Offshore Wind Developments

Mark Lazarowicz Excerpts

Tuesday 6th January 2015 Westminster Hall

[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?

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

I congratulate the hon. Gentleman on securing the debate. Given that there are some technologies for which the Government are prepared to agree contracts for many decades into the future, does he agree that the Minister should indicate whether they will take a similar approach to renewables?

[Mr Weir]

I should perhaps introduce the hon. Gentleman to the hon. Member for Christchurch (Mr Chope), who mentioned nuclear energy, and they could have a small debate on that point, which I will come to shortly.

--- Later in debate ---

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

Thank you, Mr Gray, and I will bear in mind your comments about the length of our speeches.

I congratulate the hon. Member for Angus (Mr Weir), and his colleagues who approached the Backbench Business Committee, on raising this important issue. It is important for all sorts of reasons, not least that renewables, onshore and offshore wind in particular, provide a secure energy source in the control of this country and do not lead to dependence on less secure sources elsewhere in the world. Recently, volatility in energy price markets has reminded us how prices go up and down and that when we depend on other countries, we are clearly less secure.

Wind is a form of energy production that, as has been emphasised, is clean and contributes to our commitment to reduce carbon emissions. It also provides real employment opportunities. The hon. Gentleman referred to potential developments off the coast of Angus. I am not sure which constituency they are off—that depends on the starting point—but although they are not off my constituency, it is certainly among those that could benefit from developing offshore wind power off the east coast of Scotland. I take on board the points made about the potential elsewhere in the North sea as well.

Some time ago, the major Spanish offshore wind turbine production company, Gamesa, proposed a major plant in my constituency that could have brought in excess of 1,000 jobs to our area and the south-east of Scotland. The proposal now seems very much up in the air, however, and one reason for that is uncertainty about the direction of Government policy, along with uncertainty arising from international pressures that are beyond our Government’s control.

A real problem is certainly the lack of consistency and long-term vision to which my colleague on the Environmental Audit Committee, the hon. Member for Waveney (Peter Aldous), referred. A clear message and vision on the Government’s part is essential; there needs to be a clear long-term policy. The long-term support mechanism, the levy control framework, is an important issue that needs to be addressed if we are to see more investment in the offshore wind sector.

Another issue is the small budget available for the newer technologies such as offshore wind and marine. The size of the budget restricts development in the offshore wind sector and has a knock-on effect on other, newer technologies. In my constituency, we had the recent bad news about the closure of the Pelamis wave turbine plant, adding to other problems in the wave energy sector throughout the UK. Among the many complicated reasons for the Pelamis decision was long-term uncertainty.

Another problem when the budget is so small is that the more established technologies are much more likely than the less established ones to get what money is available. In effect, the limited budget is more likely to go to offshore wind, and therefore less likely to go to other technologies such as marine renewables. That is another effect of having only a small budget for newer renewable technologies.

[David Mowat]

The hon. Gentleman is the second speaker to talk about the need for consistency. I am sure that is exactly what the industry wants and needs, but in an industry whose business model relies on large amounts of subsidy, Government interaction in the process is reasonable. The industry must understand that, despite the desire for consistency, the Government are entitled to do their best to bring prices down to a level closer to grid parity—something we would all like to see.

[Mark Lazarowicz]

I do not disagree with some of what the hon. Gentleman says; in fact, he made a point I was about to make. I of course accept that we cannot subsidise any renewables technology at any price, simply because renewables are a good thing; but we also have to recognise that as such technologies develop and become more mature, the price reduces dramatically. We could end up in a vicious circle: if we do not support newer and initially more costly renewables technologies at the start, their price will never reduce and they will not become commercial, in relative terms, over a longer period. That comes back to the point about the need for long-term consistency and vision, and to the hon. Gentleman’s point about the Government’s approach.

Some renewables technologies will of course be more expensive initially. However, if we do not take up the immense opportunities available to develop them, nationally and internationally, other countries will do so and we will lose out. That is what happened with wind, when countries such as Denmark took over our position on engineering and exports. No doubt countries such as China will also take a leading role in renewables if we do not. What we have is a short-term strategy, not a long-term vision. I fully accept that the Government have taken some steps in the right direction, but they should do more. I hope the Minister will give a positive response to the suggestions made by the hon. Members for Angus and for Waveney, and others.

[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.