Offshore Wind Developments

Christopher Chope Excerpts

Tuesday 6th January 2015 Westminster Hall

[Mr Weir]

Clearly, there is a balance to be struck between the interests of the bill payer and the interests of creating renewable energy. We all have to take that into account. My point is that as well as being clean, renewable energy also produces investment in industrial development and creates jobs. I agree that there is a balance to be struck. We must always bear in mind the impact on the bill payer of all these projects, and we must always seek value for money. The point that strikes that balance will vary over time.

[Mr Christopher Chope (Christchurch) (Con)]

Does the hon. Gentleman agree that there is much better value for money for the taxpayer in subsidising nuclear power than offshore wind?

[Mr Weir]

I am sure that the hon. Gentleman will be gobsmacked to know that I do not agree. I will mention that later. No doubt, he will make his own points on that subject.

When I served on the Energy Bill Committee, I raised concerns about the changeover process from renewable obligations to the contract for difference regime. That seems to be part of the problem that we are experiencing. The renewables obligation comes to an end in 2017. The difficulty arises because of the way that the CfD process is being introduced, particularly in respect of whether and at what level funds will be available in future years.

Two developments off the shores of my constituency have a combined total of 1,234 MW and both are bidding in the first round of contracts for difference. The Government are currently considering that first round of CfDs, which are due to be allocated, I understand, around the end of March. Therein lies part of the difficulty. New projects have to bid for contracts for difference through a competitive auction process, and offshore wind projects will compete not only with each other for the budget, but against other renewable energy projects. Offshore wind has been grouped with wave, tidal, biomass, combined heat and power and Scottish island wind. There is a total budget for all these technologies of £235 million, which is split between £155 million for 2016-17 and £80 million from 2017-18.

RenewableUK has estimated that this would be enough to bring forward around 700 MW of capacity—just over half of what could be produced by the two developments off Angus alone, never mind any others that might be in the pipeline. RenewableUK has estimated that up to 3.5 GW of capacity could have entered into the current allocation round, and by the time of the second allocation round, expected towards the end of this year, the number could rise to over 9 GW.

I am told that the amount of money allocated to the first round, which is under way, is significantly less than the industry expected, and that is causing considerable unease in the industry. It can be seen from the figures I have quoted that there is no way all three Scottish entrants could achieve a CfD. Indeed, given that there will certainly be bids from other parts of the UK, there is no guarantee that any of them will get a contract at all. That leaves the industry facing a dilemma. As Gordon Edge, director of policy at RenewableUK, put it:

“There is enough money on the table for 700-800MW in this allocation round if all the money in the ‘less established’ pot goes to offshore wind”,

which he considered likely. He said:

“There are a number of large offshore wind projects coming forward that are significantly larger than this. Developers of those projects are left with the choice of carving out a piece of their development to fit—which is likely to make the economics more challenging—or sitting it out in the hope of a better opportunity later. If the budget for the next allocation round is the same as the first round, then less than 10 per cent of capacity we project will be eligible to bid can secure a CfD. It can take hundreds of millions of pounds to get offshore wind projects through consent, which is why the industry is getting very hot under the collar.”

There is a real danger that some developers will begin to consider whether they are prepared to continue to pump large sums of money into projects if there is not at least a real chance that they will secure a contract for difference.

I raised that issue with the Secretary of State at the last Department of Energy and Climate Change questions. I said:

“Many offshore wind developers have expressed concern that owing to the structure of the current contracts for difference allocation round, only one development will be given a CfD, imperilling many of the others. Can the Secretary of State give them any reassurance that there will be greater consideration of offshore wind in future CfD allocations?”

The Secretary of State responded:

“First, it is worth putting it on the record…that Britain leads the world in offshore wind”—

that is perhaps true, and is welcome—

“with more offshore wind farms installed than in the rest of the world combined. In the current round of CfD allocations—of course, it has not been completed yet, so I cannot talk about the details—we have ensured that we have sufficient allocation for offshore wind, but we have also ensured that the levy control framework includes further allocations for it, so that the consumer can benefit from dropping prices.”—[Official Report, 18 December 2014; Vol. 589, c. 1551-1552.]

The difficulty with that is that the allocations for future rounds are not clear, and that is causing a great deal of concern in the industry.

What the Secretary of State said is all very well, but there is no certainty about the future budget, because the Government are giving no market signals about what the budgets are likely to be in future allocation rounds, and in future years, and there is no visibility beyond the current delivery plan, which extends to 2018-19. That uncertainty will almost certainly lead to developers looking again at developments. Without the confidence that budgets will be available, it is impossible for them to assess the allocation risk, and that will act as a deterrent to investors. Uncertainty could increase the cost of development, rather than create the savings that the Government are looking for.

For those projects that are not successful in the current round or whose capacity is too large to be supported within the available budget—the only definite figures that are available are under the current budget—lack of foresight could increase uncertainty yet further. The industry has suggested that it needs clarity on the frequency of allocation rounds and foresight of at least two allocation budgets at any time. Will the Minister say whether the Department is considering or is prepared to consider that in the near future?

--- Later in debate ---

[Mr Christopher Chope (Christchurch) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate the hon. Member for Angus (Mr Weir) on introducing the debate. There are constraints on the length of the speeches that we can make today, so I hope to expand on some of my remarks when I open the Second Reading debate on the Control of Offshore Wind Turbines Bill on Friday 16 January in the main Chamber.

Hon. Members who have spoken so far have shown themselves to be subsidy junkies. The problem is that the contracts for difference are a way of using taxpayers’ money to subsidise what is in essence an uneconomic activity. Given today’s oil prices, it is just as well that we—the British taxpayer and energy consumer—have not entered into contracts for difference with those engaged in exploration and production in the North sea. With the dramatic reductions in the price of oil and costs remaining much the same, such contracts would cost us an absolute fortune. Is that not the problem with the subsidy road down which the hon. Member for Angus wishes to take us?

There has been no mention of the economic context, the budget deficit or the burgeoning national debt, which continues to increase because we are running an unsustainable and unacceptable budget deficit. Common sense surely dictates that low-carbon energy should be provided at the minimum cost to the taxpayer and the energy consumer. We can get much cheaper low-carbon energy from nuclear than we can from offshore wind, so why are we investing in offshore wind? My hon. Friend the Member for Waveney (Peter Aldous) said that we were leading the world and investing in more offshore wind than anyone else, but is there not a reason to be slightly cautious? Why is no one else doing it? Because they see it as totally uneconomic and wasteful of resources.

On a recent visit to Denmark, I discussed with Danish politicians their offshore wind programme. They have cancelled any new development of offshore wind off the Danish coast because of their bad experiences. Their industry, however, enjoys the prospect of being able to benefit from United Kingdom subsidies, so that it can develop offshore wind off our islands; that is something that the Danes are no longer prepared to do off the coast of Denmark.

In my constituency a lot of jobs and prosperity are based on tourism. The proposal to construct up to 200 offshore wind turbines, each up to 200 metres high, has generated opposition from the people of Christchurch, Bournemouth, Poole and south Dorset the like of which I have never seen before. The development would be close to the shore in an area that would impact badly on the Jurassic coast world heritage site. Why is that development even being put forward? It is because of the subsidies; if there were no subsidies, it would not be happening.

There is a planning inquiry at the moment, and if the development is approved we will effectively be subsidising, through our taxes, a development that will impact badly on the Jurassic coast world heritage site. Yet at the same time we are saying, as Government policy, that we are prepared to invest in subsidies for a tunnel under Stonehenge to reduce the impact on that world heritage site. We might think that an inconsistency in Government policy, since we are prepared to used subsidies to exacerbate the impact on the environment in which the Jurassic coast world heritage site is situated.

I say to my hon. Friend the Member for Waveney—and I hope the Minister will respond to these points—that we should be looking at new technologies, so that we are not dependent on technology already developed by overseas competitors and can be world leaders. Wave and tidal power offer a much better prospect. If we are to put taxpayer-funded subsidies into renewables, that is a better sector in which to do so than offshore wind energy. In any event, it is also sensible to invest more in nuclear.

[Mark Lazarowicz]

Just to be clear, is it the hon. Gentleman’s position that he is not in favour of greater subsidies for offshore wind but happy to see greater subsidies for other marine technologies? I support higher subsidies to allow those technologies to develop, but I am interested to hear what level of subsidy he is prepared to see given to them.

[Mr James Gray (in the Chair)]

Order. The debate is, of course, about offshore wind.

[Mr Chope]

I am against all subsidies for offshore wind. If we are talking about the potential for the Government to engage in an industrial investment programme—the need to find jobs in new technologies has been spoken about this morning—from my experience in my constituency, there is a lot more to be said for investing in nuclear technology. Just before Christmas I visited an establishment in my constituency that is at the leading edge of nuclear technology. It has a fantastic record. If we have to put in subsidies, that is the sector in which we should do so, because subsidies for nuclear energy are far lower than the equivalent subsidies for offshore wind energy.

We have more than enough offshore wind provision already. I hope that the Minister will announce today that the Government will not put any more subsidies into that sector in future.

--- Later in debate ---

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Happy new year to you, Mr Gray. I am pleased to have the opportunity to contribute to the debate. I am also grateful to the Backbench Business Committee for giving us time this morning to debate offshore renewables.

Like other hon. Members, I have a strong constituency interest in the development of offshore wind energy, in that one of the projects bidding for support in the first allocation round of contract for difference is based in the Moray firth, off the northern coast of Banffshire. Several of the ports along the Moray firth could benefit from the development of offshore renewables, with significant potential spin-offs for a wider supply chain bringing much-needed economic development to the area. I am sure other coastal communities also have the potential to benefit from such economic diversification, which is key to the future prosperity of such communities. In the north-east, there is also an understanding that the skills utilised in the offshore oil and gas sector are eminently transferrable to the offshore renewables industry, as well as a sense that we should grasp the opportunities to develop new and innovative technologies on our doorstep by building on our existing strengths.

Today’s debate takes place in the context of energy market reform. We should always remember that that is not only about keeping the lights on, bringing consumer prices under control and repairing a broken system, but about climate change and the need to reduce our greenhouse gas emissions and to mitigate, or adapt to, the effects of climate change that are already manifest.

I read recently that 2014 was the hottest year on record. We do not always notice that in Banff and Buchan, which is pretty cold, but we undoubtedly see the impact of a slightly warmer, slightly wetter climate and the effect of changing sea temperatures on our marine environment, with coastal erosion and increased landslips. And who could fail to notice the problems associated with increased flooding right across the UK? If we abdicate our responsibility to reduce emissions or pretend we can ignore climate change indefinitely—or at least for another decade or two—we are burying our heads in the sand. Environmental campaigners are fond of pointing out that the climate does not negotiate, and they are not wrong.

That is primarily why we need cleaner energy. However, we are also in the fortunate position of being able to take economic advantage of the opportunities renewable energy presents. Being in the vanguard of new technologies has the potentia1 to strengthen our manufacturing, our exports and our research base.

[Mr Chope]

The hon. Lady’s argument is surely an argument in favour of investing in adaptations to ensure that the impact of climate change is not felt so severely—for example, on the coast. If we have coastal defences, we can defend ourselves better against the consequences of climate change.

[Dr Whiteford]

The hon. Gentleman’s views on these issues are well articulated and well known, but we have to be a lot more ambitious. I do not want be shoring up our coastline—I would rather be preventing it from falling down in the first place. One way we can do that, and gain economic advantage, is by developing new, innovative technologies, which will have tremendous commercial potential if we develop them properly.

In that light, I am deeply disappointed that no decarbonisation target has been set for 2030. That is a real missed opportunity, and it undermines confidence in the Government’s commitment to the offshore renewables sector. The Government initially seemed much more ambitious about the development of offshore wind, and that raised a lot of expectations, leading to considerable investment from industry. Companies were actively encouraged to make bids for offshore developments, and they have invested hundreds of millions of pounds in bringing projects to consent.

However, the smoke signals from the Government have changed, and the goalposts have shifted somewhat since Ministers embarked on this journey. The budget announced last October for contract for difference bids was substantially lower than expected. The £235 million allocated for group 2 will support an estimated 700 to 800 MW of offshore wind capacity, which is a lot less even than some of the individual projects aim to generate.

I am not questioning the principle of a competitive element to the process, but the money available will, realistically, support only one—and possibly only part of one—of the seven projects in the frame. Given that companies will each have invested tens of millions of pounds just to get to this stage, the support on offer simply does not present sufficient incentives or prospects of success to encourage further development in the sector. I fear that the prospect of offshore wind on the Scottish coast is in real danger of withering on the vine.

It is important to point out that, under contract for difference, offshore projects will compete against not just each other, but other renewables projects, including more evolved technologies, such as onshore wind on the islands, which are now much cheaper and lower risk. Again, that is likely to jeopardise the development of a strong domestic renewables sector and supply chain.

I am concerned that the shifting goalposts, the mixed signals and the interminable delays that have characterised energy market reform are doing the UK considerable reputational damage in international markets, which will deter future investment. Those who feel they may have been led up the garden path this time will be reluctant to venture into our orbit again, which is not where we need to be in attracting investment. The Government need to send a signal that they remain committed to the offshore wind sector—if they are—and to let the sector know that there will be future allocations under contract for difference to make further investment viable.