Offshore Wind Developments

Debate between Christopher Chope and Mike Weir

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?