Baroness Liddell of Coatdyke
Main Page: Baroness Liddell of Coatdyke (Labour - Life peer)Energy Bill
Baroness Liddell of Coatdyke Excerpts
Baroness Liddell of Coatdyke
My Lords, I have great sympathy with what my noble friend has said. The noble Lord, Lord Oxburgh, drew attention to the fact that we see in DECC no institutional memory. We should put alongside that the fact that Ministers rotate regularly. There needs to be somebody or some organisation in the middle that is the honest broker. When I was the Energy Minister, I had a panel of experts which was hugely valuable to me. It involved people such as Dieter Helm and had real gravitas. It was really useful to be able to bounce ideas off people, but this proposal takes it to another level. My noble friend said that people in the very enclosed world of energy policy have often had opportunities to work in the big six or for some of the significant players in the field. It is useful to know who is taking these decisions. To the noble Earl, Lord Caithness, I would say that sometimes you have to spend a penny to save a penny. If you spend your money on getting people who can stop you making mistakes, you will avoid spending not just millions but perhaps billions of pounds making mistakes just for the sake of a few ha’pennies to ensure that you have proper advice. My goodness, government spends enough on consultants. Why not put some of that money to good use getting some expert advice?
Baroness Verma
My Lords, I thank the noble Lord, Lord Whitty, for his amendments. Amendments 55ZF and 55ZG would set up an expert panel to provide independent advice to the Secretary of State on setting strike prices, development of contract terms and whether to issue CFDs or investment contracts. These are extremely important matters and I am grateful to the noble Lord for the opportunity to debate them.
The Government wholly agree with the noble Lord that independence, expert scrutiny and engagement with a wide range of stakeholder views are important principles. For the purposes of setting strike prices for renewable technologies, we are ensuring that the process through which those strike prices are set is transparent, robust and informed by a full range of expert input and stakeholder consultation. On 17 July, we launched a consultation on the proposed strike prices to allow industry and all other stakeholders, including consumer groups, to scrutinise the evidence and analysis that informed them. We are asking for their feedback to inform the final strike prices.
Further, to ensure that the strike prices proposed by the Secretary of State in the draft delivery plan were informed by independent advice, we asked National Grid to conduct analysis to help to understand the potential impacts of strike prices on government objectives. We also commissioned an interim panel of technical experts to scrutinise that analysis impartially. Both those reports were published alongside the draft EMR delivery plan and copies deposited in the Libraries of this House and the other place.
The process allows us to be confident that the strike prices are informed by robust evidence in an appropriately transparent way. We have been able to use existing powers to appoint the interim panel of technical experts, so they are already performing their scrutiny role. Following Royal Assent, we intend to establish an ad hoc advisory group, with Clause 139(2)(c) providing the spending authorisation to support this work. This, with the steps described above, will ensure that the Secretary of State makes an informed decision having considered a full range of views before setting the level of support in the final delivery plan. However, I do not agree that these principles need to be delivered by creating a new public body; we are already delivering them.
On setting strike prices for investment contracts, as we set out in our update on Final Investment Decision Enabling for Renewables, published on 27 June 2013, strike prices for renewables generation will use the strike prices published in the final delivery plan. The Government have appointed external specialist advisers to help to ensure that any investment represents value for money. We will publish summaries of reports from these advisers alongside the contract, in the event that agreement is reached, when it is laid before Parliament. In addition, the Government made commitments and amendments in the Bill in the other place to ensure that investment contracts are transparent. For all these reasons, we do not think it is necessary that there is separate scrutiny of whether an investment contract should be offered by the counterparty.
Finally, the noble Lord raised concerns that the contract terms should be subject to scrutiny and that there should be independent scrutiny before the counterparty offered a contract. I strongly agree that the terms on which the CFD or investment contracts are set need to be scrutinised. However, I consider that this should be done not by a separate expert panel but by the industry and consumer groups at large. This is why, over the past year, we have been working with an expert group consisting of industry and consumer group representatives in the development of key terms, something that I am sure the noble Lord, Lord Whitty, will welcome.
We have also had extensive discussions with industry, consumer groups and others with regard to how contracts will be allocated. The allocation process will be run by National Grid which will act within rules set out in secondary legislation to allocate CFDs to eligible applicants. The intention is that the allocation process will be rules-based and relatively mechanistic to allow investors and developers to make an informed decision about their chance of being allocated a contract. If an applicant is successful, National Grid will direct the counterparty to offer it a contract. Therefore, we do not think it appropriate to include another process which would add considerable complexity to the system.
We will shortly be publishing the CFD contract spine and further detail of the allocation process, which builds on the draft contract terms and operational framework published in November 2012. This will allow industry and other stakeholders to examine the terms of the contract and the allocation process and to discuss them further with my officials. Renewables investment contracts will be based on the final standard form CFD and therefore will be subject to the same scrutiny as aforementioned.
Before I ask the noble Lord, Lord Whitty, to withdraw his amendment I shall give some further information. He asked about the structures advising the Secretary of State and the counterparty beyond Ofgem and National Grid. For the first panel, we used a procurement process but, following Royal Assent, we intend to establish an ad hoc advisory group. We have not only made a policy commitment to establish a panel of technical experts but already appointed an interim panel to ensure they are operating in a timely and effective manner.
On reviewing strike prices, we have the opportunity to revise them through the annual updates to the delivery plan, and we intend to do that to set strike prices at an appropriate level.
My noble friend Lord Jenkin asked whether there would be enough accountability. We recognise that there is a need for robust accountability and transparency with such powers, which is why we introduced a duty on the Secretary of State to report on the Government’s activities in relation to all EMR functions provided for under Part 2. There is also a five-year review in Clause 55.
The noble Lord, Lord Berkeley, asked who made up the panel. I have a list of the members and their résumés. I think it would be helpful to the Committee if I do not spend time going through them but write to members of the Committee on the make up of the panel. I hope the noble Lord, Lord Whitty, will withdraw his amendment.
Viscount Ridley
My Lords, I know that particularly in the case of offshore wind a Royal Academy of Engineering report is forthcoming, which I hope we will see before Report. Rumours are that it is extremely negative about the risks and dangers of the practicalities of installing wind turbines on a large scale, and in particular on their likely lifetime.
If we were to consider giving an offshore wind company a 25-year contract for a technology that is supposed to last 20 years, and many engineers think will not last more than 15 years, we will not have done the consumer and indeed the taxpayer a service. We would have let them down very badly. We have to take into account that a lot of these technologies will turn out not to last as long as we thought and deliver the benefits that we thought they would. In the case of offshore wind, once again, it is becoming clearer by the day that the carbon dioxide savings that offshore wind will deliver will be very disappointing because of the need for backup power, the need for that backup power to be open cycle, as has been mentioned, and because of the cost and carbon cost of some of these technologies.
It would be a mistake on behalf of the consumer to enter into these eye-wateringly high, £155 per megawatt-hour, strike price costs for a quarter of a century when all sorts of things may change over that time.
Baroness Liddell of Coatdyke
I should remind your Lordships of my registered interest as a director of the Offshore Renewable Energy Catapult. I am not going to debate with the noble Lord the benefits or otherwise of offshore wind, other than to say that it is not a brand-new technology. I can remember something like 20 years ago inaugurating the first offshore wind farm at Blyth in Northumberland. The technology in its basic form is tried and tested, and is another bit of our armoury. Those of us who, like me, are in our prime, remember the six-day war and the consequences of not having a wide basket of energy sources available to us.
I am not 100% certain that I agree with my noble friend that we should be talking about contracts of a length of 30 years. However, we are talking here about a probing amendment and the uncertainties. We are coming into a big part of the Bill, where we are going to talk about uncertainty for investors. It is about how you secure a rate of return and mitigate risk. That is what was in my noble friend’s mind when he tabled his amendment, and on Thursday we will come to an amendment from the noble Lord, Lord Roper, which also brings us back to the issue of uncertainty.
I support what my noble friend is trying to do. There is a bit of a debate on the length of time, but the key to this aspect of the debate is to remove uncertainty. When the noble Lord, Lord Jenkin, was speaking, I came across a good analogy. When you get on a plane, after take-off the pilot comes on and says, “Don’t worry, I’ve never flown this plane before, but I’ll have read the manual before it’s time to land”. We have a wee bit of a feeling like that about this Bill.
The Earl of Caithness
I hope that my noble friend will not be lured by the special pleading of the noble Lord, Lord Berkeley, on this issue. I particularly thought that the noble Lord was wrong to say that it was unhelpful for anyone to say that they disliked windmills. I dislike windmills; I happen to be able to count 11 wind farms out of my window, which is probably more than anyone else can in the Committee, and I would be very pleased if they were not there for 25 years. It does not do tourism much good and, as a countryman, I think that it spoils the country. If there were modern, different technologies that could replace wind farms, which I agree are at the moment essential, although perhaps not in that quantity and dispersal that I can see, I would be only too pleased if they were removed.
One of the most interesting bits of evidence that we got in European Sub-Committee D was how wrong everybody has been on energy in the past. I see that the noble Lord, Lord Whitty, is in agreement with me. For those of us who were relatively new to this subject, it is fascinating how wrong the forecasters have been time and again in the past 15 years. So for goodness’ sake let us not fall into the same mistake of tying the Government down to a 25-year timescale when things could change. I have absolutely no doubt that they will—and do not let us give too much security to the producers of electricity. Capitalism is about taking risks. In the past, people have taken enormous risks. Some have fallen flat on their face and some have been hugely successful. However, it should not be for us as the consumer or the taxpayer to featherbed them; they must take a fair share of the risk. It is a very difficult balance that the Government are trying to get right, so please let us not make it more complicated by tying them to a 25-year timescale.
Viscount Ridley
My Lords, I quickly intervene because I failed to declare an interest. The noble Baroness, Lady Liddell, mentioned Blyth, which reminded me that one of the turbines at Blyth turned out to have been built on land on which, although I do not own it, the mineral rights were reserved by my grandfather. Therefore, I discovered that I was unwittingly receiving money from a wind turbine. I shall give that money away so that I do not feel sullied by it—but anyway, I feel that I should declare it.
Baroness Liddell of Coatdyke
I should reassure the noble Viscount that the wind farm that I inaugurated was offshore, so he is to be congratulated if he managed to get some money out of it.
Baroness Worthington
My Lords, I am grateful to my noble friend Lord Berkeley for tabling this amendment for no other reason than that we found out that very interesting fact. We cannot support this amendment. I have great sympathy with the concerns that have been raised that 25 years may be too long, but the way this amendment is phrased means that it would capture all renewable technologies. There is a great range of technologies that the strike prices are seeking to bring forward, and at the moment it seems that the majority of them might be conversion to biomass. I do not think you would want to lock that in to 25 years. I support the spirit behind the amendment of questioning and trying to understand the different lengths of contracts. That is something that we could discuss, but I do not think this amendment should make its way into the Bill.
We now have the draft delivery plan and the strike prices for renewables. The plan contains some suggested lengths for contracts, but I do not think we yet have anything similar for CCS and nuclear. We are expecting some more information on that in early August, when we will all be having a much deserved and well earned rest. It would be helpful if the Minister were to say something about that in her response.