Energy Bill [HL]

Lord Howell of Guildford Excerpts

Monday 14th September 2015 Lords Chamber

[Baroness Young of Old Scone (Lab)]

My Lords, I support the noble Lord, Lord Teverson, on whether keeping this clause in the Bill is sensible. I share his views entirely about the vagaries of the local planning system. It is true to say—it would be good if the Minister could confirm it at some stage—that not only are there not many neighbourhood plans in existence, but some local authorities have not yet published local plans, far less had them accepted. This provision might be okay in places where they have thought about it, but so many have not and show no signs of doing so.

The National Planning Policy Framework only encourages local planning authorities to consider identifying suitable areas for renewable energy sources and as a result the links in the chain that could fail are rather long. A local authority might not have got to the stage where it had a local plan and therefore there cannot be neighbourhood plans, because they have got to be in a consistent process with the local plan, and there is only a vague nudge in the direction of considering whether suitable areas have been identified for renewable energy. It does not feel like a well-honed local set of circumstances for fostering that vital and, as the noble Lord, Lord Teverson, pointed out, cost-effective way of meeting some very stringent climate change targets and budgets. I have concerns about the removal of the Secretary of State’s consent in this respect.

It is rather strange that we are moving in one direction for fracking consents and in another for onshore wind consents. I simply make that remark without having any belief that there should be one without the other. I must confess that I need to meet my noble friend Lady Worthington to talk about some impacts of fracking other than simply energy generation, carbon reduction and cost.

There is one other issue in respect of the localisation of decision-making in terms of onshore wind, which is how we get some strategic perspective. It is going to be abominably difficult to meet our carbon targets, and we will need every tool in the toolkit to do so. In this clause, there is no mechanism for that happening on a scale larger than a neighbourhood or local plan, yet many of these decisions involving technologies other than onshore wind need to be part of the mix on a local and national basis for these decisions to be looked at on a more strategic basis at a higher level than the local planning authority.

I hope that the Minister will come back to us with answers to some of the questions we are raising about the advisability of removing the Secretary of State’s permission.

[Lord Howell of Guildford (Con)]

My Lords, I, too, am waiting for my noble friend Lord Ridley to give his limpid views on the future of onshore wind and, indeed, on the role of onshore and offshore wind power in the tasks of reducing emissions worldwide and producing a balanced energy policy for the British people. No doubt he will enter into later debates on the next clause which will cover very much the same ground.

I admire the noble Lord, Lord Teverson, for his frank admission of the dilemma he faces. On the one hand, localism is the flavour of the month, the year and the time, and there is a great desire to move from central administration in every area of policy, certainly including energy, into a greater role for local people, local planning and local authorities, yet he is also worried about inconsistency and fears that in some way the onshore wind cause is being abandoned. I do not see that. If you look at the proposals and the argument in the impact assessments behind the Bill, it is perfectly clear that, first, onshore wind has had a fantastic run over recent years. Some would say it was possibly too big a run given the very considerable economic advantages it brought to many wealthy individuals, gigantic corporations and energy companies and to those who are benefiting in all sorts of other ways from the proceeds and the subsidies, which are, of course, paid for by the consumer. In many cases, we know it is the poor consumer, and it is certainly the competitive consumer in industry. It is clear that subsidies have created this great growth. There must be a limit, as has been set quite clearly by government, and it is going to be exceeded unless the brakes are put on. There is a limit in two senses: first, the sheer weight of subsidy required to maintain the industry until it can get its costs down. I will come to that in a moment because there are real problems in getting costs down.

Secondly, there is managing a balanced grid system which can absorb the intermittency of wind. Every country that has gone into this business in a big way—Denmark is a good example—has found enormous difficulties. That is one reason why Denmark wants to have an interconnector with Britain for electricity. Intermittently there will be no charge at all for the electricity it supplies to us because it is a danger to it and an advantage to us. Spain has found enormous difficulties in going too fast and beyond the limits of engineering and electronic management in organising its grid when the wind blows too hard or too regularly.

Thirdly, there is the intermittency problem, which we all face. One day we will get over it because the storage will come at lower costs and intermittency problems will be much reduced. In the mean time, though, intermittency requires back-up, and back-up requires gas. There are other devices but gas-generated electricity is the area where most people in Europe, certainly in this country, think the gap can be filled. Far from being inconsistent, then, it seems to me utterly consistent that at this point the contribution of onshore wind should be restrained in the ways that are proposed.

As for the emissions angle, we know that we are driven by the European requirements for renewable energy, the formidable target of 15% of our energy from renewable sources by, I think, 2020, and Europe’s target of 40% by 2030. It is quite clear from the present pattern that we are not going to meet that target, and that even if we were to double the onshore wind power we still would not get near it, even if we took into account merely the emissions that emerge from the production of energy. In fact, the emissions that emerge from our capital consumption of energy per head, and from all the vast imports that we suck into this country from countries with much lower standards with very high emission content, have not fallen very much at all; indeed, many would argue that they have increased greatly since 1990.

So the real problem is that the present policy is not actually working. Those of us who are concerned about climate change look at what is happening throughout Europe, notice the contrary tendencies in delivering emission reduction—much more coal burning and a failure of the heavy concentration of wind around the islands, like the one that we are living on—and ask whether we should not begin to think about an entirely new and different policy. I see no inconsistency at all. No doubt we will debate this a little further on in the afternoon in more depth and detail.

I worked very closely with my friends in the Liberal Democrats in the last Government and enjoyed doing so, but I find their stance on this almost impossible to understand. They seem to be favouring a system that does not do much for emissions, distributes money in massive ways from the poor to the rich and apparently produces all kinds of tax advantages that are going to be exploited. This is one irony of the situation: even with this restraint, it looks to me as though we are going to have continuous investment in onshore wind, even without the subsidies, because of the big tax advantages that are built into the system. Should we not be looking at those before we take a position on the question of local powers and so on?

It is a puzzle to me that we do not look in a more balanced way at what is being done. It seems utterly consistent. I do not think that I want to be a supporter of anything that promotes further a system that is unfair to the poorest people and consumers, and which delivers considerable tax advantages to clever people and yet does not do very much at all for emission reduction. It seems to me to be a sad mixture, and it is about time that it was changed.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the noble Lord, Lord Teverson, for introducing this clause stand part debate, and to noble Lords who have contributed to it. I shall make a few comments. As we enter the third day of Committee, I am grateful to the Minister for having agreed to extend the Committee for an extra day. I think that this has arisen because we felt—I have probably made myself fairly clear on this—that the handling of the Bill has been slightly suboptimal, and we are expecting more amendments to come to us before Report. We are very grateful that we now have an opportunity to discuss those in Committee before then.

Today we move on to Part 4, which it is fair to say is the more controversial aspect. People on both sides of the Committee may have different views about the benefits or disbenefits of particular technologies, but we must strive to ensure that we have a good policy and governance regime that will help investors not to waste their money. One of our concerns is that any manifesto, no matter how good the drafters, is prepared relatively hastily and usually without a great deal of thought for the detail. Yet here we are, just months after that manifesto was put into print, hastily enacting some of the statements in it and I think that we are still lacking some of the detail.

--- Later in debate ---

[Viscount Ridley]

My Lords, I kept my powder dry on the general points until now, which ran the risk that some of the points I would like to make have been made, particularly by my noble friend Lord Howell, and very eloquently. I would like to encourage the Minister to stick to the manifesto promise to get rid of onshore wind subsidies, to stand up for consumers and not to do the bidding of what is, effectively, a crony capitalist industry addicted to state subsidies.

The Government wish to pursue decarbonisation without making energy either unaffordable or insecure. We have heard this many times as the principle behind both the Government’s and the Opposition’s stance, but, like the Minister, I am curious to know what the Opposition’s stance will be after this weekend. Wind simply does not help in this regard; it is not solving the trilemma at all. It is putting up energy costs, reducing energy security and failing to make a significant dent in emissions.

The fact is that the increased onshore wind production of recent years has failed to make any measurable reduction in carbon dioxide emissions, due to significant, intractable problems of intermittency, location and energy density. We know that the best way of cutting emissions is for gas to replace coal and, indeed, for coal to go to supra-critical use, which is much more efficient. That is not happening in this country because nobody wants to invest in new up-to-date combined cycle gas because wind is dumped on to the system at zero marginal cost. As a result, no new CCGTs are being built because the economics of operating them has been destroyed. I challenge those who support these amendments to give me a number in tonnes or percentages of emissions that have been reduced as a result of the wind power that has rolled out already. I cannot find such a number and it is impossible to say that it is significant at all.

I, too, like the noble and learned Lord, Lord Wallace of Tankerness, had a letter from a wind company saying that wind energy is clean, affordable and secure. I am sorry, but I do not think it is any of those things. It is not true to say that it is cheap. The industry keeps saying that it is the cheapest form of renewable energy, but that is wrong. We know hydro is cheaper, as the noble and learned Lord, Lord Wallace, said.

Besides, a lot of the cost of onshore wind is still hidden. The Department of Energy and Climate Change has not used a total-systems approach in its cost modelling. In other words, it does not factor in the costs of transmission, grid integration, back-up during periods of intermittency, and so forth. The department appears to understand this as it has recently commissioned Frontier Economics to undertake a study into the true costs of energy generation by wind. It would be wise for the Government to wait for the outcome of this research before providing any more financial support to onshore wind.

The wind industry is, as my noble friend Lord Howell said, a Hood Robin industry: it takes money disproportionately from the poor, for whom energy bills are a larger proportion of spending, and gives it largely to the rich, in the form of landowners or investors. A lot of the money in wind is sheltering from inheritance tax through business property relief, as we learnt in this morning’s papers, which is something only rich people need to do. Does the Minister share my amazement that this monster of regressive redistribution was invented by Ed Miliband, encouraged by the Lib Dems and may or may not be supported by Jeremy Corbyn’s Labour Party? This is yet another case where the Conservatives are standing up for ordinary people, while the left looks after the interests of the metropolitan rich.

It is just not true to say that onshore wind is clean. True, it emits no smoke or effluent here, but the rare earth metals in a wind turbine’s magnets, roughly a tonne of neodymium per turbine, are mined and refined in China in one of the most polluting industries on earth, and the steel in the turbine’s tower can only be made using coal.

We have not solved the problem of adding an intermittent source of supply to the electricity grid. The very large amounts of wind generation currently being added to the system are not solving the security problem. In fact, they are the problem. In other words, the greater the percentage of electricity from wind in the system, the more some other kind of quick-response generation is needed, and this often means keeping old, fossil-fuel stations going.

It is worth reiterating that the Secretary of State has confirmed that the UK has enough onshore wind projects in the pipeline to meet the 2020 renewables targets, so there is no need to offer any further financial incentives.

Finally, the noble and learned Lord, Lord Wallace, and, with respect to the previous amendment, the noble Lord, Lord Cameron, said that the wind industry needs certainty. Like me, the noble Lord, Lord Cameron, is a farmer. Farmers would have loved some certainty about the wheat price earlier this year. It plummeted, and we had no warning at all. To argue that this industry peculiarly needs certainty when others do not is not fair. Once a subsidy is in place, it should be possible to withdraw it. Otherwise, if we say that we are going to withdraw a subsidy, people will always respond that they have not had time to adjust to that. I hope the Minister will confirm that he will stand firm against this attempt to keep electricity more expensive, more unreliable and probably no less carbon-intensive.

[Lord Howell of Guildford]

My Lords, I declare my interests, as I did on earlier days in Committee, as president of the Energy Industries Council, chairman of the Windsor Energy Group and adviser to industries and investors concerned with energy as in the register. I echo what the noble Lord, Lord Foulkes, said earlier. The noble Lord, Lord Bourne, has been exceptionally helpful in the way he has circulated and kept us all up to date with the evolution of government thinking. I realise that this is a changing situation, and even when we have finished with this legislation, we will be looking at further changes in the pattern of energy and energy support, and in world, European and national perceptions of how best to move towards meeting the challenge of climate change and lowering emissions globally, which is itself a matter of constant debate.

The noble Lord, Lord Cameron, was right to say that investors need certainty. Of course they do. Investors always long for maximum certainty, minimum risk and nice returns. That is nirvana for investors, but when investors or their advisers are dealing with projects and commitments of finance that depend on government support and state subsidy, a certain degree of sagacity and caution is called for. I make a distinction between specific projects where one of the partners is the state or the Government. They must go forward in a legalised, contractual form and should not be departed from. It would be an appalling act of arbitrary sequestration for such things to change. It has happened, I am afraid, but it is not something I wish to see from a British Government. One expects the funds that have been promised by Governments to be given.

When it comes to a commitment to an apparently unending pattern of subsidy heading into the future, the noble and learned Lord, Lord Wallace, reminded us that the coalition Government had an idea that this sort of subsidy should end. When it comes to investing in something where you will depend on the continual supply of taxpayers’ money, sensible investors ought to be very cautious. Governments change, as my noble friend reminded us, and technological changes change the basis on which the original subsidy policy was evolved. Moods change, and—dare I say it?—even science changes. I would not go as far as Cardinal Wolsey, who lay on his deathbed saying, “Put not your trust in princes”, but there has to be a sensible assessment when an investment is profitable simply because taxpayers’ money is promised to it for a long period into the future. There has to be a sensible assessment by the investor, the entrepreneur and the project organiser of how it is going to stand up and how big a risk is being taken. It may be that people see that they can pop in with short-term investments and hope to get out before the policy changes, but that does happen, and a certain realism is required. I agree with the noble Lord, Lord Cameron, that ideally all investors would love total certainty about their returns for ever, regardless of the source.

The noble Lords who gave notice of their intention to oppose Clause 60 standing part of the Bill want subsidies to go on or feel that they should not have been curtailed in the way they have been, even though, as my noble friend Lord Ridley pointed out, the pipeline is full, which is language for saying that the amount of subsidy element that has been assigned for this has reached its peak in terms of political reality, common sense and our obligations, whether imposed through our Climate Change Act or through conformity with European objectives. Noble Lords think the subsidy is gone, but my question is: when will the subsidies cease? If this is a mature industry, at what point does a mature industry cease to need a very substantial degree of subsidy, quite regardless of the point we made earlier that the subsidy tends to end up in very well-lined pockets and costs a lot for those who can least afford it? As my noble friend Lord Ridley said, onshore wind electricity is still expensive. It is true that it is not expensive compared with offshore, but when you add in the roads, the system costs, the requirements for integration and balancing in a very complicated electricity system and all the other items that my noble friend itemised, we are not talking about cheap electricity. One day, it may be so; one day, onshore, and possibly offshore, will be able to get costs down to competitive rates, possibly to lower rates than anything that is likely to come out of the latest nuclear project from EDF at Hinkley, which has an enormously high rate for 35 years to come. I hope that long before then wind power electricity will be considerably cheaper than anything that EDF is planning, but that still will not make it cheap. We are heading for a major glut in gas production; we can already see that from the fall in oil prices. As gas prices are related to oil prices, the barrel of oil equivalent of the gas price will, for many years to come, be not at all expensive and probably low. Compared with all that, these renewable sources, which have their place, which must contribute and which I support, will remain expensive. In other words, someone has to pay for them.

Lastly, the noble Baroness, Lady Worthington, has alleged, I think along with others, that there is a contrast between the need to restrain further subsidies—not to halt the development of onshore wind, because if it can get its costs down and, as I mentioned earlier, if many investors believe that they see tax advantages in it, it will go on, even if the subsidies are withdrawn and we close off the renewables obligation completely— and the Government’s attitudes to fracking. I hardly dare mention fracking because almost anything one says in this very controversial area gets wildly distorted. If fracking proceeds in the UK—I say “if” because oil is at $50 and likely to become lower, with many people now talking about $25 and $30—the investment attraction of gas or oil extraction by hydraulic fracturing will, frankly, not be great. It could become an additional gas source to the many already available to us. There is LNG, obviously, and Norway is willing to pipe us a lot more gas, while even the Russians want to sell us gas direct through their Nord Stream pipeline extension. If all those ifs fall into place, we will have gas.