Energy Spending Priorities: Investors and Consumers

Callum McCaig Excerpts

Monday 4th July 2016 Commons Chamber

[Mr MacNeil]

I refer the hon. Gentleman to the report. We have had only one response on carbon capture and storage. As for the other reports, I think a response came early today, but we are waiting for the response on the main report on investor confidence.

I will move on to the report on home energy efficiency. All the policies mentioned affect consumers, as they are subsidised through the levy control framework. My Committee also looked at Government changes to spending that affect consumers more directly, namely changes to spending on energy efficiency measures that are levied on consumer bills but sit outside the LCF. As with the report on investor confidence, our energy efficiency inquiry was another piece of work that stakeholders urged us to take on at the roundtable meetings we held early in my time as Chair of the Committee. At this point, I would like to thank Josh Rhodes, the Committee specialist, for his work and help on the report.

We know that improving energy efficiency is a win-win for households and the UK as a whole. It enhances energy security, cuts carbon emissions from housing and reduces costs. For consumers, the benefits include lower energy bills, and, critically, warmer, more comfortable homes—more arguments should be made on that point—and improved health and wellbeing. When we work on the technical energy side, we sometimes forget that these things are for human beings, who have very nuanced and different reasons for wanting to insulate their homes and have warmer homes.

[Callum McCaig (Aberdeen South) (SNP)]

This comes to the nub of the issue with investment in this area. The Government are completely unwilling to accept that it is investment. Investment in making homes energy efficient is an investment in our society. There are savings to be made. We need to look at things in the round, rather than looking at one part in isolation.

[Mr MacNeil]

My hon. Friend is absolutely correct—I have to get used to saying “my hon. Friend”, because for the previous 10 years I have been here I have not had many hon. Friends to say it to. It is a pleasure to say it. He is absolutely correct, however, because the Government have got into a way of thinking that any money spent today is a cost rather than an investment for the future. I hope that they will get away from their austerity cult idea. I often criticise them for being a penny wise and a pound foolish Government, because I think it is a mistake.

--- Later in debate ---

[Callum McCaig (Aberdeen South) (SNP)]

I welcome the fact that we are debating these important Energy and Climate Change Committee reports, but as my hon. Friend the Member for Glasgow North (Patrick Grady) has ably demonstrated, it is a pity that we are doing so tonight when we should be discussing how we spend all the money that the Government spend—it is a whopping figure. There is a tinge of irony in the fact that less than three weeks ago, this country apparently voted to take back control to make this Parliament sovereign once again, and yet we cannot even properly debate how we spend our money.

Of the three reports, the investor confidence report is the critical one. It explodes the myth of the so-called long-term economic plan. The point about rhetoric versus reality is very much borne out. To quote the report, in reference to contracts for difference,

“merely stating that there may be three auctions this Parliament does not constitute a ‘plan’”;

In fairness, the absence of a plan around Brexit makes that look like a detailed, well worked out masterplan, but in reality it is not. All joking aside, the report goes on to say:

“We heard that policy uncertainty was weakening the case for investment in energy in the UK. This could mean that projects become more expensive to deliver—as investors demand a greater return on their investment to compensate for increased risk—or that projects simply do not go ahead. Moreover, any hiatus in energy investment could undermine the UK’s ability to meet climate, energy security and affordability objectives.”

In essence, all three sides of the energy trilemma have been undermined by the Government’s incoherent and ad hoc policy decisions. Throw in a dose of Brexit uncertainty, and there is a real requirement for the Government to provide some certainty if we are to meet the challenges of not just affordability of electricity and reducing carbon, but security of supply. All three of those are questionable. They were questionable before the Brexit vote, and the resulting increase in uncertainty has magnified that substantially. It is clear from the report that that has significantly undermined investor confidence, particularly in Scotland.

The undermining of our renewables industry in Scotland has been damaging. The discussions about carbon capture and storage are hugely undermining the Scottish industry. We had the potential in Peterhead to have both the world’s first floating wind farm commercially deployed, and carbon capture and storage in Peterhead power station. That would have given a relatively small part of Scotland a chance to be right at the global cutting edge of the carbon reduction and climate change technological advances. Unfortunately, one part of that is not going ahead, and that is substantially regrettable.

We have heard discussions about the regrettable fixation on one side of the levy control framework and the fact that there is an opaqueness around the levy control framework. I add to the Select Committee’s call for us to be shown the detailed working behind that. We need an understanding from the Government that if investment in low-carbon technology drives down price, thereby increasing the notional overspend on the levy control framework, it does not necessarily lead to greater cost for the consumer. If we are undermining investment in the low-carbon industries based on a desire to protect the consumer—that would be a reasonable position to start from, although not necessarily one that I agree with wholeheartedly—we need to look at what we are doing in the round. The report says that the increase in the cost of the levy control framework from the fall in the wholesale price of conventional electricity will be half a billion pounds, but that is not an additional cost to the consumer. It is certainly not a reason to cut the support—the long-term investment in the future—that investment in renewable energy will bring.

There is huge uncertainty over how we will deal with our European neighbours following the vote two weeks ago. In her reset speech, the Secretary of State for Energy and Climate Change discussed at length the benefits of energy union and how it needs to be worked upon. We have no idea whether that will carry on or whether it will be part of the emissions trading scheme.

[Mr MacNeil]

My hon. Friend raises a good point. It would be useful if DECC laid out what the three most likely scenarios would mean for energy policy: European economic area membership, European Free Trade Association membership and the third-country option. Given the words of Commissioner Malmström, it seems that if the UK goes for the third-country option, we will have to leave the EU and then negotiate for however many years before we have a deal. It would not happen concurrently with exit, so we need to know what that might mean for energy policy.

[Callum McCaig]

I would go further than saying that that would be useful; it is absolutely essential. It behoves a responsible Government to do that. These are not contingency plans any more; they are just the plans. There must be some sense of certainty about what is going on.

The reports from my hon. Friend’s Committee have ably demonstrated that uncertainty builds in additional cost. We have to replace a significant proportion of our electricity capacity in the next decade or so. Perhaps the cost will be greater because the pound will be weaker when we are outwith the EU. These things need to be addressed. It would be unfair to expect the Secretary of State to come out with a detailed plan now, but we need an undertaking that her Department will do the necessary work, and in short order, to deliver some form of certainty, otherwise we will be in a real pickle very soon.

The hon. Member for Beverley and Holderness (Graham Stuart) said that he was delighted and that the only signal we needed to give to the markets was the welcome announcement that the Government accepted the targets of the fifth carbon budget. I share his enthusiasm that the Government have done that, albeit somewhat later than was expected by many, but as the Committee on Climate Change has suggested, we need a little more of the “how”, as well as the “what”. Again, I hope that the Government will soon deliver a bit more on how we will do it. These are fundamental questions and they cannot go unanswered.

To conclude, the Government have created uncertainty in this field and that uncertainty has since been magnified. That stresses the fundamental importance of having a long-term plan that has cross-party buy-in, and that is not subject to the whims and changes of Government. The climate change legislation provides a model for how we can work collaboratively across parties and across Parliaments and Assemblies. Another model is the National Infrastructure Commission. Following the uncertainty that the Government have created themselves and the uncertainty caused by the Brexit vote, we need a plan that we stick to and deliver.