Infrastructure Bill [HL]

Lord Teverson Excerpts

Tuesday 14th October 2014 Grand Committee

[Lord Teverson (LD)]

My Lords, I very much support the amendments of my noble friend the Minister. The socialist in me would say that I do not see why individual landholders should have particular rights over ground more than 300 metres deep. It does not in any way disturb their properties above; 300 metres is a long way down. Certainly all shale gas, conventional gas or oil, geothermal or hot rocks geothermal extraction takes place below that level.

I thank my noble friend Lord Jenkin for his excellent exposition of geothermal; I can see that the exchange of information will be more than two-way in the future and he will quickly overtake me on this issue. There has been an uncertain legal position over the right to heat; how do you define heat? It is not a substance but a characteristic of substances that you then extract. These proposals make the situation absolutely clear to developers so that geothermal extraction can start to take place and investors can have some confidence in this form of energy.

I had a great experience earlier this month. I went to a quarry called Rosemanowes, near Penryn, some 10 miles away from my home. More than 20 years ago, the then DTI carried out some boring for geothermal experimentation there. Under DECC’s Energy Entrepreneurs Fund, an organisation called Geothermal Engineering Limited has been able to reuse that borehole by putting down another polypropylene pipe for 1.5 kilometres. Water was pumped down and came back up from that depth at a temperature of 60 degrees. The company reckoned that they could increase it to 90 degrees. Obviously, the further you go down the more you can increase the temperature. With the renewable heat incentive introduced by the Government, deep geothermal heat becomes possible. As my noble friend Lord Jenkin said, in the short term, extraction of heat from geothermal will be far more important than the potential for electricity generation; you have to go down to some 9 kilometres to increase the temperature to 200 degrees. With much smaller investments, there is potential to reuse existing boreholes —the noble Lord, Lord Whitty, said that there are 2,000 scattered around England—for geothermal heat. That is why I particularly welcome these new clauses.

I predict that in the medium to long-term future, geothermal will be far more important than shale gas. I also think that the shale gas revolution, which I am not against as a substitute for North Sea oil strategically in our energy security, is probably overhyped. However, if it can be made to work under exacting environmental standards, I do not want to get in its way. I therefore welcome these clauses and accept that they must be considered within the context of very strict environmental control and licensing outside this piece of legislation.

As to some of the other amendments, I agree with my noble friend Lord Jenkin and do not understand why there is an exclusion regarding geothermal energy. I agree also with the noble Baroness, Lady Young, that there should be some specific restrictions in the legislation. I am not sure the whole of her list should be included but we need to be firm about certain areas, and it would be useful if it were stated in primary legislation.

I very much agree with the objectives of the noble Lord, Lord Whitty, but am not sure about some of the detail. Why do we need a whole 12 months of monitoring beforehand, looking at base data? I am sure there are all sorts of technical reasons for that but I wonder if they go a little far sometimes in standing in the way of a development that can go ahead. I agree that there are a number of areas that we have to be very careful about. Whether those are put in secondary legislation or in the Bill, I am not sure. I congratulate my noble friend on bringing these amendments forward. They will do great things for our energy mix in future.

[The Duke of Montrose (Con)]

My Lords, I must apologise to the Committee as I have not read the consultation response and so am not up on all the issues that have been looked into. I declare an interest as an owner of land in Scotland.

As we venture into this field of land at a depth of more than 300 metres and questions of ownership and interest, I just wonder whether all aspects have been looked at. One thing that is quite useful is that all coal, petroleum and so on are in the power of the Government but there is a chance that, once a shale extraction site has been established and there are large channels out under various properties, people may find that something else can be developed within that property. That might be coal gasification or something like it at deeper levels. I do not know how deep coal mines go in this country. I hope, with any luck, that they are not more than 300 metres but some coal mines are very deep indeed. One has to think of what effect establishing the shale gas network will have on other interests within the land.

I was very interested in the noble Lord, Lord Whitty, talking about the knowledge of the Environment Agency in monitoring this. In fact, it may well be that the skills that my noble friend Lord Borwick referred to in being able to detect deep drilling will become rather more vital. Presumably the Environment Agency can tell that drilling is more than 300 metres deep. It would be perfectly possible to drill a hole 300 metres deep and then put out side-feelers at less than 300 metres, saying “Oh, but we drilled to the depth we needed to”. That is where more surface problems might arise.

I guess that the question of why heat is not included in the Scottish powers is that we did not reserve heat to Westminster when we passed the Scotland Act. No doubt the Minister will tell me what the correct answer is on that. The other thing I thought of is this: supposing this network is established at great cost and somebody then does something to damage it—certainly an earthquake would damage it but you could not blame anyone for that—what rights do the owners of a shale extraction business have to their assets that are underneath other people’s property?

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[Lord Teverson]

My Lords, when I saw this amendment, I thought that it looked remarkably familiar. It took me back to the trauma of four years of the Energy Bill, and the White Papers before it. However, I am actually very pleased to see it because it was an important principle of an amendment that we tabled at the time. To explain this a little more from where I stand, this is one of the areas where white is black and black is white in coal terms. Making coal plants far better for the world in their nitrous and sulphur emissions, which we all want, means that they can escape the rundown that is caused by the European directives that mean that these coal stations have to go. The way in which the emission performance standards were written into the Energy Bill means, effectively, that they have a free life up to about 2044, or something like that—if you can keep them going—when we can change the emissions performance standards and they lose their grandfather rights. That is the issue.

I have not gone into this matter in the great detail that the noble Baroness, Lady Worthington, has, but I can see that there are ways by which being able to participate in the capacity mechanism gives enough financial stability for the energy companies to take on the investment that would enable them to comply with the large plant combustion directive and its successors and so continue to be high carbon emitters in this economy for many years to come. That has to be a bad thing. I will not go all the way through the arguments that we had in previous debates but, clearly, it is bad in terms of emissions. Coal is not good in that regard. I am not absolutely against coal being part of the capacity mechanism. I would prefer it if it was not, but I do not think that it is absolutely fundamental. What worries me is that, by investing to comply with European directives, we then have them for a long time into the future, which we would not otherwise. That is bad, but, at a time when an argument has emanated from the Treasury wishing gas to be particularly strong, it works against gas investment as well. That is investment that the Government has rightly said is important for medium-term fuel strategy and clearly is half the level of carbon emissions.

Without going through all the arguments again, this sort of amendment gives a double win for the Government on greater incentives for gas investment in the medium term and on meeting its carbon targets more certainly as time goes on. I hope that the Minister and her colleagues will find a way to realise those objectives, which are from both sides of the coalition, by looking at this very carefully.

[Lord Whitty]

My Lords, I support the amendment and my noble friend. The arguments she made during the Energy Bill have come to pass—I do not think that Bill lasted for four years, as the noble Lord, Lord Teverson, said, but it felt like it. The reality is that while in America the arrival of shale gas has driven out coal, to the benefit of carbon emissions—this links back to previous debates—it has also had the knock-on effect that the world price of coal has gone down. Therefore, the economics of coal in the rest of the world now look much more attractive. The economics of continuing to run coal-fired stations look dramatically more attractive.

A number of things were not clear during the debate on the Energy Bill and when it passed, including the exact way in which the capacity mechanism would work and who would be eligible. Some of that has become clearer with the regulations that have gone through. We now know which plants are being put in as a capacity mechanism; it includes some pretty old coal plants. Plants that companies such as EDF gave a clear indication, seven or eight years ago, would close about two or three years from now are now being rolled forward. The way to square that would have been for the performance standard to apply to old coal as it does to new coal plants, but it does not.

While the noble Lord, Lord Jenkin, is right that we encourage all plants to fit this abatement of sulphur et cetera, we have not applied the new emission standard in the Energy Act to all this old coal plant. As I understand it, the purport of the amendment is to ensure that they will be treated in the same way as new plants. That would change the economics of coal.

The other thing that has changed since the debate on the Energy Bill is that it was assumed at that time by some of the modellers that, as was originally intended, there would be a ratcheting up of the carbon price floor. That would also have altered the relative price of keeping on old coal, to the detriment of the coal industry. Of course, within a few weeks of the Energy Bill receiving Royal Assent, the Chancellor announced that we are no longer going to ratchet up the carbon price floor. Leaving aside the principled arguments about the use of a carbon price floor, the effect of that is that the economics do not look the same as they did when we were discussing that Bill. Clearly they were expressed as looking that way by the Government. As the noble Lord, Lord Teverson, said, it could mean that old coal plant could be running for decades as a result of the emissions performance standards not fully applying and the abolition of the carbon floor price ratcheting up.

The amendment is intended to ensure that that is not the case. As the noble Lord, Lord Teverson, has said, the immediate effect is to make our energy supply more dependent on old coal and less attractive to investment in new gas. Therefore, the higher the level of old coal that qualifies under the capacity mechanism, the less investment there will be in new, efficient gas generation.

In all terms, the economics have been made more difficult. The environmental cost of carbon emissions could be substantial. I therefore hope that the Government at least understand part of that argument and recognise that they have to do something along the lines my noble friend is arguing in support of these amendments.

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[Baroness Worthington]

My Lords, it is approaching 6 pm and we have been here for some time, so I do not propose to speak for long on this amendment. However, it relates to another important aspect of the Energy Act that we need to revisit. The Act’s first sections are about the need for decarbonisation. Indeed, that was the justification for all the measures that followed; we were about to embark on a process of decarbonisation, which was why we needed contracts for difference and to make all the interventions that we did. However, those sections are very oddly worded and actually prevent a decarbonisation target from being set until criteria are met. In effect, rather than setting a decarbonisation target, the Act prevents one from being set and ties the hands of a future Government. That is not good lawmaking and certainly, if there is a change of Government, we would wish to set a decarbonisation target as soon as possible to clear up the mess, and give the signal to investors that this is the target we are aiming for them to meet and that that is how they should make their investments. The provision in the Act is inappropriate, and this amendment seeks to delete the part that restricts the setting of a decarbonisation target and ties the hands of future Governments. It has no place in the Energy Act.

If it is true that the Government’s intention is to use the Act to decarbonise, why would you then restrict the decarbonisation target from being set? It makes no sense. Let us be clear that the Minister rightly pointed to some investments coming into renewables. That is being driven by a legally binding European target that expires in 2020. That is just around the corner in energy investment terms. There is absolutely nothing in the Government’s policies that means we will continue to do renewables—nothing, at least, that is legally established. If we see the continuation of opposition to all renewables on the basis that they are more expensive—when, in fact, their costs are falling rapidly—we could see that whole industry being undermined and stopped, post 2020, in the absence of any other target at a European level.

Now, I do not happen to agree with targets being needed at a European level on renewables specifically, but we need decarbonisation targets. We need a clear plan and to create the right investment climate so that people can make the right decisions—not the wrong ones. This amendment is simply to allow us to do that. Should we have a Labour Government in 2015, we are absolutely clear that we would set a decarbonisation target. We seek to move this amendment so as not to have our hands tied by what is a very inappropriate piece of legislation in the previous Energy Act. I beg to move.

[Lord Teverson]

Since we are in Committee, why did the noble Baroness not just delete the whole of subsection (5) altogether?

[Baroness Worthington]

That is a good question. In the interests of taking out the most annoying part of the Act, we restrict ourselves to simply removing the part that restricts us in the timing of when a decarbonisation order could be set. That is the reason.

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He went on to tell his audience that this happy state of affairs “requires … political courage”. It is that political courage that I am looking for from the Minister tonight. I beg to move.

[Lord Teverson]

My Lords, I congratulate my noble friend on putting forward this excellent amendment. It would be very good if something like this appeared in the manifestos of however many parties we have in the general election next year.

This comes down to the stewardship of the proceeds of non-renewable resources. That is the point. My part of the world, Cornwall, was one of the richest mining areas in the 19th century. Over a period of about 60 years it had the equivalent of billionaires and some of the greatest exports. It was certainly one of the richest parts of the UK. Where is it now? It is one of the poorest EU regions and receives some of the highest forms of EU aid in the European Union. Not one penny of that income from tin, copper and arsenic was retained, so we have an example of how that generational opportunity was very soon dissipated and lost to today’s generation. Perhaps that is a very simplistic illustration, but it is a very real one. We have one small quasi-sovereign wealth fund in the UK: the Shetland Charitable Trust. There are issues around that, but that local authority has managed to keep some of the proceeds from North Sea oil.

The noble Lord, Lord Hodgson, made the point extremely well. As he said, the Norwegian fund is so large that for each citizen—some 5 million of them—it would be something like $200,000 within a three-year period.

Having spent the income from North Sea oil, I do not see that within a European context overall we are wildly ahead of some of our neighbours because we had that asset. Clearly it is a challenge to government, and I suspect that the Treasury is not so keen in this area, particularly when we are tackling a £90 billion per annum deficit. It may be that this is a difficult time to persuade the Treasury that we should start banking it rather than paying off the mortgage. However, I think this is an important area. It is intergenerational. We think more about those issues these days. You have to start somewhere with something like this. You start when you start to explore and use a new non-renewable resource, and unconventional gas or oil is one of those. The start may be modest but I hope that as we reduce the deficit in our public expenditure such a sovereign wealth fund can take up the slack and be of benefit to future generations.

[Baroness Maddock (LD)]

My Lords, I am happy to support this amendment. It is probably two weeks ago today that I was in Norway on an Inter-Parliamentary Union visit. We were privileged to have a presentation about the Norwegian sovereign wealth fund: how it started, where it was and the fact that during the recession we have all suffered, the sovereign wealth fund did not suffer. It was interesting to see it from that point of view, but we need to be aware of two things that are very different there.