Energy Bill [HL]

Lord Deben Excerpts

Wednesday 14th October 2015 Grand Committee

[Lord Howell of Guildford]

I thank the noble Lord for that. Turning to the amendments, they are very generous and I congratulate my noble friend on bringing them forward, even though they are rather extensive. They are what we used to call in the other place “liquid legislation”; that is, legislation going through Parliament that all the time is massively amended so that it changes from day to day. The amendments are indeed extensive but also very generous. This is a very exciting industry, part of the great low-carbon renewables transformation in the world that most of us want to see. All around the world, costs not only for solar power, which we were discussing earlier in the Chamber, but for all forms of wind power, onshore and offshore, and all sorts of other associated technologies are coming down dramatically. Really amazing technological advances are being achieved.

I listened to the expert legal commentaries of the noble and learned Lord, Lord Wallace, and I am all for speeding up the planning. However, it has to be remembered that what we are doing here is not legislating to stop all onshore wind. That is a vast industry that will continue and contribute to the energy transformation of the entire planet. What we are legislating for is to bring to a halt, with the various adjustments embodied in the amendments, further subsidy that falls upon consumers. This has to be weighed in the balance. We hear horrid stories about the closure of businesses; the Redcar steelworks is perhaps the most dramatic recent one. When you look at the small print, you find that one of the difficulties is that they are facing much cheaper imports from countries that are not carrying such heavy energy costs. We have to put that in the balance and not just ignore the other side of the argument. There are consumers and taxpayers, often poor households and consumers with very low incomes, at the other end of this process, and we cannot ignore their position.

In addition, it has to be remembered that many of the investors behind the projects we are talking about have not just entered into them entirely from the goodness of their hearts or because they want to save the planet. Investors enter into these great projects because they can make a profit, and I have nothing against that; that is excellent. Less excellent, however, is that they sometimes enter into them because the subsidies seem so juicy and attractive and they think that they are going to make exceptionally large profits. So I just say to my noble friend, and I am sure he would agree, that we should bring to an end—with these many concessions and in a very balanced way—this particular growth of additional subsidies. In future, let us make sure that investors in these industries understand, as I believe the wise ones do, that the projects that they want to go for are the ones that are really likely to be extremely profitable, particularly in Scotland, and very competitive with all other forms of energy. They should be careful if they think that they are just going to ride on an indefinite continuation of very large subsidies because Governments and policies change. Wise advisers to wise investors will always warn them that the best projects are those for which the subsidies are a minimal part of the reward, and the profitable and efficient operation of the industry itself, and the rapid adaption of new technology, are the larger part of the profit generated. In every case, we advise that subsidies can end.

[Lord Deben (Con)]

My Lords, in discussing these amendments, it is worthwhile reminding ourselves of the enormous success of the system which the Government and their predecessor put into place. The fact that these prices have fallen significantly is in part—indeed, in very strong part—due to the encouragement that this Government and the previous Government have brought to play. Sometimes, we talk as if all this technological advantage has just happened because people have been clever. Actually, it has not: a market was created. Certainly, the successes of offshore wind have been achieved because people had a proper market, with a proper continuum, and were therefore able to invest.

I declare an interest as chairman of the Committee on Climate Change. Although I have to sit on one side or the other, that makes me entirely independent on these issues. The fact that we can talk about offshore wind being competitive now, in a way that we had never thought of, is entirely the result of the foresight of all three political parties in various assemblies putting this opportunity in place. Let us not just say that the technology has improved so wonderfully that it is now in this new position; it is actually a very good example of the relationship between government and the provision of opportunity by others. Any new technology has to compete in a world where there are enormous advantages for old technologies, because of the investment they had in the past and a whole range of subsidies that happen throughout the world. That is certainly true of the fossil fuel industries.

I point next to the fact that one of the reasons why the cost has risen is that these technologies are actually more efficient than we ever thought they were going to be. When the Committee on Climate Change proposed that it would cost us some £7.6 billion to ensure that we were on track to decarbonise our electricity supply, and therefore on track for meeting our statutory requirement to reduce our emissions by 80% by the year 2050, the then coalition Government accepted that amount. It is actually costing more than that, partly because of the fall in the gas price. The gas price affects this because of course a contract for difference takes place, so when the price of gas falls the additional cost comes back. However, it is also partly because offshore wind is immensely more efficient than we thought it would be. It is putting more energy into the grid, which costs us more because that is the deal we have done. So the background to these amendments is one of success, not failure. We are not having to do this because it has cost us more by being a failure; it is because it has been a success.

The amendments seem to go a very long way towards meeting the one legitimate argument that needs to be faced: the reasonable expectation on the part of business that if it invests, it will get certain advantages from the Government. The Committee on Climate Change is primarily concerned not with means but with ends. We are concerned with delivering the budgets to which the Government and Parliament are committed. Frankly, Governments have every right to make changes if they want to, as long as the changes end up in such a place that we are able to meet the requirements of the carbon budgets laid down by Parliament as a result of the recommendations of the Committee on Climate Change. So I am very leery of being led into a position of saying that this or that mechanism is the right one. However, I have to say that it is very important that business should not get the impression that promises made are broken.

That does not mean to say that if you subsidise people now, you will always be subsidising them. That is not true. Sometimes, when I listen to some of the green organisations, you would have thought that the moment you promise to do something, you are then going to do it for ever, and that somehow you are letting people down if you do not. That is also not so. All I am saying here is that there are two different issues. On the one hand is the right and ability of the Government to alter, extend or restrict the subsidy that they offer in the light of changed circumstances and, on the other, the duty of the Government to ensure that they meet fully the obligations into which they have entered.

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[Lord Deben]

My own view is that there is a significant argument as to whether that was “the promise”; it was the mechanism that was put forward. My concern now is about a perfectly reasonable assumption that the Government, in looking at the circumstances, have decided that the way in which the system works has to be severely altered. In doing that, I am concerned that we do not deal unfairly with companies that have entered into significant costs on the basis of what the law appeared to them to be. Why do I say that? I do not have a position to argue on behalf of the companies but I have a duty to argue on behalf of the future of our policies towards climate change. That means we have to ensure that the British Government are always seen as absolutely dependable. I warn that if we do not get that right, we will find ourselves in the position that some other Governments appear to be in. In general, the Government seem to have done precisely what they ought to in these amendments and I commend the Minister for putting them forward in this way. I speak in support of what he has done here.

However, during the course of the debate and discussions, the Minister will have heard a number of particular examples which sound as if they fall on the wrong side of the lines that have been drawn. My experience from many years as a Minister is that having one occasion which looks pretty unfair causes very considerable angst, not just to those people but much more widely, so that that one occasion begins to undermine the way in which the Government are seen. I want the Minister to look carefully just to make sure that where some of the examples which the noble and learned Lord, Lord Wallace, presented earlier are reasonable, we should find some way through.

Secondly, I do not know how much the Minister has to do with planning permission personally. I declare an interest in the sense that I help people to do planning permission for sustainable development—not anything to do with energy but on other things. Planners can take a very long time and when one is trying to work with them on a joint agreement, all these rules about having to provide an answer in four months can so easily end up as 14 months, and sometimes as 24 months. But you do that because you really want to get an answer which everyone is happy with. I therefore hope the Minister will recognise that if there are circumstances where it appears that another arm of government has made it impossible for people to meet the real and sensible restrictions which he is laying to achieve his ends, he will look particularly carefully at those circumstances. One area where people feel very unhappy is if they feel that one bit of government has made it impossible for them to meet the arrangements which another bit has perfectly properly put forward, so I hope he will look at that.

The third thing I hope the Minister will do is that when he talks about these things he will remind people of the enormous success of the policy, as I mentioned earlier. This policy has achieved a great deal. Britain was hugely at the bottom of the heap in the amount of renewable energy it had. We have done extremely well, which seems something to be very cheered about. I am pleased that my noble friend Lord Howell, as he always does, referred to this great industry. The renewables industry is a great industry and has emerged from circumstances in which it was rather laughed at by many people. It is now a serious industry with serious results and, importantly, providing for the absolute demand that we have to combat climate change—which, as I think almost all of us accept, is the biggest material threat to mankind.

As I have said on earlier occasions, these amendments—although they may not all be right—are important in order to emphasise that the Government have to follow what they have already done with their own amendments. They have to make sure that at no point does it look as though they have let people down, because it is very important for future policies that that does not happen. However, they are also important because they are testament to the fact that this Government have achieved so much, and I think that it is necessary for the wider community to become more interested in ends than in means.

I finish by saying that assessing Governments’ commitments on the basis of whether they happen to accept a particular way of doing something rather than on whether they are achieving the end that you want is a great mistake. We ought always to recognise that it is difficult to be government and it is easy to be opposition; it is easier to be green in opposition than it is in government. The judgment must be: have the Government achieved the end to which they have committed themselves? At the moment, the jury is out because we do not know the alternative ways of proceeding. However, it is perfectly reasonable for a Government to decide that it is no longer sensible to subsidise in one way rather than another or to subsidise in one way rather than have no subsidy. All that matters is that the Government can stand with their head held high and say, “We have met our obligations”. There are some examples here which I think it would be a mistake not to look at very carefully; otherwise, all the good intentions of these amendments might be much undermined.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing this session of the Committee. I should start by declaring an additional future relevant interest. I am in negotiations about taking up a position with an American charity that will be working on climate change and energy. I have not signed anything yet, but I think that it is material and that therefore I should declare a potential future interest.

I am grateful for all the contributions to this debate and, again, to the Minister for his introduction to these clauses. I am particularly grateful to the noble and learned Lord, Lord Wallace, for—as has been said before—his forensic description and critique of the amendments as we see them today. I say at the outset that we are, as I am sure are the Government, committed fully to decarbonising the UK energy system at least cost in a way that ensures that we maintain security of supply and, one hopes, engenders an industrial revolution that we can be proud of and export to the rest of the world. Within that, people will know that I have no particular love of any particular technology. I take a very broad view towards the groups of technologies that should be considered as we go forward in this endeavour.

In that spirit, I want to ask the Minister some specific questions relating to the amendments but also to a wider context. I am sure he appreciates that we are dealing with a somewhat febrile environment. There is now sufficient investor disquiet that people are watching very carefully for signals from the Government that this is not about the wholesale disruption of the renewables industry, and we must do everything that we can to reassure the industry that that is not the case.

I shall start with the more specific questions relating to the amendments. As was raised earlier, there are some anomalies. They may arise from the fact that it feels, in the words of the noble Lord, Lord Howell, as if we are in a liquid legislation situation, where we seem to be getting rather large chunks of detailed and complex legislation with relatively little time to assess it. I am therefore genuinely looking forward to the Minister’s responses because some of these anomalies seem to be substantial and we need a response.

The Government made this announcement on 18 June, in the first few weeks of government after the election, and then set about consulting. That is not normally the way around that we would expect a Government to behave, but there we are. We are where we are. Then, in the Minister’s own words, they consulted industry and hundreds of stakeholders. To my knowledge, however, although maybe I have missed it, we have not seen the synthesis of the results of that consultation. In normal proceedings, the Government would conduct a consultation and get the results back, and we would all be able to look at what everyone had said. As far as I am aware, we have not had that. That puts us at a great disadvantage. There is distinct informational asymmetry since the Government have been involved in all these conversations but Members of Parliament from other parties have not had that luxury. We have therefore found ourselves, in the past few days since these rather detailed amendments came forward, having to consult a large number of people to absorb their concerns, even though we have very little to go on in terms of being able to place them in context. Noble Lords will have noticed that we have not tabled any amendments to the amendments. This is because until this morning we have been receiving people’s feedback on these complex issues.

As the Minister said, this is a complex issue. Had the draftspeople who were writing the manifesto in April and May before the election realised quite the implication of those few words in the manifesto, would we have seen them appear? Regrettably, they have led to this huge amount of complexity and disquiet and a feeling among some investors that they have not been handled with due respect. They have seen what they thought were very sensible investment decisions being completely undermined by what to them was a very sudden and surprising announcement with very little signalling that it would take place.

The government amendments are intended to clarify, but unfortunately they just raise more anomalies. This has been raised already, but it might just be worth reiterating a couple of points. We have a situation now where the grace periods will apply to projects that have had a negative decision in planning overturned at appeal. That seems to fly in the face of Clause 65, which says that local people should have the final say. Here we have a situation where a project that clearly was not very popular has been appealed and is now going forward. Such projects will continue to be eligible. However, where we have the reverse—an approval by local planning but no written documents, so we have gone through the democratic process and had approval but have not yet received the written information—the guillotine comes down and you cannot go forward. That seems to be a very odd situation. Similarly, you may have got your approval, but if you have asked for a variation and are waiting for clarity on it, that too falls foul of this artificial 18 June deadline. I would like the Minister to respond to those concerns and explain why the guillotine is being interpreted in this way, which seems to conflict with the overall desire of the Government to keep local government and local decision-making at the heart of this.

Then we move on to the issue of whether investment has been frozen out by the uncertainty created by bringing forward this clause. Again, as a general point, this could have been so different had we not embarked on this endeavour, but there we are. We are where we are. I am repeating some of the technical questions that have already been asked so eloquently by the noble and learned Lord, Lord Wallace. We question why only lenders who have investor-grade credit ratings qualify. That seems quite restrictive and could freeze out very good potential creditworthy lenders who happen not to meet that particular criterion.

We would like to know exactly how the investment freezing will be interpreted. Do you have to prove that you have been frozen out for the entire time of the legislation from the start to Royal Assent, or just a part of that? How much of the delay counts and what does not count?

My final point has already been raised. Once you have proof that you have been frozen out, you have to show this by a certain date—I think it is March 31 2016. How long will it take before you get a reply? You have to have already built your project by December 2017. There is nothing in here to say that there must be a time limit by which any final decision is made. It could drag on. It has been said before that some of these things drag on for reasons outside government control. We need more clarity on how that will work practically. I know that it seems slightly odd to be arguing over and/or, but it is material about whether we are talking about a grace period for grid and radar delays or whether it is just grid as one category and radar as another. We need clarity on that.