in the future.

I say that because we face a period in which the lessons of the downturn, up to the recent upturn, must be put in place to ensure the long-term future, prosperity and health of the industry as a whole. There has been a recent efficiency trend: development drilling has fallen substantially, but the costs of drilling have reduced substantially, and the average unit operating costs have halved from about $30 a barrel in 2014 to $15 a barrel now. Those tremendous efficiency gains will stand the sector in good stead for the challenges that lie ahead. We can use them to exploit small pools, which will be one of the staples of exploitation and development in the future.

It is unlikely that any new Brent fields will be discovered. In that context, we need to understand, as hon. Members said, that the North sea is not just a mature field but a very mature field: 43 billion barrels have been extracted, and there are perhaps about 10 billion to 20 billion barrels left to extract. Its future therefore needs to be in the best possible hands.

I commend the creation and operation of the Oil & Gas Authority and—hon. Members have mentioned it—“Vision 2035”, which the OGA is putting forward for the future of the industry. In that vision, it does not just talk about continuing business as usual, but looks at the much longer-term future, even beyond the point at which the very last reserves have been produced. One of the OGA’s missions is to create a sustainable energy service and technology centre long after the final economic reserves have been produced. We need to look not just at business as usual, but at a range of other things that the industry can start to develop, and is developing, as the North sea field becomes even more mature. Of course, one of the things it can do is develop decommissioning skills on a worldwide basis, so that we can ensure not just that the decommissioning in the North sea is done in the best possible way, but that those skills can be exported across the world.

We also need to contemplate a future of carbon capture and storage in the North sea and the use of decommissioning as a possible way forward to a position in which the North sea is not only producing oil and gas, but storing the carbon that comes from those processes and creating an industry so to do.

We need to be mindful of the fact that, as I mentioned at the beginning of my contribution, the IPCC report on global warming and the future of the world has just come out. It is pertinent to our discussions today, because it underpins what kind of long-term future there is for oil and gas. I consider that the long-term future involves looking at how oil and gas can be used in a range of ways that are not entirely familiar to us today but will be essential for the sinews of British industry. Oil and gas will have a substantial role to play, for a very long time, in those areas of activity. I am thinking of chemical products for which oil is irreplaceable and of alternative vectors such as hydrogen, if the CCS implications of the formation of hydrogen can be managed. All those things imply that there is a substantial future for oil and gas from the North sea.

We know—I am not talking off the top of my head here, I am referring to BEIS’s updated energy and emissions projections—that the demand for oil and gas in the UK economy is likely to go down substantially. Indeed, we can see that from looking at the 1990 figures, when there was a primary demand for oil of 87 megatonnes of oil equivalent and for natural gas of 97 megatonnes of oil equivalent. In the year when “Vision 2035” comes to fruition, the demand is projected to be something like 70 megatonnes of oil equivalent for oil and only 28 megatonnes of oil equivalent for gas.

There will be a substantial decline in demand, but that means, it seems to me, that the North sea can provide a secure UK supply for the declining demand over that period. It is surely best, for energy security purposes and many other reasons, to ensure that our supplies for the future come from the UK. That is the future that I want to see for the North sea oil and gas industry, by means of efficiency and by means of the innovative techniques mentioned this morning—the ways of managing a mature field so that it works in the best way possible in the national interest and in the interests of having very different future for oil and gas from what we have seen hitherto. We must ensure that it works for the UK and that it has a secure future. I hope that the Government will be able to join in that vision and provide support where necessary to underpin that innovation and those new methods of doing things, so that the oil and gas industry can be in the best shape possible to face that very different future.

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

It is a great pleasure to serve under your chairmanship, Mr Hollobone. Indeed, I congratulate you on the discipline that you have brought to these proceedings, although curtailing the shadow Minister, the hon. Member for Southampton, Test (Dr Whitehead), to 10 minutes is a clear infringement of his human rights and of the normal way he behaves. In fact, some would say that it is a crime against humanity that his erudition, which is never known to be brief, was curtailed. I look forward to hearing him, as I did today, on many other occasions.

I genuinely congratulate the hon. Member for Falkirk (John Mc Nally) on not just securing the debate, but the thoughtful way in which he made his contribution. That sums up today’s debate. There is general consensus, and I hope hon. Members do not think I am saying this out of complacency, but the fact is that, as the hon. Member for Aberdeen North (Kirsty Blackman) said, most things to do with oil and gas are done on the basis of consensus. I wish there was the same attitude towards other debates in which I have the pleasure of speaking.

When I became Energy Minister, one of my first visits, in August of last year, was to Aberdeen—several hon. Members were with me that day—where I met industry leaders and visited Robert Gordon University to see the dynamic advanced response training simulator. That is relevant today because of the comments from the hon. Member for Falkirk about Piper Alpha. I saw a lot of the virtual reality equipment there, and I felt that I was actually on a rig. Everything was about health and safety and preventing the kind of incidents that happened at Piper Alpha. It is a tribute to the area that academia, industry and Government work together. I was most impressed by what I saw.

I understand the hon. Gentleman’s constituency interest because of the Grangemouth industrial site, which I visited as an A-level economics student in 1975—many hon. Members here were not born then, and some of their parents were probably only just born. However, I do remember the industrial site; I remember the scale of it. I think of it when I hear figures such as 8% of Scotland’s manufacturing base and 4% of GDP; I will never forget that visit, so I do understand the issue, and so do the Government.

In a very thoughtful speech, the shadow Minister expressed how important oil and gas are for the UK economy. I am not paid to promote the shadow Minister; I just cannot help but compliment him at various times. He talked about the mutual vision for the future. In fact, I kept looking up at him and seeing him reading from a document with blue print, which I thought was a Conservative party document, as the colour appeared to be the same, but which I then realised was, of course, “Vision 2035”, the authors of which at least had a good idea of which colour it should be in. But it does show no complacency; the serious point is that it does show a vision for the future, from what many people, out of ignorance, believe is a clapped-out former industry—they think that because they remember the boom days. One has only to visit it to realise that that is far from the case.

The upstream industry alone supports more than 250,000 jobs. Then there is the supply chain, supported by the sector, in key clusters all over the country. The hon. Member for Strangford (Jim Shannon), who has been at every single Westminster Hall debate I have ever spoken in, contributed extremely well. He mentioned the importance for Northern Ireland of the supply chain. I am very pleased to say that it is a United Kingdom supply chain and is not restricted to the specific area that many hon. Members have spoken about today.

The hon. Member for Aberdeen North mentioned Brexit, which came up in a few of the contributions. I do not take it lightly, I assure you, Mr Hollobone—none of us does. Many of the good things that have happened in the past couple of years have happened in a time when things have been written off because of Brexit, but I want to say to the hon. Lady and others that the Government fully understand the need for frictionless trade, on which the oil and gas industry has long depended, whether in the movement of goods, services or people. I assure her and other interested Members that my Department has made that matter very clear to other parts of Government—it is our job to do that, and we have. We are fully aware that the sector has paid more than £330 billion in revenue to the Treasury, which is phenomenal. I know of no other single sector that has been as beneficial to the Government over the past half-century.

The end-use facility mentioned by my hon. Friend the Member for Waveney (Peter Aldous) and by the hon. Member for Falkirk relates to customs procedures. I assure Members that Her Majesty’s Revenue and Customs continues to discuss with the sector the possibility of future mitigations being available, and which ones. The issue is complex, and I cannot claim to understand the full detail.

Since 2014, it is fair to say that the industry has had a torrid time as a result of the collapse in the price of oil. From that point of view, I am pleased that the price has gone up, but what I realised on my visit to Aberdeen was that, despite the decimation of the industry and its contraction—a statement of fact about the number of employees and so on, as was explained to me—good things resulted as well, such as some new technologies.

I remain optimistic for the future. I feel that the tripartite approach between the OGA, industry and Government, which hon. Members mentioned, is particularly important. I am pleased that, since its establishment, an extra 3.7 billion barrels have been forecast, and production has risen by 16% since 2014 figures, with a reduction in the production costs. The issue was forced by what happened to the price, but those cost reductions will remain and be improved on.

Optimism is returning to the North sea. My hon. Friend the Member for Gordon (Colin Clark) mentioned the amount of mergers and acquisition activity over the past couple of years—about $8 billion-worth last year—with some significant investment involving new players to the basin. Divestment by some of the supermajors does not mean that they are losing interest; it is part of the natural order of a mature basin, with newer, smaller companies coming in. Shell is investing in new frontier areas, and BP’s development is moving well. There is huge potential.

To determine the industry’s potential, we obviously need responsibly regulated exploration, and the Government support that. There are a lot of challenges, and we understand that. The Government all realise that exploring and drilling for the upper reaches of the remaining resources is more difficult than doing so for the original resources—that is a statement of fact—and the measures that we have put in place since 2014 will contribute significantly towards that.

The focus of the debate is on the future. My hon. Friend the Member for Ayr, Carrick and Cumnock (Bill Grant) asked me to comment on the IPCC report, and our clean growth strategy is clear. We are focused on meeting our Paris agreement climate change targets, and we have asked the Committee on Climate Change for advice on our targets in the light of the new evidence.

Whatever happens, oil and gas will be part of the energy mix for decades to come. We know that we have to reduce demand to meet our climate targets, but this industry has a lot going for it. Gas can play an important role, and so can oil. My Department’s main interest will be to continue the security of the energy supply, which means that we have not seen the end of hydrocarbons.

I am running out of time, and I will do my best to talk briefly about the sector deals mentioned by several hon. Members. One of my responsibilities is the implementation of sector deals. We have had a lot of discussion with the industry, and I am confident that these will proceed. As my hon. Friend the Member for Banff and Buchan (David Duguid) pointed out, this is an ambitious sector deal to support the industry’s “Vision 2035”. We have not yet reached the final stage of the process, we will do so quite soon. It is a question of assessing the value for money of the amount of contribution expected in the deal from Government, which takes more time than people think.

This is a complex industry with a great future. My hon. Friend the Member for Banff and Buchan said that it is an industry with a lot going on, and we know that the Government, the industry and the Members who have spoken today will be an important part of its future.

[Dr Whitehead]

On a point of order, Mr Hollobone. I may have misled the Chamber inadvertently by quoting a statistic erroneously. On the estimates for natural gas usage in 2035, the figure should be 59 megatonnes of oil equivalent and not 29, as I believe I said in my speech.

[Mr Philip Hollobone (in the Chair)]

Thank you for correcting the record.

Wylfa Nuclear Power Project: Taxpayer Liability for Safety

Alan Whitehead Excerpts

Tuesday 24th July 2018 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I thought I would break with convention and attempt, this afternoon, to address my remarks to the debate whose title we have before us. The debate is about taxpayer liability for safety at the Wylfa nuclear power project. The matter has been dealt with in passing by the hon. Member for Inverclyde (Ronnie Cowan) and my hon. Friend the Member for Glasgow North East (Mr Sweeney), as it featured in the wider canvas of what they said about nuclear power in general and about what is, I am afraid, an attitude of dislike for nuclear in any way, shape or form. Analytically, the proposed Wylfa plant comes into that overall definition and, therefore, it needed to be treated in that particular way.

That is in contrast, of course, to my hon. Friend the Member for Ynys Môn (Albert Owen). I have known him, and we have fought many energy battles side by side, for many years. I can attest to his strong support for and deep understanding of the role that renewable energy plays in our energy mix, alongside his support for nuclear power and, indeed, the potential nuclear power station in his constituency. He spoke eloquently on both those issues.

In responding to the debate, I want to concentrate on what one might say is a narrower issue, but which gets to the heart of what we are talking about in terms of new nuclear over the next period. I want to distinguish between support for new nuclear in principle, and sober, detailed analysis of what deals and arrangements might result from resetting the button, so to speak, or pushing the button for new nuclear deals. What is under that button when we push it?

The problem with the proposed new Wylfa plant is not that a terrible deal will necessarily lie ahead; it is that we just do not know at the moment what that deal might consist of. There are, however, indications from the Japanese press, which I of course must read in translation, although I am sure the translations are reasonably accurate. They tell us quite a few things about what a new deal for Wylfa might mean, including that it is possible that the UK Government have already signed a memorandum of understanding with Hitachi, and possibly the Japanese Government, on how a deal might proceed. They also talk about possible investment by the UK Government in a new Wylfa deal, and—this also appeared recently in the UK press—about what Hitachi says it may or may not do in relation to liability for safety incidents and nuclear accidents at the proposed plant: whether it will seek, as part of the deal to go ahead with the plant, to water down, or remove itself from, some of the liabilities it would otherwise expect to be subject to for nuclear accidents and nuclear safety matters.

I emphasise that those issues are suppositions in reports that are coming out. On 4 June, when the Secretary of State made a statement about the in-principle negotiations that were being entered into, and my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) asked whether

“Hitachi is seeking to ‘reduce or eliminate’ its financial responsibility for accidents”—[Official Report, 4 June 2018; Vol. 642, c. 78.]

he had nothing to say in response. Nor, indeed, had he anything to say about whether any deals had been entered into already, in principle or otherwise, and what the deals might look like. At the moment, we appear to have taken a step forward in agreeing to look at further activity in developing Wylfa, but what that would entail is shrouded in mystery. To my mind, that is not a good way to proceed with such arrangements. We need transparency from the word go, clear understandings of what is proposed, and the ability to analyse and look into the proposals as they proceed, not least for two reasons, which I shall put forward in a moment.

We are in a strange position, talking about an issue that we should, but do not, know quite a lot about—although the Government could tell us, but apparently will not at the moment. That may sometimes be for reasons of confidentiality, or because some of the reports are not accurate, or because the Government simply have not decided yet which way they will go. As to liability for safety in relation to the Wylfa nuclear project—the subject of the debate—it is certainly worrying that, if the reports are true, Hitachi may be seeking to downplay its possible liabilities as a way to continue with the negotiations, and might be looking to the UK Government to loosen the conditions on liability for nuclear accidents and nuclear safety as part of the process.

The reason that is particularly worrying is that, as the hon. Member for Kilmarnock and Loudoun (Alan Brown) mentioned in his opening comments, liability for nuclear accidents and nuclear safety is not something set out on a piece of paper in a box somewhere that can easily be negotiated away. It is actually defined by the Paris convention of 1960 and the Brussels convention of 1963. Those are updated by protocols through the EU, but the conventions are international, as such, and they provide some pretty clear lines about who is responsible for what, as far as safety and nuclear accidents are concerned. They place a strict liability on the operator—that is liability without having to prove fault, with exclusive liability of the operator. They limit the operator’s liability with respect to amount, time and the type of damage that is subject to compensation, and they place an obligation on the operator to cover that operator’s liability by insurance or other financial security.

Those principles have been drawn into UK law, most recently through some wonderful statutory instruments with which the Minister and I have become very familiar. A series of statutory instruments has been passed between 2016 and 2018, and a key one was passed in 2016. Essentially, that legislation was on bringing those protocols into UK law, together with the increased liability that doing that entailed.

I will not go into detail, but the 2016 secondary legislation essentially means that a substantial liability should be insurable, subject to liabilities over a certain level essentially being socialised through Government intervention if they exceed that total. There is a culmination principle of substantial liability and expected liability—underpinned not just by UK legislation, but by international convention—that applies to any nuclear power plant operating in this country.

That is perhaps the nub of this potential problem. If the UK Government were to discuss with Hitachi what could be done in loosening its liabilities for nuclear safety and nuclear accidents at the Wylfa plant, they could not do that by providing a little wayleave for Wylfa power station, and expect all other power station operators to continue according to the Paris and Brussels protocols. They would have to breach those protocols, and replace UK legislation in so doing, and would then need to make all liabilities for all nuclear power stations of a lower order. That seems to me very significant, given what the reports coming out of Japan say about what Hitachi will and will not do as far as nuclear accidents and nuclear safety are concerned.

I would be interested to hear whether the Minister thinks that the analysis I have presented is essentially where we should go regarding nuclear safety and nuclear accidents. If she does think that, and if she agrees that such action would reduce liability for nuclear power stations across the board, the suggestion that there should be any negotiation with Hitachi on liability for safety and nuclear accidents separate from everybody else should set serious alarm bells ringing.

Has Hitachi made any suggestions that it will not pay by way of insurance for nuclear accidents and safety at the Wylfa plant? What has the UK Government’s reaction been to that? How do the Government see those suggestions —if indeed they are real suggestions—folding into wider discussions about the plant in general?

I should not turn down the opportunity to mention some wider issues regarding the negotiations. As the hon. Member for Kilmarnock and Loudoun also said in his opening remarks, we need to be careful of simply assuming that if a deal for the Wylfa power plant comes forward and produces—apparently—a lower strike price than Hinkley, everyone will be out of the woods and that will be the end of the matter. That depends entirely on what other deals are brokered as to other aspects of investment and underpinning the project’s capital, and on any agreements about the nature of those capital assets that may be entered into as the project moves forward.

We heard in the Secretary of State’s statement that the Government are considering putting assets on a regulated asset base arrangement, possibly in the context of Wylfa or of other nuclear plants. We do not know exactly what the British Government have signed us up to or will sign us up to regarding investment in the new Wylfa plant, but let me explain my understanding of regulated assets as they relate to nuclear power stations—this is a possible model that could be carried out for successors to Hinkley C. Placing assets on a regulated asset basis would effectively mean that the taxpayer—the customer—would have the risk transferred to them before the plant was built. They would be paying an amount of money, which would be taken out of bills, to underwrite that risk as the plant developed.

Under the current arrangement, a strike price would be agreed after the plant had started production and the customer would then pay. We have argued, as have many others, that the amount the customer will pay in relation to Hinkley C will be about twice the prevailing price for electricity over the period, because of those strike price arrangements. If the strike price is reduced, but the customer then has another liability while the plant is being built, not only does that add up roughly to the original position, but the customer will be paying up front before any power has been produced. If there are cost overruns or delays in production, the customer will continue to pay for that while the plant is finalised.

The Government’s stated position is that they will not undertake any more levy liabilities before 2025—the new doctrine produced in the Treasury recently. Customers may well pay that money before 2025, if this power station goes ahead in the way suggested, and therefore incur levies in breach of the Government’s stated position.

There is a lot to think about regarding what might be the terms of these negotiations, and as I have said consistently in this debate and elsewhere, we are still substantially in the dark as to what those negotiations might be. We need not to be in the dark so that we can discuss those implications and between us ensure that, should there be a deal for Wylfa, it is not just a good deal that gets Wylfa online, but a good deal that gets Anglesey online, with its power plant and all the things that go with that. That point was mentioned by my hon. Friend the Member for Ynys Môn. It must also be a good deal that Members of the House can frank on the grounds that it is good for customers, good for safety and good for the future of the nuclear power industry. At present, we are a very long way from that, and we need a lot more light shone on this arrangement before we can be sure that we will get the deal that we need.

--- Later in debate ---

[Claire Perry]

The hon. Gentleman is right, but we should start from where we are on energy policy. There is a role for further decarbonising gas to keep it in the mix, which is why I am keen to investigate, using excellent environmental standards, the potential contribution of onshore shale gas. [Interruption.] He is chuntering; he may not agree.

We have an independent regulator, the Office for Nuclear Regulation, which has scrutinised the proposed reactor design for Wylfa. The design has received design acceptance, which means that all regulators are satisfied that the reactor meets the regulatory expectations on safety, security and environmental protection at this stage of the process.

The hon. Member for Southampton, Test invited me to talk about the media reports—he is doing better than I am if he is reading the Japanese newspapers. I reassure him that any operator in the UK is required to obtain insurance to fulfil their financial responsibilities in the event of an accident, and as he referenced, international treaties, such as the Paris and Brussels conventions, provide the framework for the management of nuclear liability in the UK.

This deal will be no different. I emphasise that we are still going into negotiations and having conversations—we have not done the deal yet—but we are absolutely clear about the commitment to insurance for any form of accident. Not putting decommissioning liabilities on the taxpayer, as the hon. Member for Ynys Môn pointed out, is also part of those calculations. I agree with him that we did not think hard enough about that in the past; successive Governments had not worked out how to include those liabilities. We have learned, however, and we are moving forward with that.

Before the reactor can be built and operated, it will need a nuclear site licence. Wylfa will also always be subject to environmental permitting through Natural Resources Wales. A development consent order process that will run under the Planning Act 2008 will scrutinise the construction and operation proposals for the project.

The Energy Act 2008, passed by the Labour Government, introduced the funded decommissioning programme that moved the dial on who pays for decommissioning liabilities. It is now the case that all operators of new nuclear power stations are legally required to have secure financing arrangements in place to meet their full share of the costs of decommissioning and of waste management and disposal. We are absolutely committed to managing radioactive waste safely, responsibly and cost-effectively for the long term, but also to looking at other opportunities to reprocess some of that waste, as the hon. Member for Glasgow North East said. We will not repeat past mistakes where the taxpayer had to foot the bill for decommissioning.

There were some questions about liability in the event of an accident. I am happy to say that the last significant incident was the Windscale fire in 1957, and we are light years away from that plant in terms of nuclear operating technology and the safety regime that we operate. The Nuclear Installations Act 1965 makes the insurance that I mentioned a requirement, without which operators cannot operate. As the hon. Member for Southampton, Test mentioned, we also have legislation based on the Paris and Brussels conventions. If the total cost of claims ever exceeded €1.2 billion, a further €300 million would be provided by all contracting parties to the Brussels supplementary convention. Any further claims above that total would be met at Parliament’s discretion.

The only liability-based agreement with Hinkley Point relates to insurance failure, and the Government will provide an insurance product in the event that one cannot be obtained on the market. I am not in a position to comment on what might be the case with Wylfa, but I emphasise that the operator of the plant at Wylfa will have the same obligations as all other nuclear power stations and installations in the UK, and will be required to fulfil those obligations in the event of an incident.

Hon. Members have asked about what happens with the Brexit negotiations. Nuclear safety is and always will be our top priority. We will continue to apply the international standards on nuclear safety specified by the International Atomic Energy Agency irrespective of our future relationship with Euratom. I emphasise that we want a close association with Euratom: a new relationship that is broader and more comprehensive than any existing agreement between Euratom and a third country. The Nuclear Safeguards Act 2018 provides the reassurance of a backstop in the very unlikely event of any changes.

Alongside that, the UK is negotiating nuclear co-operation agreements to add to those already in place. On 4 May, we signed a bilateral NCA with the United States, and we have further arrangements with Japan, Canada and Australia that are also on track. Those relationships facilitate the sharing of best practice in terms of nuclear operations and liability management. As I said, we are considered to be a proud leader internationally in the field of nuclear safety and regulation.

Further investment will bring huge benefits through innovation. My right hon. Friend the Secretary of State travelled to Wales to launch the nuclear sector deal on 28 June, which was a fitting setting to underline how the nuclear industry provides economic opportunities across the UK, particularly in more remote areas, as we have heard from many hon. Members. The nuclear sector deal is worth more than £200 million. It focuses on innovation and skills, which we can then use to export, and by striking it we aim to ensure substantial cost reductions across the nuclear sector, to ensure that the sector can remain competitive with other low-carbon technologies, because I constantly have to balance all investments with the potential pressure on consumers’ bills.

[Dr Whitehead]

It would be really helpful if the Minister were able to indicate, either today or very shortly, when she will be able to place on the record the shape of the negotiations on Wylfa—the main components of the negotiations, what has already been agreed in principle and what remains to be discussed. I do not know whether she can do that in the near future, but it would be helpful if she could indicate at an early stage when it might be possible.

[Claire Perry]

I appreciate the hon. Gentleman’s desire for transparency, but obviously I cannot do that, because doing so would prejudice negotiations that are ongoing. He will know, based on his long experience, that there is an interplay of costs, of contracts for difference numbers, and of potential asks from the UK Government and from shareholders, and these negotiations are long and complicated.

Part of the challenge, if you like, with large-scale nuclear is that a very large, up-front cost is associated with it; it is a very capital-intensive investment, although one that we want to make for the reasons I have mentioned. However, the conversation that we had earlier was about small modular reactors, which require less up-front investment, have more flexibility and allow us to invest in multiple sites, which are reasons why such reactors are so attractive; they allow us to spread those up-front costs much more widely.

In conclusion, this debate has been a very good opportunity to emphasise again the value of nuclear in our energy mix; to reassure people in this House and elsewhere that the UK Government will not make energy policy based on ideology but will soberly assess the cost, the innovation, the carbon and the security as we go forward; to celebrate the fact that we have one of the most robust nuclear safety regimes in the world, including world-leading independent regulation; to note the fact that people are hungry to see the details of the Wylfa deal and I will make sure that my right hon. Friend the Secretary of State, who is of course conducting those negotiations on our behalf, is aware of that; and, essentially, to reassure the House and others that—as is the case with all other nuclear generation in the UK—Wylfa will be a safe source of energy and one that minimises any form of liability being borne by the taxpayer.

Domestic Gas and Electricity (Tariff Cap) Bill

Alan Whitehead Excerpts

Wednesday 18th July 2018 Commons Chamber

[Claire Perry]

My hon. Friend uses his great experience in this area to point to this being two halves of an equation in making sure, first, that energy is going into a property at the lowest possible price, and secondly, that consumption is as low as can be.

With ECO now at over £600 million, we are targeting that entirely at fuel poverty. The consultation has closed and we have the responses to come out. There is the whole challenge of getting energy efficiency levels up so that, overall, households are more energy-efficient. I am looking at the hon. Member for Neath (Christina Rees) on the Opposition Front Bench. I very much enjoyed a visit to her constituency to see an energy-positive home. That is an incredible innovation funded by her local excellent councillors, looking at how to design homes that return energy to the grid and are cool and lovely to live in. That is the kind of technology and innovation that we want to see.

I hope that we can all agree on this amendment, send it up to be agreed in the other place, and get on and pass the Bill before this place rises, because the regulator has told us that it will need up to five months to calculate the mechanism. It is absolutely vital, as my hon. Friend the Member for Wells (James Heappey) said, that that mechanism is absolutely watertight so that energy companies do not seek to frustrate further the introduction of this measure. We want it in place by the end of this year so that people can start saving on their energy bills this winter.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Labour Members are delighted that the Bill to institute an absolute price cap on energy costs is about to pass into law, mechanisms notwithstanding, this afternoon. We are delighted because of the parentage of the Bill, which emanates from the Labour Benches. If hon. Members are worried about the authenticity of the parentage, I can produce a birth certificate: the motion that was debated in this Chamber on a Wednesday afternoon, at exactly this time, on 6 November 2013. It said:

“That this House calls on the Government to freeze electricity and gas prices for 20 months whilst legislation is introduced to ring-fence the generation businesses of the vertically integrated energy companies from their supply businesses, to require all electricity generators and suppliers to trade their power via an open exchange, to establish a tough new regulator with the power to force energy suppliers to pass on price cuts when wholesale costs fall, and to put all over-75-year-olds on the cheapest tariff.”

That motion was in the name of my right hon. Friend the Member for Don Valley (Caroline Flint). When it was debated that afternoon, it did not, I have to say, receive a terribly positive response from the Government of the day.

[James Heappey]

How times have changed.

[Dr Whitehead]

Indeed.

Five and a half years later, we are almost there. I hope that the procedures on the market issues that we have discussed during the Bill’s progress ensure that while there is a price cap those issues are addressed so that we can, as the mechanism in the Bill suggests, come out of the price cap with market conditions resolved in a much better way for customers. Indeed, just as was suggested in that motion, the Bill provides for a procedure to declare the market in place, at which time the cap is ended. That could be about 20 months or perhaps three years, but nevertheless there is a mechanism for that.

What happens at the end of cap conditions is important, and that is what the amendments that have come from the other place at the end of the Bill process deal with, rather than the principle of the absolute cap—the central principle of the Bill—which, I am delighted to say, was received in the other place as warmly as in this House. On termination of the cap, the Lords amendment would put in place a relative tariff differential that would limit the price range between the highest and lowest tariff a company can charge—the so-called “tease and squeeze” problem that the Minister mentioned. That would be not within the absolute cap but part of the return to market conditions that would nevertheless shape how the market subsequently works for the benefit of customers.

I am delighted that the Government have responded positively in the shape of their amendment in lieu, which I am pleased to say the Opposition not only were given sight of but had the opportunity to work on in detail, to ensure that between us we had a resolution to the outstanding issue from the other place. We can endorse the amendment and recommend that their lordships consider it a worthy response to the message we received.

The amendment is slightly different, using an Ofgem mechanism to bring about a solution to tariff ratios, but from the amendment’s drafting I am confident that Ofgem would receive the message in no uncertain terms of how it should use its powers, should the report it is required to write before termination of the cap comes about demonstrate a continuing problem in tariff differentials.

The Bill has always had more than a tinge of Labour parentage to it and now its offspring has further elements of Labour input, which I, for one, very much welcome. It is now a Bill that all sides can agree does the right thing on energy prices and how the market works. That signal of unity from all sections of the House sends an important message to all those affected by the legislation—that this is a serious piece of work, which will work, and that we are all determined to make it happen. If the Bill can pass back to the other place for its final procedures on that basis, that will strengthen considerably the efforts that we are embarking on to ensure that prices are maintained in the interests of customers over the next period through the freeze mechanism.

I thank the Minister very much for the constructive and open way in which she has conducted discussions on the Bill hitherto, and I at least note in distinguished messages the input of the hon. Member for Weston-super-Mare (John Penrose), and of course my right hon. Friend the Member for Don Valley, who I mentioned at the beginning of my comments, whose role in the Bill’s parentage should be not underestimated at all; indeed, it should be written up in dispatches.

[John Penrose (Weston-super-Mare) (Con)]

We are nearly there. With fingers firmly crossed, it looks as though this is the last, or last but one, trot around the track for the Bill before it goes off for Royal Assent. I echo the thanks that have come from all sides for the combined and cross-party efforts to get us here. The fact that everyone is rushing to claim a degree of authorship shows the truth of the old saying that success has many parents, whereas failure is an orphan. Thankfully, this is not a failure.

I was extremely concerned by the Lords amendment as it came to us before the amendment in lieu was tabled. That was not because I disagreed with the principle of a relative cap—in fact, I spoke strongly in favour of relative caps at earlier stages—but because, in trying to install a relative cap, their lordships had made it an open-ended intervention in this market. For people like me—perhaps more on the Conservative side of the House—who are avowed free marketeers, a temporary intervention is very important. An open-ended commitment would create a great deal of unease among many of us, on the grounds that the opportunity for regulatory meddling would be extremely strong, and that the temptation would prove too hard to resist over time.

I am therefore delighted to see the proposed amendment in lieu. Not only does it not add any fresh powers—it asks Ofgem to use its existing powers, giving it a firm and direct mandate from this House that those powers should be used—but it refocuses the Bill. I for one—I do not think I am alone in this—had become a little bit concerned that the Bill had gone a little off track or off topic in its passage through Parliament.

The Bill was proposed in the first place in response to an underlying mischief or immorality—that of “tease and squeeze” behaviour. People could start off on a razor-keen introductory tariff and then, without taking any firm decisions, they might find that when the tariff came to an end after one or two years, they had in a surreptitious way become liable for a sky-high default tariff. That would happen without their saying yes to anything, because of the tease and squeeze tactics, particularly of the big six. The central behaviour, which is deeply embedded in this market, of taking advantage of people’s loyalty and inertia—their stickiness, as my right hon. Friend the Minister said—was griping everybody and making them feel that customers were being taken advantage of. That was why the Bill was first conceived, and why it rightly garnered so much support throughout the House.

The amendment in lieu brings us back to that central point. It reminds us why we are here and, most importantly, it means that Ofgem will no longer have an excuse to look the other way. We all want this temporary price cap, when it comes to an end, not to be needed any more because the market—the big six in particular, but also the market as a whole—will have learned the error of its ways and will stop behaving in the way that has griped everybody, so that there is no need for further interventions. However, I do not think I am alone in being a little bit cynical and saying that that might not happen, even with all the other interventions and reforms that Ofgem is rightly introducing to try to sharpen competition, improve consumer choice, and both improve the behaviour of suppliers and help us as customers to use our freedoms more actively.

It is just possible that, even after all the changes introduced by Ofgem during the period of the cap, the market is not yet properly reformed. We are all here because Ofgem has in the past refused to use the powers it has. I have had conversations with senior people in Ofgem, as I am sure have many others in the Chamber, asking, “Why don’t you get on with it? Why don’t you use these powers? You’re being weak-willed, and you are pathetically—like wet lettuces—not doing what you are there for. What’s the point of having an economic regulator if you aren’t going to stick up for people who are vulnerable and people who are being taken advantage of?” We all got fed up with arguing that it should do so, and it would not do so, and that was why the Bill came into being. The amendment in lieu should solve that because, for future reference, it should ensure that Ofgem has a backbone statutorily inserted into it.

We all hope that those powers are not needed, and that the reforms designed to sharpen competition mean that they will never be needed, but the amendment in lieu means that they can be used in the future. With any luck, as with a good nuclear deterrent, no one will ever have to press the button, but my goodness me, they will know that they are there. That is the crucial point. With that, I welcome the amendment in lieu. I hope that the message goes out loud and clear to Ofgem that we will not put up with its being weak-willed in the future. It is up to Ofgem to ensure that this market functions properly, not just during the temporary period of the cap, but on an ongoing basis in the future. With any luck, after that none of us will ever have to worry about the energy market’s mispricing again.

Oral Answers to Questions

Alan Whitehead Excerpts

Tuesday 17th July 2018 Commons Chamber

[Claire Perry]

I can only refer to the comments of my right hon. Friend the Secretary of State. We want to provide a balanced, secure energy supply that keeps bills down for consumers. That is why we will be investing in nuclear. We have invested in many forms of renewable energy. In fact, we are now leading many parts of the world in that investment, and we will continue to do so.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Solar PV installations this year will be running at just 2% of their peak rate in 2011. This is certainly due to the downgrading and forthcoming closure of the FIT scheme in March 2019. As the Minister has mentioned, a consultation on FITs has now been promised for a year. It was supposed to have been published by this recess; now it is not. Why is the Minister fiddling about the future of FITs while the solar house burns down?

[Claire Perry]

Such alliteration, despite such late nights. The hon. Gentleman will know that we have been really successful in pulling forward a huge amount of solar. In fact, solar has contributed enormously to the energy mix over the past few days, as the hon. Gentleman will know. Much of it is not recorded because it sits behind the meter. However, I acknowledge his point. We intend to bring forward a scheme that works, that does not put up bills for consumers and that acknowledges that much of our renewable future will be subsidy-free.

draft Oil and Gas Authority (Offshore Petroleum) (disclosure of protected material after specified period) regulations 2018

Alan Whitehead Excerpts

Tuesday 17th July 2018 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

When I received the statutory instrument I had the momentary thought that it was an SI upon which I would have nothing at all to say. But I stayed in that fugue for only a brief period and then decided that, after all, there were things to say.

As the Minister mentioned, the regulations derive from the 2016 Act, the lengthy passage of which I sat through, so it is good to see here the principle that was put into that Act regarding information relating to all aspects of oil and gas exploration, production and decommissioning, which is that the OGA should make publicly available, at the earliest possible date, material it receives and, indeed, material required to be provided to it under the Act. That principle is absolutely right and, as the Minister said, it is potentially important in ensuring that information about future exploration surveys and so on, with proper safeguards, is essentially in the public domain, so that we can learn from each other as far as the future activities in the North sea are concerned. The Opposition thought that was the right thing to do at the time, and the more detailed provisions in the statutory instrument are certainly a good development of the principle.

However, I have two slight concerns about the SI’s structure. The Minister mentioned that the guidance on the period before publication of anything provided to the OGA will be determined by various considerations relating to privileged information about a company’s economic activities. I imagine that the extent to which that information is published could discourage people from investing in the first place, under certain circumstances. There are also various other things that came before the Department after the Act was passed.

The provisions for publication seem a little random. If someone carries out a geological survey on behalf of the holder of a production licence, the material is not publishable for a period of five years. If it is carried out other than by or on behalf of the holder of a production licence, the period is 10 years. For summary well information, the material is publishable on the date on which the information is obtained by the OGA. There does not seem to be a consistent thread running through those provisions.

In the guidance for the regulations, I could not find exactly how those dates of publication restraint, or dates of publication, had been determined. There does not appear to be a principles manual that underlines the publication of material. That could be important because somebody who wants to get hold of that information could say, “Actually, the restraint on this information has not been determined by a fully worked-out process,” and that might therefore be actionable in terms of the material’s publication.

Conversely, since several regulations require the publication of information on the date on which the information is obtained by the OGA, that could be a recipe for encouraging people to go slow on providing information to the OGA. In the 2016 Act, there are sanctions for long-term non-co-operation with the OGA in a variety of ways, but there is nothing that says, “You’d better be reasonably smart about providing the information by a certain period, otherwise the sanction regime will come in and it’s the worst for you.” There is a question about whether some elements of the regime, welcome and positive though it is in terms of publication, can avoid suppressing the likelihood of that information coming forward so that the OGA can publish it.

Other than that, this is a well-crafted set of regulations that should greatly enhance the ability of the industry and the general public to understand what is happening in the North sea, and, where appropriate, to be supplied with that material in a reasonably timely fashion. Therefore, we do not wish to oppose or divide the Committee on the motion. It would be good if the Minister gave some guidance on some of the issues that I have raised, as I hope she will be able to—a little note has just appeared in her hand—and we can then finish the proceedings on a note of concordance.

[Claire Perry]

Would it not be nice to have that running through all debates? As always, the hon. Member for Southampton, Test has asked some sensible questions. The information that I have been provided with suggests that the OGA has consulted industry extensively on the periodicity of the provision of information. Further guidance will be forthcoming if people want it.

The hon. Gentleman prompted a question in my mind, which was, what happens if a person who requests information disagrees with the period for which that information is retained? Basically, appeal provisions are set out in the Energy Act, which he sat through in Committee, that say non-compliance with a reporting notice is sanctionable. The OGA has dedicated compliance personnel who already ensure compliance with other aspects of information and samples powers, and it can set a deadline for the provision of information with which companies must comply. I hope that answers his sensible questions.

[Dr Whitehead]

I would be grateful for clarification on one more point. As is set out in the regulations and the guidance, the Minister mentioned that the OGA is not required necessarily to publish according to the lines that are set out in the regulations and that it may not publish as a result of representations by companies that say there would be particular problems.

Unless there is subsequently some form of code that relates to that, the OGA could put itself in the situation of not recording the circumstances under which it has declined to publish something that it should have done, or, if it has declined to publish something that it should have done, what its justification for doing so was. That might make some of those actions actionable, if someone wanted something to be determined according to what the regulations had set out, but the OGA had declined to publish it for reasons that it had not put forward. There may already be guidance on that, but if the Minister could assure me on that point, it would be helpful.

[Claire Perry]

It is an important question. Essentially, the OGA has to pay attention to the objective of maximising economic recovery. It is therefore a judgment question for it as to whether it makes information available. We have now set out more guidance on the timeframes, depending on different sorts of information, but it may make a judgment that it will not publish because it would inhibit the delivery of that objective. For example, a field or licence report that might be subject to a shorter reporting period could contain confidential seismic data that is subject to a longer protection.

The hon. Gentleman will know from his time on the Energy Act Committee that many of those compliance and appeal requirements were set out in that Act. I will ask the team to draft a note to him so he can be satisfied that that power of judgment is being exercised correctly and that appropriate appeal routes are in place if there is a sense that it is not.

It is always a pleasure doing business with Her Majesty’s official Opposition, because we have a thoughtful discussion. It is rather disappointing that Scottish National party Members never bother to show up to debates about this vital industry these days. Luckily, I have my hon. Friend the Member for Dumfries and Galloway behind me, but, if I may be so partisan, having a political party that does not effectively represent the most economically valuable industry in that geographical area is disappointing. With those remarks, having hopefully reassured the hon. Member for Southampton, Test on his good questions, I commend the regulations to the Committee.

Question put and agreed to.

Nuclear Sector Deal

Alan Whitehead Excerpts

Wednesday 11th July 2018 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

This morning I will concentrate on the debate initiated by the hon. Member for Copeland (Trudy Harrison), which is on the nuclear sector deal, following the publication of the industrial strategy, before making a few other remarks. I congratulate her on securing this debate. She provides an example of one of the pillars of the industrial strategy, which is about place, and during her time in the House she has been a superb advocate for her place in the country in relation to nuclear programmes. Indeed, I served with her on the Nuclear Safeguards Bill Committee, and I learned a lot about the nuclear industry and its associated activities as a result of serving on that Committee and hearing her important interventions.

In her remarks the hon. Lady put the issues in this sector deal squarely on the table. It is good that we have an industrial strategy in the first place. For many years there was no such thing as an industrial strategy in Government—indeed, the Government said that having such a strategy would be a bad idea. Having an industrial strategy document and plan, followed by sector deals, is a considerable advance towards ensuring that industries and centres of industry get collective support among themselves by using their own skills and arrangements, as well as Government support to take that forward. This sector deal has been brought forward very much as a collaborative process. The Nuclear Industry Council and the Nuclear Industry Association produced an early prototype of this sector deal to bring to the Government, and the current deal shows clear signs of that collaboration.

What should we draw attention to in the sector deal? The first thing is the extent to which it highlights our skills and strengths in particular areas of our nuclear industry. As the hon. Member for Barrow and Furness (John Woodcock) said, one of those strengths is the world-beating concentration of decommissioning, research and development, and nuclear development facilities that exist in and around Sellafield and in Cumbria generally. It seems right that the sector deal should seek to strengthen and extend the work of that centre in the UK because—as hon. Members have mentioned—of the possibilities that exist for substantial world contracts, the export of skills, knowledge and knowhow, practical assistance in nuclear decommissioning, and the many other associated activities that can, do, and will stem from that part of the country. I commend the hon. Gentleman’s suggestion that the collaboration between military nuclear and civil nuclear should be extended because, among other reasons, of the crossover of skills and technologies that can result from such collaboration.

Some hon. Members might have thought that my hon. Friend the Member for Plymouth, Sutton and Devonport (Luke Pollard) made a slight diversion from our discussion this morning, and I have discussed with him for a long time the question of what to do about decommissioning nuclear submarines. That decommissioning effectively comes under a programme in the Ministry of Defence but, as my hon. Friend said, such a programme does not exist in reality. Yet if we were to join together that decommissioning with our decommissioning in Sellafield, using the skills there, we could make enormous progress on something that, as my hon. Friend mentioned, is a dreadful blot on our national landscape—it can be seen on Google. It needs to be dealt with urgently and Sellafield is the place to do it. We should ensure we do that in the not-too-distant future. I should like that included specifically in the sector deal. Perhaps when we get to version 1.2 that will happen. By the way, another enormous centre of nuclear excellence is the Culham Centre for Fusion Energy; I should mention the sector deal funding for it and the Government’s support for nuclear fusion and the work there.

Inevitably, documents have strengths and weaknesses. The weakness of the sector deal document is two-fold. Perhaps the first part of that is not a weakness but a recognition of what needs to be done in the nuclear sector in the next period. I note from the executive summary that there is to be, by agreement,

“a 30% reduction in the cost of new build projects by 2030”

and

“savings of 20% in the cost of decommissioning compared with current estimates by 2030”.

That reflects the fact that as things stand a lot of nuclear activity is just too expensive. Hon. Members have mentioned that the costs of new nuclear build and perhaps the process of bringing new builds into operation are still apparently far too high. Indeed, the national infrastructure assessment for 2018 has recently come out, and it suggests that only one new nuclear build should be signed up to before 2025, because of its analysis of the current relative costs of new nuclear and new renewables. It also suggests that, even with arrangements such as the regulated asset base that the Government are looking at in relation to new nuclear build, costs would be transferred rather than reduced. Certainly if that arrangement meant that consumers bore the same costs, but in advance of the plants coming into operation, which appears to be one mechanism of the regulated asset base arrangement, it would be an evasion of the task ahead, rather than implementation. It seems to me that the commitment in the nuclear sector deal to bring those costs down is important, and that it is an essential element of the way nuclear build would compete in the future with other forms of energy production. That is an important component of the nuclear sector deal.

Finally, I want briefly to draw attention to the advanced nuclear reactors that have been discussed here this morning—small modular nuclear reactors. There is a cost element problem attached to them, too, but they have substantial advocates, for a variety of reasons. There is a suggestion that their modular nature could bring down costs considerably. The document includes a commitment to £44 million, as the hon. Member for Copeland and others have mentioned, to underpin developments on small modular nuclear reactors. That is a bit of a surprise to me, as I recall hearing a suggestion in the 2016 Budget that there should be £250 million of support for them and, indeed, a competition to sort out the best designs. I also recall that in the following two years I did not hear any news about the competition or its outcomes, or about the expenditure of the £250 million, other than a statement by the Minister at the end of 2017 that there might be up to £100 million, not for a competition but for the development of small modular nuclear reactors. As it turned out, the Minister then made a statement that £56 million would be available.

Now, in the nuclear sector deal, the figure is £44 million. That is not to my mind exactly a great deal, from the Government end, for small modular nuclear reactors in the future, bearing in mind what was previously promised and what is in place now. I wonder if the Minister would comment on whether that is because of efficiency gains or the allocation of the money for other purposes—or perhaps because the Government are simply cooling towards the idea of supporting small modular nuclear reactors and have put a reduced sum in the nuclear sector deal. Whatever the reason, Government support for a promising and interesting development seems to have been substantially downgraded. What are the Minister’s thoughts on the appropriateness of that, and might he have further thoughts on how the support could be better deployed in future, on new deals?

Draft Contracts for Difference (Miscellaneous Amendments) Regulations 2018

Alan Whitehead Excerpts

Wednesday 11th July 2018 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship, Sir David.

As the Minister has set out, a number of amendments—some small, some large—have been gathered together under the heading Contracts for Difference (Miscellaneous Amendments) Regulations 2018. We have therefore already booked that title for this year, and should other portmanteau proposals come forward, presumably we will have to think of a different title for a future statutory instrument.

The miscellaneous amendments have different weights attached to them, and perhaps I can make progress if I apply very little weight to the two amendments that concern CHP plants and waste. To some extent we have discussed those amendments before, and they relate—among other things—to a desire to ensure that only the most efficient CHP plants obtain CfD arrangements, while at the same time enabling those CHP plants to distinguish between what they do for heat and what they do for power. Previously that balance was not quite right, and the amendments make a positive change in that direction. The amendment on waste makes a positive change by ensuring that what is done regarding sustainability criteria for fuel is properly carried out. Those amendments have two big ticks in the miscellaneous box and we need pay them no further attention, important though they are to the lives of future CHP plants.

The third amendment is a little less miscellaneous, and we need to understand what it seeks to do. The amendment would bring onshore wind back into place in the United Kingdom, and I suspect that that is the subject of rather more internal discussion on the Government Benches than on the Opposition Benches. Labour Members would love onshore wind to come back across the United Kingdom, as long as any concerns are addressed, there is community agreement to the onshore plants, proper planning arrangements are undertaken and proper value for money is obtained. We know, I think, that moves are afoot by the Government, and those who would take substantially the same position, to move such arrangements forward. As far as I can see, on this occasion it was decided to bring back some onshore wind where it was felt that such schemes were already in the pipeline. As the Minister said, a number of schemes could proceed rapidly and fruitfully, and if those schemes could be unleashed, we could have onshore wind in those areas.

The problem is that if we are trying to do that without actually bringing onshore wind back as such, we need a device to do it. The device used here is to say that those places where onshore wind might come back must be defined as a remote island. The problem that then arises is what constitutes a remote island. If a remote island is defined in a careless way, we might find that onshore wind is brought back in places where it was not intended.

Secondly, since onshore wind has for a long time been approved under state aid arrangements by the EU, bringing it back by creating a different category called remote island wind means that state aid clearance must, effectively, be applied for all over again. It would not be possible to apply specifically for onshore wind to come back on stream only on certain islands; that would certainly not get state aid approval, because area-specific arrangements cannot be declared for state aid clearance. It would be necessary to say that in principle it could be anywhere, and then define things to narrow it down to the desired result. In this instance, that result would be the Hebrides, the Shetlands and the Orkneys.

Things then get a little amusing, because on looking at the definition of what a remote offshore island is, we can see the wheels going round. It starts by saying, “It has to be an island.” Well, the hon. Member for Isle of Wight is in his place this afternoon; it might include the Isle of Wight. However, the Isle of Wight is of course in England, and the present policy arrangements probably would not include suddenly covering the Isle of Wight with wind farm applications.

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

The hon. Gentleman is kind to mention the Isle of Wight, but I hope he is not implying that we are remote.

[Dr Whitehead]

The hon. Gentleman strikes the nail on the head, because the regulations progressively exclude the Isle of Wight from the definition. The first criterion is that the remote island needs to be connected by a cable to the mainland, but not by any old cable. It must be a 50 km cable to a main joining point for the national grid or the distributing grid and, furthermore, 20 km of that cable has to be under the sea. There is not a 20 km undersea cable between the Isle of Wight and where the interconnector to the Isle of Wight lands, near my constituency in Southampton. So that is the Isle of Wight out of the question.

The second criterion is that the remote island has to be 10 km away, along all of its coastline, from the mainland. That also eliminates the Isle of Wight, as well as Anglesey and a number of other places. So that is sorted out.

Gradually, by a process of elimination, the point that the Government wanted to get to is reached: the only qualifying islands happen to be the Hebrides, the Shetlands and the Orkneys. There we have remote island wind by definition, without saying what a remote island is. Well done to the Government for getting to that position—the introduction of onshore wind without actually introducing onshore wind. It is quite clever.

In order to make a separate category, however, it is necessary to compare the situation with what would be the case for onshore wind, which already has state aid, and differentiate the two. Indeed, the impact assessment does just that. In an interesting passage, it states:

“The Government considers that the higher costs faced by RIW projects mean that at present they would find it difficult to effectively compete with the more established technologies in Pot 1, including ‘mainland’ onshore wind projects”,

none of which exist, of course, because they are banned. An impact assessment has been carried out comparing remote island wind with onshore wind, when there is nothing to compare with at the moment because there is none, in order to justify a marginally higher administrative CfD than would be the case were it simply to be defined as a variant of onshore wind in general.

Consequently, what we have here is onshore wind coming back potentially at a higher cost than would have been the case had onshore wind come back with the variation, with the overall state aid approval being as it was for onshore wind as a whole. This move, smart though it is, is not without potential cost. I hope the CfDs that come forward under pot 2 will be very competitive; I am sure they will be, because onshore wind has come down to such an extent that there may even be a net nil cost for the administrative CfDs that will be put forward. We hope that that will be the case but, in principle, a mechanism has been put in place, because of this particular convoluted definition, to implant a little more expense in the process than would otherwise be the case.

The other thing I ought to mention in passing is that, smart though this mechanism is, it is not entirely perfect in terms of English onshore wind. Onshore wind is banned across England—I think we agree that that is the case—except, now, for one place, which is the Isles of Scilly. They have an undersea cable of more than 50 km—in fact, they have a cable of 55 km to the agreed connection—more than 20 km of which is under the sea, and they are 23 miles off the coast of Cornwall. We will have inadvertently restored onshore wind to England this afternoon. Admittedly, I should not be taken as advocating in any shape or form the placing of wind farms on the Isles of Scilly, but that is what we appear in principle to be doing.

As the Minister can gather, I am one-third delighted by this move, one-third amused by the hoops and reverse somersaults that we have had to go through in order to achieve it, and one-third concerned that the much easier process—to bring onshore wind back in one way or another, with proper constraints, planning arrangements and care—has not been undertaken.

In that context, I ask the Minister one question on the whole process. I do not expect him to stand up and agree with my analysis of exactly why this has been done, but it is the case that state aid approval was applied for, I think, for this particular subset definition. I think it is also the case that the European Commission has informally told the UK that it would not object to this being put in as a sub-definition. I am not clear whether anything formal has yet come from the EU to the UK saying, “Not only will we not object, but we will stamp this as far as state aid approval is concerned.” I would be grateful if the Minister confirmed whether that is the case.

After all that, we will not seek to divide the Committee this afternoon. I merely place on the record the recommendation that the next step, should there be a further statutory instrument containing miscellaneous amendments, should be to bring onshore wind back properly, with proper community protections, to ensure that we get the benefits and savings from onshore wind that many of us in this Chamber want to see and find that we are prevented from enjoying.

--- Later in debate ---

[Andrew Griffiths]

I often think that when all sides of the House agree on something it is time to be concerned, but in this particular case I think not. All sides of the House agree on the importance of renewable energy, the importance of the Government investing in its provision and the importance of providing people, particularly those on remote islands, with access to cheap renewable energy. We come together in this Committee to support the Government’s intention to deliver that.

I am grateful to the hon. Member for Southampton, Test, who has yet again demonstrated his vast knowledge and experience. There are few in this House who have paid more attention, done more study or are as informed as him. I am grateful to him for the points he raised. He paints a picture of some elaborate ruse being the reason for bringing forward the SI today. If he can concoct conspiracy theories in that way, I would be interested in his views on who shot JFK, whether Elvis is still alive and whether there is a world war two bomber on the moon. Those are the kinds of conspiracy theories we need to address. I reassure him that the Government’s intention with this SI is to introduce practical remedies to ensure the provision of renewable energies to remote islands across the country.

[Dr Whitehead]

I assure the Minister that if there is any conspiracy in this, as I sought to set out in my remarks, it is the most benign of conspiracies. If it is one, it is one that we can support in a conspiratorial way.

[Andrew Griffiths]

I thank the hon. Gentleman not only for his comments, but for his wholehearted support for these measures.

He raised some important questions. He asked whether we will need state aid approval for remote islands. I am the Minister responsible for competition policy in the Department for Business, Energy and Industrial Strategy, and I confirm that we have state aid approval for the inclusion of remote island wind as defined using this criteria. He asked whether the Commission had granted that. It has granted that state aid approval; that was published by the Commission in February of this year. I hope that reassures the hon. Gentleman on any concerns he has about the approval process for state aid.

The hon. Gentleman also asked about the definition of remote islands and whether that excludes English islands. As he will know—I am sure he has seen the map in the consultation document published in December—a small number of remote islands off the coast of England and Wales could satisfy the criteria, but we do not envisage at this stage more projects coming forward. In practice, the only planned projects that we are currently aware of that might meet the definition of remote island wind are in Orkney, Shetland and the Western Isles.

The hon. Gentleman alluded to pot 1 and onshore wind. No decisions have been taken on running another allocation round for pot 1 technologies at present.

[Andrew Griffiths]

I am not saying that at all; I am saying that I am not in a position at this stage to give the hon. Member for Kilmarnock and Loudoun the reassurances he seeks. I absolutely understand why he asked the question, and his aspirations in relation to those projects, but I am unable to give him the solution he seeks at this present time.

Successful remote island wind projects will require the construction of new transmission links. The point that the hon. Member for Kilmarnock and Loudoun makes about interconnectors is a salient one. It is one that the Department is well aware of and it is looking at. Transmission links that wave and tidal projects would also be able to use are important. Establishing new transmission routes could therefore help unlock the potential of other innovative new technologies. The Government clearly have to be the catalyst to bring on those disruptive technologies.

[Dr Whitehead]

For brief clarification on new links being developed, my understanding is that Shetland does not currently have an established interconnector link but shortly will have. Until such a link is finally established, Shetland does not technically qualify as a remote island under the headings put forward in the text of the SI. However, when that link is built, it will qualify, but the link may be built because it has some wind that has qualified. There appears to be a potential chicken and egg problem there. I am sure that the Minister is on the right side of the egg or the chicken, but might he clarify that point?

[Andrew Griffiths]

That is absolutely right. The phrase that the hon. Gentleman used is most apposite: “shortly”. We hope that the facility will be in place quickly, and that will allow the completion of such projects to proceed.

Finally, the independent energy regulator, Ofgem, assesses the need for transmission investment based on a proposal developed and submitted by the relevant transmission owner. The transmission owner for the relevant part of Scotland has already submitted its proposal for Orkney to Ofgem, and we understand that it will submit proposals for the Western Isles and Shetland later this year. Remote island wind is a key part of the needs cases.

The Government are committed to cutting emissions, increasing efficiency and helping to lower the amount that consumers and businesses spend on energy across the country, in conjunction with supporting economic growth as part of our modern industrial strategy. The draft regulations implement changes to the contracts for difference scheme to enable it to continue to support new renewable generation and to provide best value for bill payers in the coming years. I commend the regulations to the Committee.

Question put and agreed to.

Resolved,

The Committee has considered the draft Contracts for Difference (Miscellaneous Amendments) Regulations 2018.

Draft Warm Home Discount (Miscellaneous Amendments) Regulations 2018

Alan Whitehead Excerpts

Monday 9th July 2018 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure, Mr Bailey, to serve under your chairmanship this afternoon. You remarked earlier that I was slightly early for proceedings this afternoon; I ran all the way to get here early and I have just about recovered from my exertions, so that I can contribute to the debate. Also, I concur with the Minister that it is rather nice to be in slightly cooler surroundings, under present circumstances.

To put the Committee out of its misery straight away, I will say that we do not intend to oppose this affirmative statutory instrument today; on the contrary, broadly speaking we very much welcome it, because of the continuity it gives to the warm home discount over the next period and the extension that the statutory instrument provides for the annual warm home discount rounds. As the Minister said, we are up to round seven and this measure will provide rounds eight, nine and 10, in a confirmed way.

However, I have one or two questions that I would appreciate some clarification on from the Minister, in the context of that general support. The first question relates to the fact that although we are gathered today to approve this affirmative statutory instrument, we are doing so four months after the end of year seven, so we are confirming what will happen in year eight when it has already begun. The regulations indicate that people who are still receiving a warm home discount as if it were year seven—I assume there are such people—should be incorporated into year eight. I am not sure that is a satisfactory way to proceed, because the regulations should have been introduced before the end of year seven. There may be good reasons why that was not the case, but we are where we are.

Can the Minister confirm that people who are receiving a warm home discount under year seven will be incorporated into year eight? What effect will that have on the overall budget headings for the years ahead that the regulations set out? Will any anomalies arise in the year eight budgeting that would not have been the case if the transition from year seven to year eight had been carried out under the normal procedure?

The Minister set out the welcome news that considerations have not only been under way, but found their way on to a piece of paper, to reduce the obligation threshold for energy companies with liabilities to provide customers with access to a warm home discount package. As hon. Members will know, the present threshold for a company is 250,000 customers. We have seen some recent activity in the field of smaller energy companies—what used to be known as the insurgent energy companies, but are increasingly middle-sized—that are within the obligation, and of very young energy companies that are outside the obligation, some by quite a long way. There have been suggestions that some of those companies are demurring at the point of reaching 250,000 customers to retain their position outside those obligations.

Between 2019 and 2021, the obligation will be progressively reduced from 250,000 to 200,000 and then 150,000, which is still quite a large number. Although that is a welcome change, it will not resolve the problem of people who would be eligible for a warm home discount who may happen to switch from an obligated to an unobligated company without being aware of that, or perhaps as a result of a compulsory switch, as we have found on more than one occasion when energy companies effectively sell parts of their customer base to other energy companies, and who lose their entitlement to claim a warm home discount in the process.

If they find out that they have lost their warm home discount as a result of switching and try to re-switch, they find that because the warm home discount scheme is organised annually and there is a closing date for claiming it, they have lost the ability to reclaim their discount within the year of the scheme. Customers can be in a position where they have given up their warm home discount, tried to claim it again and found they are not eligible, so they do not have a warm home discount for the period. The reduction in eligibility not to provide the discount will help to some extent with that problem, but it will not completely resolve it.

As I am sure the Minister knows, several companies below the obligation level voluntarily take part in the warm home discount arrangements. I wonder whether she might consider taking some initiative either to encourage those companies that are below the obligation limit at least to take part in the obligation, or to work out some method for ensuring that those customers who have apparently given up the warm home discount, whether by accident or by force of transfer, can be placed back within the warm home discount one way or another while the process of reducing the obligation takes place. I would be interested to hear whether she has any thoughts in that particular direction.

A final, wider thought is that, while the Minister mentions the role of the warm home discount in the wider plan to ensure that as many homes as possible are as energy efficient as possible in the shortest time possible—indeed in the clean growth plan there is a suggestion that homes in the rented sector should be band C by 2030 and all homes should ideally be band C by 2035—the extension of the warm home discount, welcome though it is, just brings the discount period up to the ending of the renewable heat incentive and to only one year away from the conclusion of the energy company obligations. We have a number of measures relating to the aim the Minister set out of bringing homes up to scratch in energy efficiency; as she says, energy efficiency is by far the best way of fighting fuel poverty in the long term. We have three schemes that now have a cliff edge; in this instance, the scheme will be pushed back by several years, but nevertheless it is in the 2020s.

That is a long way away from getting anywhere near the targets that we need to get near and achieving that uprating of energy efficiency for properties across the board, fighting both the climate change concerns of inefficient homes and, as importantly, their fuel poverty implications. Can the Minister tell us anything this afternoon about the longer term plans she has to ensure that this and other schemes in the relatively near future will have a much longer timescale ahead of them, so that they can play a longer term part in fighting that campaign for fuel efficiency and against fuel poverty, and get us to those targets at the earliest time possible?

Draft Renewables Obligation (Amendment) Order 2018

Alan Whitehead Excerpts

Monday 2nd July 2018 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Wilson.

As the Minister set out, the order essentially deals with a very narrow point of policy relating to biomass conversions and biomass production. It is about stations that have converted from coal to biomass and are receiving renewables obligation certificates—in other words, they converted before the ROC period came to an end. As the Minister said, there are no more stations in that category because, although the ROC programme is continuing for another nine years, it has been closed to new applicants since the arrival of contracts for difference on 31 March 2017. The order is about existing conversions that have an expectation of the number of ROCs they would receive as a result of their power generation. It contains a proposal to limit the number of those ROCs. As the impact assessment for the order states,

“The policy objectives are to protect the”

levy control framework

“and limit the costs to consumers of additional unforecast RO spend on biomass conversion and co-firing.”

The Minister made a customarily comprehensive case about the order’s purpose, but I am not sure it is likely to do what is says on the tin. Will it really protect the LCF and limit the costs to consumers of additional unforecast RO expenditure, as described in the impact assessment, the explanatory memorandum and the Minister’s statement? I ask that question because the order is founded on renewables obligation certificates, but it talks about the money potentially spent or saved in relation to the levy control framework. Those are not quite the same things, and I will try to shed a little light on why.

Renewables obligation certificates came into place in 2002. As we have mentioned, no new ROCs are issued now, but during the period of their life, they were created as a result of agreements that were set out with various renewable power plants to provide a varying number of ROCs per megawatt-hour of electricity produced. In that sense, they are a little like bitcoin, inasmuch as they have been mined, produced and then are in existence as a result of the activity of producing energy, but they have no value in themselves. They can obtain value as a result of being bought, as the Minister said, by bodies that are obligated by the ROC system to provide evidence that they have supplied a proportion of their output from renewable power.

Such bodies can do that in two ways. First, they can show at the settlement point a number of ROCs from their own generating activity that coincides with their obligation level—and if they do that, their obligation is met. On the other hand, if they have a shortfall, or do not generate any power from renewable sources, those suppliers would have to meet their obligation via another route, in one of two further ways. Either they pay a buyout price for their ROC shortfall—the price will be administratively set by Government at a substantially higher level than the likely traded prices of ROCs—or they purchase from the companies that have created the ROCs enough ROCs to meet their obligation level.

That, of course, is what gives ROCs their value and places money in the hands of the renewable generators who have invested money in their projects with the expectation that, in part, their project will be underwritten by the proceeds of ROC sales. However, a question then arises: what is likely to be the actual value of a ROC? It is that value that is paid by the supplier and that impacts on customer bills. It impacts on the levy control framework—that is, a controlled total for the amount that can be spent on underwriting for renewables over successive five-year periods. It is not money that is actually spent, because it is money that is effectively supplied by consumer bills. Of course, that is real money as far as consumer bills are concerned, but it is to be regarded as an imputed tax and spend by the Treasury, so it is as if extra taxation had been raised and then charged against the levy control framework. That levy control framework is the subject of the order, inasmuch as the Government’s imputed tax and spend within that framework has been running ahead of what that framework suggested it should be. Measures have therefore been taken to try to get it within the overall framework.

The next question that arises is whether the way in which ROCs are valued is easily coterminous with what it is the Government are trying to do about maintaining those levy control framework levels. This is the key bit. If the value of a ROC is high, that will result in more putative tax and spend, and hence more cost against the levy control framework. If the value is low, it results in some, but less, cost against the levy control framework.

How does that value rise and fall? Essentially it comes from two elements. First, there is the headroom that the Government have built into the system. That is the level of obligation suppliers have to meet. That is, or should be, adjusted to remain ahead of the supplier ROCs so that they retain value, and so that the generators are rewarded for their efforts. The headroom sits in the system and will have a central effect on ROCs’ values. That is, if the headroom is set very high—10% above the current level of the ROCs—then, with the obligation up to a relatively high percentage of the power supplied by a supplier, the ROCs will gain value, because people will chase more of them to cover their obligation requirement. If the headroom is reduced, the value of the ROCs drops. Furthermore, the more ROCs in the system, even within the obligation level framework, the easier it is for suppliers to obtain them to meet their obligations. In other words, if more ROCs chase a set amount of obligation space, the price will reduce.

How does that relate to what the draft statutory instrument seeks to do? It wants to cap the number of ROCs for particular plants operating biomass and bioliquid methods of producing electricity. That retrospectively alters the terms under which those companies undertook a build for biomass or a conversion to biomass of a plant that previously burned coal. Changing retrospectively the terms of scheme is exactly what caused the 2015 hiatus when the feed-in tariffs for solar were dropped. In this instance the situation is worse, because although dropping those FITs affected the development of new solar, it did not affect the remuneration of existing plants. The draft order seeks directly to affect the planned remuneration of existing plants by shifting the goalposts after agreement has been reached.

That is why a number of affected plants that had converted from coal to biomass told the consultation that the changes would make them—at least for the foreseeable future, and presumably until the Government outlaw coal from the system—produce electricity from coal and not from biomass, since the terms of the altered system are such that it will be economically less advantageous to generate power from biomass and economically more advantageous, relatively speaking, to produce power from coal, which I thought the Secretary of State was against. Indeed, the Minister and I have agreed considerably on the need to remove coal from the system. It would be a particularly perverse outcome of this instrument if we increased, rather than reduced, the amount of coal being used to produce power in the system over the next few years.

That, however, is the collateral damage, as it were, of a less than perfect measure. The Government tell us that the real effect of the cap on ROCs for those companies is that it will take the pressure off the levy control framework. The impact assessment explains at length just how much a cap will save. It suggests that doing nothing means expenditure of between £55 million and £320 million, whereas under this draft instrument the range is between £5 million and £20 million.

It will not, however, necessarily do that. Capping the number of ROCs that can be issued by plants would have a potential effect on the number of ROCs available for purchase. The effect would therefore be to increase the value of the ROCs that will be available. The amount of money paid out for them, which would be regarded as putative tax and spend, would go back into the levy control framework. That would not change the overall effect very much, although that depends on the proportion of the total amount of ROCs available and the plants affected, which the impact assessment does not address.

The fine and detailed calculations made in the impact assessment, which are in the SI and the explanatory memorandum, do not add up to a hill of beans unless done properly against what the countervailing effect of having fewer ROCs in the system would do to the overall cost to the levy control framework. I do not know what the exact effect would be, but it does not appear to have been well worked out. In principle, it possibly delivers the wrong mechanism—saving costs to the levy control framework as far as ROCs are concerned.

Far be it for me to advise the Government on what to do about the ROCs system, which undeniably through its trading mechanisms causes costs to consumers and the LCF total, but in terms of a mechanism that would have an effect on those costs it might be worth—

[Claire Perry]

Will the hon. Gentleman accept an intervention that might provide him with some comfort and save us a bit of time? His suggestion is that if we had a totally free market with an infinite number of ROCs and a price-setting mechanism based on demand and supply, by capping the number of ROCs, prices will go up and the overall value will be the same. However, the obligation is set annually. Therefore, in effect, every year a certain number of ROCs are issued, taking into account that fewer ROCs in the system would have an impact on that level. The ratchet will come down based on there being fewer ROCs in the system. It is not a completely dynamic system—there is that annual setting of the absolute number.

[Dr Whitehead]

I thank the Minister for that intervention. Unfortunately, the annual settlement for the amount of ROCs compared with headroom took place last October.

[Claire Perry]

It happens every year—now until 2027.

[Dr Whitehead]

Indeed, it happens every year, but the system will not rectify itself in any way until about one and a half years after the order is in place. Therefore, if ROCs are fewer in number and increase in value, the workings carried out may not have the effect that the Minister or the officials who drew them up think they will have, because of how those values relate to scarcity or abundance as far as possible purchases are concerned.

I was going to mention, as the Minister did, the headroom for ROCs. If one looked at the relationship of headroom to the number of ROCs in circulation, one would certainly see that having a depressing effect, but it would have a much wider effect on the whole of the market. As a result of our, I accept, quite lengthy expedition of how ROCs work, work against each other and may or may not work up to the levy control mechanism, does the Minister really think that the order will work as she has described? Given the lack of an assessment of a possible countervailing effect from a reduction in ROCs because of how the system works, might it not be a good idea to take that away and have another look at it, to see whether it will work as well as she thinks and whether any action on headroom figures might have an equal effect, as I have just described? The countervailing effects of the headroom recalculation might be worse than the proposed measure.

I am not drawing any conclusions. I am stating that it does not appear that all the factors relating to how ROCs work have been taken into account in the calculations. I would not like to see us pass legislation that does not do that properly and that possibly draws us into areas where we think we have done something about the system, but actually we have done something rather different.

Geothermal Energy

Alan Whitehead Excerpts

Tuesday 19th June 2018 Westminster Hall

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I congratulate my hon. Friend the Member for Bishop Auckland (Helen Goodman) on securing this important debate and on putting her case with such clarity and precision. After what she found out about geothermal during her research for this debate, I am sure she will agree with me that it is indeed Britain’s forgotten renewable. It is not forgotten because it is not feasible or because it does not bring tremendous benefits. It is forgotten simply because no one has done much about it, even though that resource is under our feet in many parts of the country and is relatively easy to access. When that resource is accessed and developed, it provides potential free heat and power, probably for 100 to 150 years, as a result of a single borehole drilled down into the ground to unleash it.

Why it should be forgotten is a source of puzzlement to me, because it is a universal and beneficial renewable. Some people may regard deep geothermal as not quite renewable, in that if there is drilling into a deep geothermal aquifer, the aquifer, in theory, depletes over time. However, if water is being raised from the aquifer at the typical temperature level in the UK of about 73° or 74° Celsius, that resource will deplete at only 1° in heat per 100 years. Yes, it depletes a bit, but it is not exactly calamitous—unlike, one might say, drilling a fracking well, where the well depletes after about eight years.

[The Minister for Energy and Clean Growth (Claire Perry)]

Such a fact-free debate.

[Dr Whitehead]

No, it is a very factual debate—that is the difference.

The geothermal potential of the country is enormous, and the hon. Member for Falkirk (John Mc Nally) set out what the potential would be, in electricity and heat, for the UK were we to proceed seriously with geothermal energy. Perhaps a limiting factor is the fact that geothermal energy is not available everywhere in the country. We need to be clear about the fact that deep geothermal is available on the basis of three different kinds of site. Basins with very ancient water at the bottom are one kind of site. Another kind, which require slightly different technology, are areas with radiothermal granite batholiths. I believe that the Minister, as a first-rate geographer in her time, will know all about batholiths and lopoliths and various other things. We have quite a lot of radiothermal batholiths in the UK, with naturally occurring radioactive-based heat coming from deep within the earth’s crust. Another kind of site relies on the availability of technology to release heat by putting water down one pipe and up another, giving geothermal as a result.

As my hon. Friend the Member for Bishop Auckland mentioned, lower-temperature geothermal resources arise from abandoned mine workings. With heat-concentration techniques that is not a problem, in terms of concentrating the heat to get into production either for heat distribution or, indeed, for making steam to generate electricity.

As hon. Members have kindly mentioned, I have an interest in the debate because I think I can claim to be the only sitting Member of Parliament who has directly set up a geothermal energy scheme. I know a little, therefore, about how it all works. That scheme is based, as has been mentioned, in the middle of Southampton in a not particularly prepossessing shed, with a small wellhead in the carpark of the former Toys R Us store. That unprepossessing setting hides a well, drilled to about 1,800 metres. Water comes up at just over 70° Celsius and is converted into the material for a district heating scheme by a heat exchanger and concentrator. Now Southampton has a city centre district heating scheme with some 17 km of pipes, covering the university, the civic centre, the country’s only geothermally heated hypermarket and a five-star hotel. In other words, there is a complete city centre arrangement, heated substantially by geothermal energy. Not only that, but it has been heated in that way on an untroubled basis since 1987, and will continue to be so until 2087 on present estimates of what may be available. That is the potential, in practice, for geothermal energy.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

The hon. Gentleman speaks with great knowledge, and I pay tribute to his work promoting geothermal power in his constituency. What are his thoughts on the potential for geothermal power in more rural areas, where there is great reliance on oil central heating, often at great cost and with a high carbon footprint? Does he believe that more could be done to incentivise and encourage developers in rural areas to look at geothermal power for new developments and homes?

[Dr Whitehead]

I have to tell the hon. Gentleman that he is the only Member present for the debate who does not have a geothermal resource under his constituency. I have mentioned the different types of geothermal resource, and the large Mesozoic basins are in East Yorkshire and Lincolnshire, around the whole Wessex area, in Southampton and Worcester, and in Cheshire. The radiothermal batholiths are in the eastern highlands, across the north-east and north-west of England, and in Cornwall. The hon. Member for Strangford (Jim Shannon) will be delighted to know that about half of Northern Ireland is covered by two Mesozoic basins, giving most areas a strong resource.

The problem is, first, that that resource is not available everywhere and, secondly, that because of the capital cost of the borehole, geothermal energy is probably best suited to larger district schemes. One of the key issues is that because of the immediate availability of the resource, if an area—particularly a rural area—is capable of receiving it, it can be used for relatively small district heating schemes, or for local plant producing electricity in the area with a combination of a relatively small heat take-off. There is considerable potential, but I am sorry to tell the hon. Member for Central Suffolk and North Ipswich (Dr Poulter) that drilling under his constituency at the moment would be fruitless, as far as I am aware. However, it is possible to do it in some rural constituencies where the resource is more available.

[Dr Poulter]

A number of new, larger homes—particularly barn conversions, which are very popular in Suffolk—have invested in the technology as a means of heating. My question is more about how we can do more to incentivise developers on small-scale developments, perhaps on the edge of rural villages and towns, to look at similar schemes, and what suggestions the hon. Gentleman may have to bring forward those incentives.

[Dr Whitehead]

I think that the hon. Gentleman is referring to vertical hole shallow geothermal ground source heat installations. They are perfect for rural homes, as he described. They will provide sufficient heat, from a relatively shallow penetration into the earth, for heat exchangers to heat a home to a regular temperature of 60°-plus. Although I do not think that that is an essential part of this afternoon’s debate—it is more to do with ground source heat pumps—the hon. Gentleman is right. It is a technology that I would strongly recommend for off-grid properties in which, in the past, the alternative heating might have been oil. It can absolutely reliably replace that form of heating. I join the hon. Gentleman in recommending to the Minister and the Government that efforts to secure the installation of ground source heat pumps for off-grid properties in rural areas would bear considerable fruit and ought to be strongly supported—rather more strongly supported, I suggest, under the renewable heat initiative than is currently the case.

I hope that I have set out the potential for geothermal energy, and stated how it can be done in practice and what its benefits are. I was leader of Southampton City Council at the time that the scheme I described was initiated, but provided that it had the resource, almost any local authority in the country could pilot and undertake such a scheme relatively easily. The main issue is how to raise the initial capital funding up front to get the scheme under way.

Let me say one or two words about what the Government ought to be doing—in addition to the constructive and sensible suggestions made by my hon. Friend the Member for Bishop Auckland—to start using this resource. Capital grants will be required up front for the essential drilling of the well. The Government have underwritten several such schemes in various parts of the country to the tune of about £2 million a time, and we should extend the availability of those initial grants. Currently, the money available through the non-domestic renewable heat incentive is not sufficient to get those schemes under way from a capital point of view. As far as deep geothermal is concerned, the RHI currently provides 5.38p per kWh. That does not compare favourably with funding for ground source heat pumps, which comes out at 9.36p.

At the moment, the incentives to get such a scheme going properly in any area are not sufficient. That is particularly unfortunate; geothermal energy ought to be considered a different form of renewable energy, because of its known longevity. When we invest in a geothermal energy plant, we are investing in a capacity that will give us free energy for 120 years—we cannot say that about pretty much any other renewable energy source, except possibly the Swansea tidal lagoon. I therefore think that the criteria under which geothermal energy is considered should be based on that kind of payback and that kind of timeframe.

[Helen Goodman]

My hon. Friend tempts me down a path that will be familiar to many colleagues. His point raises the question of whether it is appropriate to use the same Treasury discount rate for something that is so long-run as we would for a project that would last for 25 years. That would be another way of squaring the circle.

[Dr Whitehead]

My hon. Friend makes an interesting point—that might be her seventh recommendation for the Minister this afternoon.

In conclusion, all hon. Members who have contributed to this debate have made clear their support for the potential of this form of renewable energy, and they have given examples from various parts of the UK. I particularly applaud the Scottish Government’s initiative to bring forward real funding for geothermal schemes, and I hope that in the not-too-distant future Southampton will no longer be the only geothermal plant in the entire United Kingdom that operates in the way I described. There are glimpses of progress here and there, but it is by no means continuous or anywhere near to fulfilling the enormous potential that geothermal energy offers.

My request and suggestion to the Minister is that she might like to come to Southampton and have a look at the little wellhead in the Toys R Us carpark and the shed in which the scheme is housed, so that she can see for herself just how much comes from that little site, how much good it has done for a whole community and city, and how much good it will do for many years to come. We should consider geothermal energy in that way, and if we do, we will go a long way towards understanding how good it could be for the UK. I hope that we will then put our resources where our hopes are and ensure that geothermal energy has a bright future in the UK, just as it already does in other countries.

The hon. Member for Falkirk said that 66% of Iceland’s overall energy requirements come from geothermal energy. Indeed, a project called IceLink is currently considering the possibility of an interconnector between Iceland and the UK, in partnership with National Grid and Landsvirkjun, the state-owned generator in Iceland. That is a real possibility for the future. We could be in the position of having home-grown geothermal energy and bringing into the country someone else’s geothermal energy to complement that, so that together we would have a completely carbon-free source of energy that would last the UK for a century. I think that is a prize to be worked for.