Contracts for Difference Scheme

Angela Eagle Excerpts

Thursday 19th October 2023 Westminster Hall

[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

I congratulate the hon. Member for Strangford (Jim Shannon) on securing this debate, which is timely, given the outcome of the recent AR5. He presented it with the degree of detail and precision that the House now expects of him. It is a pleasure to serve with you in the Chair, Dame Angela, albeit I am mildly disappointed that you are in the Chair; I had rather hoped that you might have moved on to other things by now, but I guess that is politics, and it was not necessarily to be.

[Dame Angela Eagle (in the Chair)]

Such is democracy.

[Mr Carmichael]

I want to pick up where the hon. Member for Waveney (Peter Aldous) left off. While there are a lot of lessons to be learned from the conduct of AR5, it is worth a short pause to consider the successes of contracts for difference. As a mechanism for deployment and growth in renewable energy, they have been remarkably successful. Ultimately, however, they are a tool like any other, and the quality of the product that we have at the end of it is dependent on the use to which that tool is put.

I hope that AR5 is a warning shot—if I may put it that way without mixing too many metaphors—and that in future there will be a better dialogue between Government and industry, because the outcome that we got was pretty much the outcome that the various industries had been predicting. It is, I think, for the Government to keep engaging with industry to learn lessons and see the continued growth in our renewables. Quite apart from the need to meet our net zero targets, for which the growth of renewable energy will be absolutely critical and essential, the question of energy security will be dependent on this. Had we taken some of these decisions earlier, pushed them with more vigour and better resource and used the tools differently, we might be in a better place for energy security today, but we are where we are, and what is important now is that we are able to build the industries for the future.

I will concentrate and focus in particular on the development of marine renewables—that is probably the least surprising news of the day for the Minister. That is something in which I have had 20-plus years of involvement, and it is important to my constituency, playing host as we do not just to the European Marine Energy Centre, but to a number of successful projects in the AR4 and AR5 rounds. The decision to include in AR4 a ringfenced pot of £20 million for tidal stream energy generation was absolutely transformative for the industry. I was in a call with the people from EMEC this morning, and although it was not the purpose of the call—we came to it during the course of the conversation —they were talking about how the development that we have had as a consequence of AR4, and now AR5, has helped them to grow their business case. There are still issues that have to be dealt with—the Minister knows some of them; they are not germane to the debate—but that shows what is possible when the right decisions are made here.

By following that with £10 million minima in AR5, which led to the deployment of 50 MW of capacity, the sector saw an uptake that exceeded the 10 MW minimum. That demonstrates the way in which the sector is ready and able to go further to help the Government meet their declared policy aims. We have 90 MW deployed in 11 projects across Scotland and Wales.

What more do we need to do? Obviously, there will need to be a continued ringfenced pot. We are not yet at the stage of commercialisation where marine renewables would be capable of competing with the other technologies in the auction, so that continued ringfencing will be important. We also need bigger minima in the next round—the AR6—and the sector keeps saying that it wants a target for deployment in the region of 1 GW by 2035. Again, that should be attractive to the Government. If we are to learn the lessons of AR5, listening to the sector—seeing what it comes forward with and what it wants to produce—will be absolutely critical. There is one way in which the Minister can demonstrate that he is listening to and engaging with the industry, and perhaps restoring some of the confidence that was damaged as a result of AR5.

The opportunities are still here and, particularly in relation to tidal stream, need now to be followed by opportunities for wave power—there has to be a route to market for wave power. Tidal stream has demonstrated what is possible; it is now for the Minister to look at how we allow other sectors and developing technologies to come forward and take the same opportunities that were given to tidal stream. The lesson of AR4 and AR5 and the ringfenced pot for tidal stream is that the mechanism works. If it can work for tidal stream, surely it can work for wave power as well.

There are some opportunities here. We have taken a bit of a knock with AR5, but that should not lead us to challenge in any fundamental way the suitability and durability of contracts for difference. I hope that the Government will continue with CfDs, but that in using that tool we find routes by which we can engage better with the industry—as the Government should do in the interests of meeting their own targets and aspirations.

[Steven Bonnar (Coatbridge, Chryston and Bellshill) (SNP)]

It is always a pleasure to see you in the Chair, Dame Angela. I should say at the outset that I am here as a substitute for our energy spokesperson, my hon. Friend the Member for Angus (Dave Doogan). Members from all parties will be aware of the Met Office red warning for weather, the centre of which will be over Angus today. I know that all hon. Members will wish the people of Angus well over the coming days of extreme weather.

I rise to speak in this debate in the wake of the disastrous fifth round of contract for difference allocations. It was a tragedy for the climate, for bill payers and for industry, especially in Scotland, where we face the harshest weather and the highest bills, and where, of course, we lead the renewable transition throughout these islands. I should thank the hon. Member for Strangford (Jim Shannon) for securing the debate. He is without question my favourite Unionist.

In this policy area, as in every other, the Westminster Government are failing to implement effective policy to ensure that climate targets are met and households are protected. Ambitious climate policies are needed to attract and sustain investment, promote innovation and meet our climate commitments—priorities that are clearly now beyond the will, or perhaps the ability, of this Government.

At a time when households across these islands are dealing with soaring energy bills, it is ludicrous that the Westminster Government failed to listen to the warnings of industry ahead of auction round 5. There were clarion calls from industry that the administrative strike price for offshore wind was just not going to cut it. As a result, shovel-ready offshore projects that could have powered 8 million homes are now not being developed.

Generation developers are now begging their supply chain partners not to abandon the United Kingdom market while this Westminster Government pretend that everything is just fine. It is not just fine: it is a calamity. Projects will now not be developed, or will be delayed substantially, that would have saved consumers up to £2 billion a year compared with the cost of the gas generation that will fill the gaps.

The failure to secure any offshore wind projects risks putting Scotland’s energy security and our net zero targets at risk, and prolongs our dependence on fossil fuels. Among the projects that were not secured because of developers being unable to bid because of the unfeasibly low strike price was the super-project at Berwick Bank, which SSE noted

“could play a crucial role in closing the gap between where we are now and where we need to be by 2030.”

This disaster was preventable but the Westminster Government chose to put their head in the sand and hope for the best. They failed, and they did so spectacularly. The overall budget for AR5 was £50 million less than that for AR4. On top of that, the industry leaders warned the Westminster Government to consider

“inflationary costs and supply chain squeeze”

in the auction prices, but the UK Government again chose not to listen.

Offshore wind generates more power per megawatt of installed capacity than any other renewable source, and the UK’s unique wind resource and shallow seas mean it has been the central technology in the plans to end the UK’s reliance on fossil fuels for electricity. Offshore wind remains the UK’s cheapest option for large-scale power, so the slowing of development will leave consumers exposed to volatile global gas markets for longer, and it will cost the country more in the long term.

Despite the benefits that offshore wind production offers in terms of reliability, predictability and value, the funds available for renewable energy projects are being cut, while the Government continue to write blank cheques for nuclear programmes. The change in pot structures, down from three in AR4 to two in AR5, means that offshore wind is now competing with other established technologies for less funding, and it is not as though everything was going well before the crisis in AR5. The Westminster Government have thus far secured only 27 GW of their target of 50 GW of offshore wind by 2030.

To ensure that the funding available for offshore wind is sufficient, Energy UK is calling for offshore wind to be returned to a separate pot, and we back that call. If the contracts for difference scheme is to succeed, sufficient funds must be made available to provide adequate price incentives for further efforts needed to encourage innovation in emerging technologies and offshore wind.

I hope that the Minister will answer three questions. What steps will the Department take to recover the failure of AR5 for offshore wind? What does he believe the net loss in offshore capacity will be as a result of their failure in AR5? Will he apply just a tiny wee fraction of the esteem and admiration that he has for the French nuclear industry to the Scottish renewables sector?

[Dame Angela Eagle (in the Chair)]

I call the shadow Minister.

--- Later in debate ---

[Graham Stuart]

I thank the hon. Gentleman for that intervention. I will return to the issues relating to Northern Ireland, if I may. I entirely forgive the hon. Member for Coatbridge, Chryston and Bellshill, who is always a very genial Member, and anyone who has such a high opinion of the hon. Member for Strangford as he does is always welcome in this Chamber as far as I am concerned. This is not what the hon. Member for Coatbridge, Chryston and Bellshill does as a day job, so perhaps that explains the nature of his speech.

Let me dispense once again with the suggestion that consumers are £2 billion a year worse off because we did not secure any offshore wind in AR5. That figure is entirely wrong and misleading, because it does not take account of future wholesale energy prices. Projects that were unsuccessful in AR5, or chose not to bid, can participate in AR6 in 2024, which is just five months away. Having annual rounds means that there will be minimal delay to deployment at minimal or no additional cost to consumers.

The hon. Member for Coatbridge, Chryston and Bellshill highlighted the broader point that the UK, alone among major economies, has halved its emissions since 1990. It can be argued that it is alone among major economies on its path to reach net zero. It is important to note that if we are to stay on track to net zero, which is one of the reasons why the hon. Member for Strangford is so passionate, and he knows this, we need Wales, Northern Ireland and Scotland alongside England to make the appropriate changes. The hon. Member for Coatbridge, Chryston and Bellshill may or may not be aware, given that this is not his day job, that Scotland is behind the curve on performance. It is high on ambition, low on delivery relative to England, and he might want to bear that in mind and have slightly more—

[Dame Angela Eagle (in the Chair)]

The hon. Member for Coatbridge, Chryston and Bellshill came in at short notice to deal with an issue, and the Minister ought to be more sensitive to that in his remarks.

[Steven Bonnar]

Thank you for that intervention, Dame Angela. Listen, the Minister has every right to say what he says—

[Dame Angela Eagle (in the Chair)]

Is the hon. Member making a point of order?

[Steven Bonnar]

On a point of order, Dame Angela. I appreciate the intervention you made. This is what we expect from the Conservative party and Government Ministers. I thank you for putting that on the record, Dame Angela.

--- Later in debate ---

[Dame Angela Eagle (in the Chair)]

That was not a point of order.

[Graham Stuart]

Whoever comes into this Chamber, I would always take your advice, Dame Angela, but of course the hon. Member represents his party, and when he make allegations against the Government that are unfounded, and when his own Government are failing to deliver on their ambitions and are, in fact, behind the trend for England, it is only right and proper in the spirit of honesty and transparency that that is properly exposed. I know the hon. Member for Coatbridge, Chryston and Bellshill, who himself is not normally a shy person in the Chamber or otherwise, is someone who can easily take it, so I am pleased about that.

I will take no lessons either from Labour, which had only 5.4 GW of wind power when it left government in 2010. The Government have more than five times that amount, at more than 28 GW of wind power, and the four largest operational offshore wind farms in the world. It may be difficult for some to hear, but we know that Labour’s record on renewables is truly dismal. When Labour was in power, as recently as 2010, renewables made up less than 7% of our electricity mix; in the first quarter of this year, we had reached nearly 48%. Lessons will not be taken from His Majesty’s Opposition, let alone the Scottish Government, on this front.

The absence of offshore and floating offshore wind from AR5 was, as I have said, regrettable. These are challenging times for the offshore wind sector, with increasing global demand putting pressure on supply chains at the same time as increasing costs and core materials, resulting in price uncertainty both here and abroad. As both the Secretary of State and I have repeated on many occasions, our ambition for 50 GW of offshore wind, including up to 5 GW of floating by 2030, remains. I indicate to Members to look at the 77 GW of pipeline that we can see ahead. We are listening to the sectors and, as I have said, the annual auctions mean that we can respond quickly and incorporate learnings into the next round. We will publish the core parameters, including the administrative strike prices and pot structure, for allocation round 6 in the middle of next month.

I will turn to the main focus of the debate for the hon. Member for Strangford: the GB CfD scheme being extended to Northern Ireland. When the CfD scheme was being developed around 10 years ago, it was originally intended that it should extend to Northern Ireland as well as GB. For various reasons, which I will not go into here, that did not happen. In December 2021, the Northern Ireland Executive published their energy strategy, the “Path to Net Zero Energy”, in which they set out the intention to implement a support scheme to bring forward investment in renewable electricity generation in Northern Ireland. The strategy indicated that the Northern Ireland Executive were, at that time, exploring with the UK Government the possibility of extending the GB CfD scheme to Northern Ireland, with a view to the inclusion of projects from Northern Ireland in the 2023 allocation round. If that was not possible, the strategy said that the Executive would seek to put in place an alternative support mechanism for investors.

In January 2022, the Northern Ireland Executive published the first of their two action plans, outlining progress towards implementing their net zero strategy. In it, the Executive said that they would consult on proposals for a renewable electricity support scheme for Northern Ireland. In February this year, the Executive made good on that commitment and published a consultation inviting views on design considerations for a renewable electricity support scheme for Northern Ireland. The consultation closed in April, and the Northern Ireland Executive are currently undertaking follow-up work on the scheme’s design, informed by the consultation responses they received.

I understand that officials in the Northern Ireland Department for the Economy aim to publish the design of the scheme this year, as committed to in its 2023 energy strategy action plan. The consultation clearly sets out the direction of travel: Northern Ireland wants to have its own bespoke support scheme for renewables. In June 2022, Northern Irish and UK Government Ministers agreed that the significant challenges of integrating Northern Ireland into the CfD scheme meant that Northern Ireland would be better off pursuing its own scheme. That objective had cross-party endorsement in the Northern Ireland Executive before they dissolved last year.

I believe that the hon. Member for Strangford and I agree that a bespoke support scheme for renewables is the preferred means of securing investment in renewables for Northern Ireland. However, he has argued that the Northern Ireland support scheme cannot be implemented while the Northern Ireland Executive are suspended. If I am putting words in his mouth that he does not agree with, he will intervene on me. He believes that allowing Northern Irish projects access to the GB CfD scheme is the best available option for delivering investment and faster deployment of renewables in Northern Ireland. He knows that I do not agree with him on this.

I do not believe that integrating Northern Ireland into the GB CfD scheme is viable. There are several significant challenges to integration, including systemic and technical barriers incorporating the characteristics of the single electricity market into the GB CfD model, as well as the reforms being considered in the GB review of electricity market arrangements. Furthermore, integration would require complex changes to the CfD payment mechanism, secondary legislation and industry codes, and would likely take several years to complete. Integration therefore would not lead to faster delivery of renewable energy in Northern Ireland, which I know the hon. Member for Strangford so fervently hopes for.

--- Later in debate ---

[Jim Shannon]

I thank all right hon. and hon. Members who took part in the debate. I suspect there was a bit of blue on blue between the Minister and the hon. Member for Waveney (Peter Aldous), but it was done in a nice fashion and not aggressively—that is the hon. Member’s nature. I thank him for his knowledge and interest in this issue. I knew that he would bring a massive amount of knowledge to the debate, and I thank him for sharing it. He wants to see clear pipelines and better investment, which I think we all do. A key theme is better investment, and I thank him for his contribution.

Whenever the right hon. Member for Orkney and Shetland (Mr Carmichael) makes a contribution to a debate or asks a question in the main Chamber, we all sit up and take note, because he has a great deal of knowledge about marine renewables. He wants to see marine power ringfenced, and he is right to do so.

The hon. Member for Coatbridge, Chryston and Bellshill (Steven Bonnar) may have stepped in as a replacement spokesperson for the SNP, but he made a valuable contribution. I am reminded of Bruce Forsyth’s catchphrase, “You’re my favourite,” because the hon. Member is perhaps my favourite among his party. We are good friends. We do not support the same football team—he and I know that—but there are lots of things that we can enjoy together. He referred to investment, which is so key to this issue.

The job of the Opposition is to challenge, and the shadow Minister, the hon. Member for Manchester, Withington (Jeff Smith), did that. He tried to be positive, but he also engaged with the relevant issues. He wants to make sure that the investment, jobs, skills and opportunities are delivered by 2030, if not before.

I will outline the issue again. The Minister summarised where we are, but let us look at the consultation process. The figure of 92%, which I mentioned, refers to the proportion of businesses that say they need investment now. We do not have a working Assembly—that is a fact of life—but 92% of businesses in Northern Ireland want investment, and we need to see that happen. For me, it is quite simple: I want to see us contribute to the net zero target set by the central Government. I want to see jobs and opportunities coming through. Some 50% of global capacity is in tidal stream, and we can do our part to deliver that in Northern Ireland. It is only fair that Northern Ireland is provided with the same route to market as the rest of the United Kingdom.

I think the Minister and I will have lots of correspondence on this matter, but it does not mean that we are not friends. We need to chart a way forward so that we can ensure that Northern Ireland is a positive part of the solution that we all want to find. Again, I thank all right hon. and hon. Members for their contributions, and I thank you, Dame Angela, for your patience with us all. We may get a wee bit animated at times, but you kindly bring us into line in a nice way so that we are not offended. For that, we thank you.

[Dame Angela Eagle (in the Chair)]

Thank you. In the interests of the debate, I have been very lax, because we have had lots of time.

Question put and agreed to.

Resolved,

That this House has considered the Contracts for Difference scheme.