Energy BILL [ Lords ] (Fifth sitting)

Andrea Leadsom Excerpts

Tuesday 2nd February 2016 Public Bill Committees

[Dr Whitehead]

Indeed, but one in which we do not get to know the dénouement until the next episode. The dénouement is, as the Minister will know, that the commitment in the Conservative manifesto was to end any new public subsidy for onshore wind. The question is whether that means new public subsidies, or public subsidy that previously existed but applies to new projects. Clearly, the renewables obligation is a long-standing subsidy and unless one places a very specific interpretation on that manifesto pledge, it is about new forthcoming subsidies and we should bear that in mind in our discussions.

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

I am excited to hear the question of the hon. Member for Southampton, Test. I had not anticipated that it would be that, simply on the grounds that, as I, my right hon. Friend the Secretary of State and many Members in Committee and on Second Reading have made absolutely clear, our manifesto commitment was to end subsidies for onshore wind early. I therefore say philosophically to the hon. Gentleman that, had we meant new subsidies we would have said “new subsidy schemes”, which is the interpretation I think he wants to put on our manifesto commitment.

Let me be clear: the Government were elected with a clear manifesto commitment to end new subsidies for onshore wind and to ensure that local people have the final say on where onshore wind is built. I hope that hon. Members will accept that it is for the Government to agree what their manifesto commitments are. We have gone to great lengths to assure all hon. Members that what we meant was to close the subsidy early; we are not referring to new subsidy schemes. Had we meant schemes, we would have said schemes.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I am curious about the relationship between the two parts of the Conservative pledge that the hon. Lady has just described—ending subsidy early but also making sure that local people have the final say on projects. Of course, the wording of the amendment means that those two positions are contradictory, because any local project that receives planning consent before 18 June under the proposed grace period could not go ahead. In other words, people have approved certain projects, but they will not go ahead because of the narrowness of the grace period in the amendment. Are those two positions not contradictory?

[Andrea Leadsom]

I welcome the hon. Gentleman. I think this is the first sitting of the Committee that he has been able to attend and it is good to see him here. He will appreciate that grace periods have to be set and a line has to be drawn somewhere. We have tried to accommodate the need for investor certainty and to be fair both to the businesses building onshore wind and to the consumers who are paying for them. We will get on to that in due course.

The first part of our manifesto commitment is now well on its way: clause 79, together with supporting secondary legislation, will ensure that the Secretary of State is no longer the primary decision maker for any onshore wind applications in England and Wales. New planning guidance for England, issued by my right hon. Friend the Minister for Communities and Local Government, complements this change by ensuring that local people have the final say on new onshore wind planning applications.

It is imperative that we deliver the second part of our manifesto commitment—to end new subsidies for onshore wind—to protect consumer bills and manage spending under the levy control framework. These amendments will ensure that we do exactly that by reinstating the provisions that were removed in the other place. We are committed to delivering our manifesto commitment while protecting investor confidence. It is my view that these provisions, including our grace period proposals, strike a fair balance between the public interest—including protecting consumer bills and ensuring the right mix of energy—and the interests of onshore wind developers and the wider industry.

At the end of April 2015, there were already 490 operational onshore wind farms in the UK, with an installed capacity of more than 8 GW—enough to power the equivalent of more than 4.5 million homes when the wind is blowing. That significant achievement was made possible only by providing consumer-funded subsidies. The Government estimate that in 2015-16, £850 million of support will go towards funding onshore wind across the UK, of which about £520 million, or approximately 60%, will fund Scottish onshore wind farms.

Recent levy control framework forecasts indicate that spending on low-carbon generation in 2020 will be £9.1 billion in 2012 prices. The Government previously set a limit of £7.6 billion, so the current forecast is already £1.5 billion above that, and additional costs would need to be met through increases to consumer energy bills. As my right hon. Friend the Secretary of State for Energy and Climate Change said on 18 January,

“New, clean technologies will be sustainable at the scale we need only if they are cheap enough.”—[Official Report, 18 January 2016; Vol. 604, c. 1152.]

When costs come down, as they have for onshore wind and solar, consumer-funded support should, too.

Let me reassure all Committee members that we already have enough onshore wind in the pipeline to meet the projected 11 to 13 GW needed to meet our ambition of generating 30% of electricity from renewables by 2020. That 11 to 13 GW is the deployment range clearly set out in the electricity market reform delivery plan. It is our best estimate of what we need to meet our 2020 targets, compared with what we can afford under our low-carbon spending cap.

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

Does the Minister accept that if we do not make up lost ground on heat and transport, we will have to do more on renewable electricity to meet our EU renewables target?

[Andrea Leadsom]

As the hon. Gentleman knows, there are separate binding targets for different types of renewable energy. He also knows that we are making good progress in meeting our targets. We expect to be within the deployment range for onshore wind that was projected in the electricity market reform plan.

If we do not implement the early closure proposals in these amendments, there is a risk that we will deploy beyond the range that we forecast. There is the potential for up to 7.1 GW of further onshore wind under the renewables obligation. Without action to close the renewables obligation early and manage the spending under the levy control framework, there is a risk of deploying beyond the delivery plan range, which would add more costs to consumer bills.

I remind the Committee that, as my right hon. Friend the Secretary of State for Energy and Climate Change said on 18 January,

“Subsidies should be temporary, not part of a permanent business model.”—[Official Report, 18 January 2016; Vol. 604, c. 1152.]

That is what we seek to implement.

[Dr Whitehead]

May I press the Minister on her point that it is necessary, among other things, to cap the deployment of onshore wind, bearing in mind that we already have deployment over the EU 2020 renewables target? The legal target, the one for which we would get fined, is the overall target. The sub-targets, which relate to heat, transport and renewable energy, are not legal targets, but they are aspirations towards the legal target. Therefore, the consequences of whether one underperforms or overperforms in any particular sector relates only to the overall target. Overperforming in particular areas would actually make a positive contribution towards ensuring that we do not get fined as a result of not meeting the 2020 targets. Is that the Minister’s understanding of how the targets work? If so, does she want to amend her point about how onshore may play a role in meeting them?

[Andrea Leadsom]

I guess that the hon. Gentleman makes the reasonable point that one could be traded for another, but the object of our renewables policy is not merely to avoid getting fined by the EU. I am quite sure that he does not mean to imply that that is the case. The idea is to decarbonise the UK economy. Yes, we could decide to take one route only and therefore not worry about other sectors such as transport and heat, but I am quite sure that the hon. Gentleman is not seriously suggesting that. Even if he were, it is absolutely still the case for the renewables sector that if we continue to offer generous billpayer subsidies, costs to consumers will continue to rise.

The policy was well thought through and had deployment ranges that forecast the achievement that we sought against our legally binding targets. We believe that we are in a position to meet the target with onshore wind. Simply saying, “We should carry on with it because we can do more than we set out to do,” is not a way to run anything, so I cannot agree with the hon. Gentleman that it would make sense to continue with subsidies at the expense of billpayers. This is not free money. We frequently discuss in the Chamber the problem of people being in fuel poverty and those are the people who will have to keep paying for subsidies if we choose to deploy beyond the level that we have already set for ourselves.

[Jonathan Reynolds]

The Minister’s representation of the points is incorrect. The argument is not that we are doing well and should therefore do more; it is that there is an overall renewables target for the UK that comprises certain percentages of electricity, heat and transport and we are nowhere near the heat or transport targets. If we are doing better on electricity, doing more is essential in order to hit our legally binding target. It is not about voluntarily doing more; it is about recognising that there will have to be compensation in other sectors if we are behind on heat and transport, which is a fact under our EU target.

[Andrea Leadsom]

I remind the hon. Gentleman that, in making progress towards our 2020 renewables target of 15%, we have surpassed our interim target for 2013 and 2014 with an average 6.3% of final energy consumption coming from renewable sources over those two years against a target of 5.4%. The contribution of renewables to energy generation is increasing across heat, electricity and transport. Heat from renewable sources increased by 4.6% during 2014. As hon. Members have pointed out, a record 19.1% of electricity generation came from renewables in 2014. Renewable biofuels for transport also rose by 14% during 2014.

I can again say to the Committee that we have targets for each of our energy sectors, and it is simply not realistic to say that just because onshore wind benefits from a generous subsidy and other projects could come forward, we should change our deployment target aspirations, putting the ensuing costs on to consumers’ bills at a time when we are already comfortably meeting our targets.

[Dr Whitehead]

rose—

[Andrea Leadsom]

I want to make some progress. We have discussed this point and I have given hon. Members the chance to give their views, but I have been clear that I do not agree that we should overcompensate on electricity generation.

We are mindful of the proposals’ potential impact on industry and of the need to protect investor confidence, which is why we have been listening and continue to listen closely to what people have to say. In fact, the grace period provisions, which were first tabled in the other place and have been re-tabled for debate here today, have been developed directly in response to industry feedback on our proposals. We must move forward with these proposals, not only to protect consumers but to provide much-needed certainty to both onshore wind developers and investors. I will now speak about each Government amendment in turn.

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[Jonathan Reynolds]

Absolutely. There is an obsession in the Conservative party with onshore wind, and often with other types of renewables, too. Arguments are applied to onshore wind that are often illogical. I simply ask hon. Members to spend some time going to see how the system is run and how all these issues apply to different assets on the grid. If they did that, some of their fears might be allayed.

[Andrea Leadsom]

The hon. Gentleman is being extraordinarily patronising. I have been to see National Grid operations. Does he have the app through which the National Grid provides real-time data? During Second Reading, 1% of our electricity was supplied by wind. Does he not accept that there are times when the wind is simply not blowing? Furthermore, does he agree that, although it is true that, in its balancing, National Grid considers the forecast for outage times, for planned outages and for wind, those forecasts are often wrong? Does he accept that it is therefore not possible to be absolutely certain how much electricity wind will contribute at any one time? He must surely accept that.

[Jonathan Reynolds]

I accept that sometimes the wind does not blow—that is a reasonable point. On Second Reading, the figure was 5%, not 1%, as I said to the hon. Member for Daventry, if we take the 24-hour period in which the Bill had its Second Reading. I simply say that all generating assets have intermittency problems and require back-up. If we look at many other countries across the world, we are not the only country with an onshore wind contribution to our electricity system. Every other country in the world is investing in this in large numbers. The Minister sometimes has to respond to her own Back Benchers when they are being unfair when talking about onshore wind. Some issues are not being treated reasonably by the Government and by Conservative Back Benchers.

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There is huge ground to catch up on there. If the Government do not do so, and if we are to avoid the fines and not miss the targets, we have to meet the shortfall with renewable electricity. In that context, it is wrong to damage the support for the cheapest form of renewable electricity available.

[Andrea Leadsom]

I could agree with everything the hon. Gentleman said until that last comment. That is the point: he says it is the cheapest form of renewable electricity, and we are saying that as costs come down industries need to stand on their own two feet. Opposition Members accuse us of attacking them, stopping them and killing them—they use those sorts of emotive words—but that is simply not the case. The hon. Gentleman must realise that developers are looking for a subsidy-free, market-stabilising CfD. Does he accept that he may be wrong—that the subsidy may not be the be all and end all, and that the success of the onshore wind industry could continue with local support and without the subsidy? Does he think that if we want the industry, we have to keep adding to the consumer bill?

[Matthew Pennycook]

I do not think that if we want it we have to continue to add to the consumer bill. I very much agree that a contracts for difference regime is a much more stable mechanism for driving down costs. I do not use the words “killing” or “attacking”, but I do think that the Government have undermined support in a way that the industry was not expecting. It had stability in this regard.

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I do not know whether the Minister can accept the amendment as it stands or whether it needs further teasing out, but I urge her to look carefully at these cases. If they are not within the grace period, people will say, “So much for the grace periods. They don’t do what they are supposed to do. We’ve done everything we should have done, yet we will fail to get our scheme going, even though we have cheerleaders behind us in the local community who want it to go ahead.” I would welcome an indication from the Minister that the amendment will be accepted or marginally changed and introduced on Report so that this anomaly can be resolved.

[Andrea Leadsom]

I thank all members of the Committee for what has been an entertaining, informative and feisty discussion. Hon. Members of all parties share the desire to see fairness, so I take on board the comments of the hon. Member for Southampton, Test about grace periods. We have looked at them carefully. He will have heard my hon. Friends the Members for North Dorset and for Daventry saying that we could have come in on 6 May and said, “Right, you’ve got 12 hours,” but we were absolutely determined to have a measured response, and 18 June was roughly five or six weeks. We consulted widely. Although it was not a formal consultation, I can provide Members with a link—I do not have it to hand—to some of the feedback in the consultation with industry, which was carefully done to ensure that we got the balance right.

I congratulate my hon. Friend the Member for Daventry, who has done so much work. I like the 101 dalmatians. I would have been one of them, but I think I was probably Cruella de Vil. I was certainly one of the signatories to his letter, and as his neighbour in Northamptonshire, I was very much aware of the grave concern of communities who felt that they were not being listened to. It was a great pleasure for me, as a new Minister in the Department, to be able to implement our manifesto pledge. Both my hon. Friend and I can assure Members that this is exactly what we meant by it. All colleagues on the Government Benches understand that closing the RO early was a clear manifesto commitment—no ifs, no buts.

I also congratulate my hon. Friend on his excellent work on amplitude modulation. He came and talked to me about it with a number of experts. We are determined to address and find a solution to the problem. He reminds me frequently that I need to come back to him with an answer, but the Department is taking independent advice on the matter. We hope to make some progress on that.

The hon. Member for Stalybridge and Hyde raised a number of points that I welcomed. He talked about fairness to investors and sunk costs. Equally, he must recognise that we, as the Government, must manage the potential upside risk of deploying up to a further 7 GW and more of onshore wind, which we know is in the planning system. As I said earlier, our deployment range in our electricity market reform estimation was between 11 and 13 GW of wind, and we believe that we will still be able to be within that range.

Developers build risk into their decision making. Even before the changes were introduced, there was never a guarantee that the projects will build out. There are all sorts of risks involving planning permission— access to grid and issues with military radar. There are all sorts of reasons why projects do not come to fruition. Equally, the Government have been clear that our absolute No. 1 priority is energy security, and then decarbonising at the lowest possible cost to consumers. That means that we need to get the balance right between the costs on bills and our decarbonisation targets, to which we remain absolutely committed.

[Jonathan Reynolds]

Of course there are risks in any field that must be built in, but our point is that the greater those risks—and the Government are making those risks greater—and the higher the cost of capital, the less investment will come to the UK. It is as straightforward as that.

[Andrea Leadsom]

I am sure, then, that the hon. Gentleman will be delighted about our commitment to further deployment of offshore wind and to the new nuclear programme, both of which are a low-carbon future for the UK. Targets for decarbonisation and new gas, and a big decarbonisation away from coal and into gas, are the bridge to a low-carbon future. I am sure that he will welcome the certainty that we have given investors with that, and the opportunity for UK plc to get more jobs, more growth and more business in the supply chain as a result of our changes in policy.

I will come specifically to the amendments tabled by the hon. Member for Coatbridge, Chryston and Bellshill, whom I thank for his excellent portrayal of the intention behind them. I hope to give him some reassurance on some of those points. My hon. Friend the Member for North Dorset is absolutely right to point out that the survey of the ballot box, which is the best survey, has entirely supported our policy on wind. He raised the question of appeals and judicial reviews. The appeals process is still in place for onshore wind. However, any appeal in England on a decision taken after 18 June will need to take into account the clear statement made by the Secretary of State for Communities and Local Government on 18 June, which sets out the new considerations to be applied to proposals so that local people have the final say on wind farm applications, fulfilling the commitment made in the Conservative election manifesto. Importantly, it also makes it clear that planning permission should be granted only if the development site has the support of the local community and that it can be demonstrated that any planning impacts identified by affected local communities have been fully addressed. My hon. Friend is right to raise that point and I hope he is reassured.

[Simon Hoare]

That is a huge comfort. Will my hon. Friend clarify either now or on Report that the guidance being issued by the Secretary of State for Communities and Local Government in June is of equal status and standing to the guidance in the national planning policy framework?

[Andrea Leadsom]

My hon. Friend may be asking me about a specific legal point, so it may be better if I write to him. I have been clear on the intention, but he is asking me something that I should probably write to him about afterwards.

I am grateful to the hon. Member for Greenwich and Woolwich for his insightful points about NISMs and the associated costs. It is exactly right that a NISM does not mean that the lights are about to go out, and the associated costs are actually relatively small. As we have said all along, energy security is our top priority and we are not prepared to risk it in anything that we do. He also rightly points out that we are trying to decarbonise at the lowest cost and that we totally support renewables. As many hon. Friends have already pointed out, 98% of solar has been deployed since 2010. In 2015, the UK increased its investment in renewables by 25% compared with 2014. At the same time, EU investment decreased by 30%. This Government have shown a strong commitment to renewables deployment. I hope that hon. Members are reassured by that.

Turning to the amendments to new clauses 2 and 3 and new clause 15, I remind hon. Members the Government have listened carefully to the views of industry and are committed to deliver their manifesto commitment. The amendments have a range of effects, predominately in relation to the eligibility criteria for the grace period conditions set out in new clause 2. I will also cover amendment (a) to new clause 3, which relates to Northern Ireland, and new clause 15, which is specific to Scotland. I will address each of the key proposals in turn.

Amendments (a) and (b) to new clause 2 relate to changing the eligibility date or moving to planning application. The amendments suggest that the key eligibility criteria start date be either pushed back to a later date or moved entirely to include those projects with a submitted planning application as at 18 June that had not yet achieved consent. Either of those actions would have a significant impact on the number of projects that would be eligible for the approved development criteria set out in new clause 2 and therefore on overall deployment figures. I am afraid that to respond adequately to the proposals, and specifically the point on changing the grace period eligibility start date or consent criteria, I must first return to the core principles behind the early closure and the grace period conditions.

As I have said, if one considers those onshore wind projects that already have formal planning consent, there is enough to contribute to what is needed to meet our ambition of 30% electricity from renewables by 2020. The Government have made a commitment to manage costs under the levy control framework, and specifically in relation to this well-established technology. The policy intent is to close the renewables obligation to onshore wind, and the clause, as drafted, sets out clearly that the renewables obligation is closed to new onshore wind farms in Great Britain from 31 March 2016, which is necessary to manage the risk of over-deployment. Furthermore, the grace period set out in new clause 2, called the “approved development condition”, was drawn up specifically to protect investor confidence.

Even in its most early design, as set out in the announcement by my right hon. Friend the Secretary of State for Energy and Climate Change on 18 June, the grace period drew a clear bright line for developers while protecting investor confidence and that of the wider onshore wind industry. That approach has underpinned our engagement with industry and wider onshore wind stakeholders. We have been told that the industry ultimately supports our approach. We have also heard anecdotally that some projects that did not meet the grace period criteria have already fallen away, so to change the goalposts at such a late point would be fundamentally unfair to developers who may have chosen not to continue their projects in the light of our original announcement.

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[Dr Whitehead]

I seek a little more clarity from the Minister on varying planning consent. My understanding, from what she has said, is that where a development received planning permission consent or development consent before 18 June 2015 but a variation on that consent was subsequently undertaken, it is within the grace period. Modifying the grace period in order to accommodate that is therefore not necessary, because it is definitely already in the grace period. Anyone who undertakes that development therefore has a clear understanding from the Minister that their development will not be impeded as a result of that process.

[Andrea Leadsom]

That is correct, yes.

Amendments (q) and (r) relate to projects that are the subject of a deemed planning permission. I am pleased to reassure the Committee that a planning permission deemed to be granted as part of the consent granted by the Secretary of State under section 36 of the Electricity Act 1989 is already allowed for within the current drafting, as long as the section 36 consent is granted on or before 18 June last year. Planning permission deemed granted under section 36, like other planning permission, meets the conditions of the grace period so long as it was deemed to be granted on or before 18 June. Again, the intent of the amendments is already the intent of the policy, so changing the drafting is unnecessary.

Amendments (s), (t) and (u) relate to the proposed investment freezing condition, and I thank the hon. Member for Coatbridge, Chryston and Bellshill for tabling them. The investment freezing condition was not a part of our original policy proposals but was developed in response to my Department’s extensive industry engagement, following the announcement on 18 June. We listened to stakeholders, including the devolved Administrations, developers, supply chain and investors. A number of stakeholders expressed concerns about the impact that the lack of legislative clarity was having on certain financiers’ willingness to lend, and we are committed to addressing that.

To ensure that projects that otherwise meet the grace period criteria are not held back from deploying, we developed a proposal to allow an additional nine months in which to accredit those projects that already meet the approved development condition but that have suffered from the investment freeze. That nine-month period is intended approximately to reflect the time period between the date of the Secretary of State’s announcement and the Bill’s expected Royal Assent. The amendment will ensure that we meet the intent of our original policy without unfairly affecting projects. The evidence we received during engagement with industry suggests that those most likely to be affected by an investment freeze were those funded by banks, so the definition of “recognised lender” has been drafted to reflect that.

The investment freeze condition is about protecting projects that evidence demonstrates are affected by this issue; it is not about giving developers a better chance than they would otherwise have had to access the RO before its closure date. Unfortunately, the amendments tabled by the hon. Member for Coatbridge, Chryston and Bellshill risk doing exactly that. Removing the requirement that a project must need funding specifically from a recognised lender and widening the definition of a recognised lender as suggested could open up the grace period to gaming. As I have said, we must limit deployment to what we believe is affordable. The Government’s policy does exactly that in a fair way for developers while clearly and sensibly managing potential risks and protecting consumer bills.

I understand that, through amendment (a) to new clause 3, the hon. Gentleman seeks to ensure that the power relating to Northern Ireland renewables obligation certificates may only be exercised in relation to certain wind generating stations. In particular, he seeks reassurance about the equivalence of the eligibility dates for the grace period in Northern Ireland. I reassure him that the intent of the clause is only to protect consumers in Great Britain from the cost of any additional support that is given to onshore wind in Northern Ireland beyond what would be available in Great Britain. The Government’s position is that the power will not apply to projects meeting grace period conditions that are equivalent to those applying to projects in Great Britain. Those projects meeting equivalent conditions will be excluded from the power. Therefore, Northern Ireland renewables obligation certificates for such projects will continue to be redeemable in Great Britain.

The Government have been in regular discussions with the Northern Ireland Executive about the implementation of this policy. In September, the Government agreed a position with Northern Ireland regarding the equivalent terms for closure. On that basis, the Northern Ireland Executive published their consultation on proposals for early closure of the renewables obligation in Northern Ireland to onshore wind, which included reference to the eligibility dates mentioned in the amendment.

I thank the hon. Member for Aberdeen South for tabling new clause 15. My understanding is that he wants only Scottish Ministers, and not the Secretary of State for Energy and Climate Change, to be legally able to close the renewables obligation to onshore wind in Scotland. I remind hon. Members that energy policy across Great Britain is reserved to the UK Government. The power to make a renewables obligation closure order is reserved to the Secretary of State for Energy and Climate Change under section 32LA of the Electricity Act 1989, which was inserted by the Energy Act 2013 specifically to ensure that closure could be effected consistently across Great Britain. Because the policy is reserved, the provisions to close the RO early to onshore wind in the present Bill will also apply to Great Britain.

The hon. Gentleman’s proposed change would reverse the policy implemented by section 32LA of the 1989 Act and set out in the original Renewables Obligation Closure Order 2014. I remind the Committee that it is imperative that we maintain consistency across Great Britain as a whole, providing consistency and certainty to industry and, importantly, fairness to consumers. We estimate that in 2015-16, £850 million of the support under the RO as a whole will go towards funding onshore wind across the UK. Of that, we estimate that about £520 million, or approximately 60%, will go towards funding Scottish onshore wind farms, even though only about 10% of UK billpayers are in Scotland.

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[The Chair]

At this point, and just for clarification, it might be helpful if I remind the Committee that decisions on new clauses will be taken at the end of proceedings, that is after all clauses and amendments have been dealt with. That will include amendments to Government new clauses 2 and 3.

Clause 83, as amended, ordered to stand part of the Bill.

Clause 84

Short title and extent

[Andrea Leadsom]

I beg to move amendment 6, in clause 84, page 48, line 14, leave out subsection (4).

This removes provision which was inserted to avoid infringing the financial privileges of the Commons. Now that the money and ways and means resolutions have been passed this can be removed.

The explanatory statement above gives the reason for the amendment. The Committee will also know that the clause is a standard one to include in a Bill.

Amendment 6 agreed to.

Clause 84, as amended, ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.—(Julian Smith.)