Energy Generation

Debate between Barry Gardiner and Caroline Lucas

Wednesday 17th April 2013 Westminster Hall

[Barry Gardiner]

My hon. Friend is, as ever, thoroughly astute on these matters. He was a tremendous champion of the decarbonisation target when the Bill was in Committee, and he speaks with great knowledge on the subject. He is absolutely right. Only last night at a dinner, I heard the Secretary of State talking as if this was a great leap forward, that this would be the only Government who had legislated for a decarbonisation target. At that point I almost spluttered into my chicken, because we have not legislated for a decarbonisation target. [Interruption.] And it was beef anyway, says my hon. Friend the Member for Southampton, Test (Dr Whitehead). What we have done is make provision so that, at the appropriate moment, it would not be impossible to legislate.

Let me return to the key point that I wish to address, because I know that other Members want to enter the debate. Although it is good to have a debate and a real exchange of views through interventions, I fear that I must press on if other Members are to be able to speak. Siemens told us that if we wait till 2016 to set a decarbonisation target for 2030, it and many of its competitors are likely to delay or cancel planned investments in the UK.

In March, six of the largest supply chain investors wrote to the Chancellor, the Secretary of State for Business, Innovation and Skills and the Secretary of State for Energy and Climate Change to register their strong support for the decarbonisation amendment tabled by the hon. Member for South Suffolk (Mr Yeo) and me, which to date is supported by 41 Members from—I am pleased to say—all parties in the House. They wrote:

“Projects can take 4-6 years from investment decision to construction and operation. We are already close to the point where lack of a post-2020 market driver will seriously undermine project pipelines. Supply chain investment decisions depend on reasonable assurance for manufacturers that a production facility to be constructed during this decade, costing hundreds of millions of pounds, will have an adequate market for its products well into the 2020s.

Postponing the 2030 target decision until 2016 creates entirely avoidable political risk. This will slow growth in the low carbon sector, handicap the UK supply chain, reduce UK R&D and produce fewer new jobs. This is not in keeping with the Government’s aspirations for the UK to be the global leader in low carbon technologies such as offshore wind and marine.”

The amendment would require a 2030 decarbonisation target for the energy sector to be set by the Secretary of State, on the advice of the Committee on Climate Change, by next spring, which would ensure that the Energy Bill sent a coherent signal to investors. By securing investment in a competitive UK supply chain, the amendment would not only reduce the cost of decarbonising our energy infrastructure, but ensure that the investments that we are committed to make produced a significant growth multiplier and contributed to the essential rebalancing of the British economy.

Recent peer-reviewed studies from the London School of Economics and Berkeley have concluded that the fiscal multiplier for productive infrastructure investment in current economic conditions is likely to be about 2.5 in the UK. The amendment would ensure that the £7.6 billion produced secure investable propositions, creating significant numbers of construction jobs and long-term high-value jobs in communities around the UK, where both are scarce.

[Caroline Lucas]

I of course completely support the hon. Gentleman’s amendment, which he is understandably justifying in terms of economics and, no doubt, political expedients. Will he, however, acknowledge that we should set the targets in line with the science, rather than with what we think is politically possible, because the target of decarbonisation by 2030 gives us only a 37% chance of remaining below 2°, and if someone said that we had only a 37% chance of not falling out of the air, I suspect that we would not get on an aeroplane? The odds are very scary.

[Barry Gardiner]

I am not a gambling man, but I understand the position of seeking to look at climate change policy as a balance of risks, and the hon. Lady is absolutely right to make that point. In truth, whatever the UK does will not make a global difference to whether we reach 2°, as I am sure she would acknowledge. The aspiration required of the UK and the global leadership that it possesses, which the hon. Member for St Ives mentioned, mean that we have to drive this if we are to play our part in achieving the global reduction. I understand the percentage figures she gave, but it is perhaps illegitimate to conclude that if we hit the 2030 target we will have only a 36% chance of achieving the 2° target. The UK cannot achieve that on its own; it demands a similar effort across the globe.

Part of the problem is that, in considering electricity market reform, the Government have been like a phlebotomist looking at the body politic. They have been obsessed with the energy flow around the system, as a phlebotomist is obsessed with the blood flow around the body, but they have failed to consider the health of the whole organism. That makes for a very poor doctor; we would not want a GP who was simply a phlebotomist.

The Government’s approach has not taken enough cognisance of how the energy sector fits in with powering our economy as a whole. A good example is the ramping down of funds available for carbon capture and storage. Coal and CCS will be vital for us. There will be significant jobs, and if we invest in and develop CCS, it will become a major part of our exports in skills and technology around the world, from which we can benefit. It is part of our wider economy, and the same is true of the renewables industry the more we invest in it and adopt the position, as the hon. Gentleman said, of being the global leader.

I am afraid that we have already lost that position, because other countries have invested far more, including what we are prepared to do in CCS. Unless we invest, we will not develop the export capacity that we need to drive our economy as a whole. We cannot simply be what Gary Smith of the GMB often refers to as the Meccano men of Europe, who simply fit together a product made elsewhere. We must have supply chains in the UK, create the jobs and invest in companies here.

Energy Bill [Lords]

Debate between Barry Gardiner and Caroline Lucas

Wednesday 14th September 2011 Commons Chamber

[Barry Gardiner]

The hon. Lady will remember that when the financial services regulations were introduced, banks had to declare up front whether they were providing information and advice to their customers in an independent capacity or as a tied agent for themselves. Does she agree that it is also important in terms of the green deal that people who have gained a householder’s trust and entered their home on the basis that they are providing impartial and independent advice do not, once inside the front door, switch hats and start offering advice as a tied agent of another service provider?

[Caroline Lucas]

I completely agree. Trust is crucial if the green deal is to be successful. We want people to be talking about it, telling their friends and neighbours how great it is; we want there to be a real buzz and momentum behind it. If there are just a couple of cases of such mis-selling, the whole process will be undermined.

I also seek to extend the same consumer protections for the repayment of a green deal loan to energy advice services or energy plans that are not specifically green deal plans. If a householder decides after the initial green deal assessment to pay for the services up front without the need for a green deal loan, they ought to be eligible for the same kinds of protection they would receive if repaying the loan in a different way. If the clause in question is left in its current form, regulations regarding protection and redress will hang not on what a consumer buys, but on how they pay for it. That is perverse. If the consumer pays up front, the protections and regulations will not cover them. Only if they take the green deal loan will they have those protections. If people are not protected until they have signed a contract, how will that help consumers during the advice and contracting stage when they may not have decided to pay for green deal services yet, let alone how to pay for them? Also, who can the consumer complain to about pressurising sales tactics if they walk away before they have signed the contract? Will consumers choose the financial option that is best for them if they have to use green deal finance to get ongoing support from the advice line and redress scheme? I hope the Minister will address those questions in summing up.

My final concern in relation to this group of amendments is about the comparability of green deal quotes. It is vital that consumers are in a position to make an informed choice about which green deal is best for them, and that could be nigh impossible if the different quotes received are hard to compare. I should like the Minister to address this by ensuring that all green deal quotes are provided in a way that makes them very easy to compare with one another, to judge and to assess.

I have detained the House for some time so I shall conclude. My final amendment in this group would give consumers the right to choose which energy bill their green deal loan repayments would be applied to. In 78% of occupied British buildings, heating and hot water are provided by natural gas, so that is the fuel most likely to be reduced after a green deal makeover. It therefore seems logical for customers’ gas bills, where possible, to carry green deal loan repayments because if the golden rule is working, their gas bills will not become more expensive after the green deal repayments have been applied. It is there that the advantage of the green deal will be most apparent to householders.

If the repayments are added to electricity bills, those electricity bills are not likely to fall so much after a green deal makeover unless a home’s space and water are heated by electricity, but far fewer homes are heated by electricity than by gas. That means that in the vast majority of cases, green deal customers will potentially have lower gas bills but higher electricity bills. That makes it harder to see whether the golden rule is working and risks undermining the central pay-as-you-save principle, as well as eroding customers’ confidence in the value of the deal. I hope the Minister will therefore consider allowing consumers to choose which bill they want their green deal payment to be applied to so that their management of the green deal is as straightforward as possible.

[Barry Gardiner]

I am delighted to follow my hon. Friend the Member for Brighton, Pavilion (Caroline Lucas), who has made a very informed speech about exactly the points at the heart of the measures. I, too, want to address the green deal to dig out more about the golden rule and the energy company obligation. We all agree that it is right that energy efficiency improvements should be provided at no up-front cost. That is a good thing that we all support across the House and want to see implemented. As has been pointed out, however, the loans will be provided at commercial rates through the green deal and will attach to the property, not the householder, for up to 25 years.

The golden rule has been introduced to require that all green deal loans are less than the repayment cost resulting from the installation of the measures. The qualifying energy efficiency improvements will be determined through the energy performance certificate. This means that any savings will be estimated and based on standardised use. As a result, there are no guarantees that actual savings will match or better the estimated savings, as I pointed out to the hon. Member for Brigg and Goole (Andrew Percy). The Bill’s central premise is that consumers will save more on their energy bills than they will repay in loan costs and that that will be enough to drive consumer demand. However, the Bill provides little detail about how demand for the green deal will be driven beyond that basic finance mechanism other than through the introduction of the new ECO, which will underpin the deal and subsidise properties that require energy efficiency improvements but for which the golden rule would not be met.

It is estimated that the green deal will reach more than 40 million homes by 2020 and a further 12 million by 2030. That amounts to the retrofitting of 1.7 million homes a year—that is 4,800 a day—between 2012, when the green deal starts, and 2020. The Committee on Climate Change has estimated that, between 2012 and 2022, we would need to insulate 8.3 million lofts, 5.7 million cavity walls and more than 2 million solid walls to meet the UK’s carbon budget. The Government’s expected take-up of those measures, through the green deal and the extension of the carbon emissions reduction target, misses those requirements by 3.8 million lofts and 2.7 million cavity walls.

Although I support the aspiration behind the green deal, it is difficult to see how it can be achieved under the proposals. Indeed, the Committee on Climate Change’s third progress report to Parliament concluded that the Government proposals should help to strengthen incentives for the take-up of energy efficiency measures. However, there is a significant risk that they will not adequately address the range of financial and non-financial barriers. I do not want to talk the measures down because Members on both sides want them to work, but it is important that we are realistic about their likelihood of success.

The economies of energy efficiency retrofits at today’s energy prices simply are not attractive, as my hon. Friend the Member for Brighton, Pavilion has pointed out, because of the gap between projected returns based on current energy prices and the cost of borrowing—a gap that can be met only if substantive subsidies are applied. Recent analysis by E3G has highlighted that at today’s prices and with the commercial interest rates that the Government intend to apply to green deal financing, the golden rule cannot be met on a 25-year loan. The Government have quite rightly identified that the up-front costs of improvement and access to capital are significant barriers to the uptake of energy efficiency, but we should be clear that the green deal alone will not overcome them. Without intervention to limit the cost of borrowing, consumer demand for green deal programmes could be very low indeed.

Furthermore, access to capital is not a universal problem. For those who can afford them, savings, mortgage extensions and personal loans have long been readily available to provide up-front capital for energy efficiency investments, yet they have not been used on any scale, despite the fact that many people are able to procure those borrowings at 5% or 6%, let alone at the 11% that the Government are suggesting. Financing through the green deal simply does not stack up for the rational investor, and particularly for low and middle-income households.

Let me give an example. The annual energy bill for an average household is calculated at £1,029 a year. A good whole-house retrofit would be expected to save approximately 50% on the average energy bill—in this case, just over £500 a year. Solid wall insulation was identified by the Committee on Climate Change as the main energy efficiency measure that could usefully be financed by the green deal, but according to DECC’s own analysis, the capital cost of solid wall insulation ranges between £7,600 and £12,600. Let us take the cost of £12,600 and the maximum saving of £500 a year; in fact, DECC’s analysis estimates that solid wall insulation would save only £400 a year, but I give it the extra £100. Through the green deal, if we pay back £500 a year, through the savings on the energy bill for that average house, against the £12,600 loan over 25 years, we still do not pay back the full amount. That deal fails the golden rule.

An energy company obligation is being introduced to subsidise the difference, reducing up-front costs to the point that they are less than the energy savings. The Committee on Climate Change estimates that up to £17 billion of support will be required through the ECO to insulate 2.3 million solid walls by 2022, but the Government estimate that the total ECO support will be only £1 billion. The fact that the golden rule cannot be met even before the cost of finance is factored in is a matter of huge concern.

The Government have calculated that the green deal’s financial cost will be cheaper than a market personal loan, but they concede that it could mean rates of up to 11%. At today’s energy prices, to drive demand by meeting the green deal’s golden rule, 25-year loans would need to be offered at rates of 2% or less. E3G’s recently published analysis concluded that a £15,000 loan at 0% over 25 years for changes that delivered a 50% energy saving and lifetime savings of £2,461 could meet the golden rule in year 8, but that the same loan offered at just 2% would incur losses of £1,747 over that 25-year period, whereas a similar £15,000 loan for changes that delivered just a 35% energy saving would not break even at all even with interest at 0%.